Datasets:

Aukandseal

/

IRSpubs_2020-2024

like 0

Private Letter Ruling Number: 202001018 Internal Revenue Service August 5, 2019 DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE 1100 Commerce Street, MC 4920DAL Dallas, TX 75242 TAX EXEMPT AND GOVERNMENT ENTITIES DIVISION Number: 202001018 Release Date: 1/3/2020 Date: AUG 05 2019 EIN: Person to Contact: Identification Number: Telephone Number: Fax: UIL: 501.03-00 CERTIFIED MAIL - Return Receipt Requested LAST DAY FOR FILING A PETITION WITH THE TAX COURT: Dear *******: This is a final determination that you do not qualify for exemption from federal income tax under Internal Revenue Code (the "Code") section 501(a) as an organization described in Code section 501(c)(3), effective January 1, 20XX. Your determination letter dated November 14, 20XX is revoked. Our adverse determination as to your exempt status was made for the following reasons: Organizations described in I.R.C. § 501(c)(3) and exempt under section 501(a) must be both organized and operated exclusively for exempt purposes. You have not demonstrated that you are operated exclusively for charitable, educational, or other exempt purposes within the meaning of I.R.C. section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose. You have not established that you have operated exclusively for an exempt purpose. As such, you failed to meet the requirements of I.R.C. § 501(c)(3) and Treasury Regulation §1.501(c)(3)-1(a), in that you have not established that you were organized and operated exclusively for exempt purposes and that no part of your earnings inured to the benefit of private shareholders or individuals. Contributions to your organization are no longer deductible under section 170 of the Internal Revenue Code. Organizations that are not exempt under section 501 generally are required to file federal income tax returns and pay tax, where applicable. For further instructions, forms, and information please visit www.irs.gov. If you decide to contest this determination, you may file an action for declaratory judgment under the provisions of section 7428 of the Code in one of the following three venues: 1) United States Tax Court, 2) the United States Court of Federal Claims, or 3) the United States District Court for the District of Columbia. A petition or complaint in one of these three courts must be filed within 90 days from the date this determination was mailed to you. Please contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions for declaratory judgment. Please refer to the enclosed Publication 892 for additional information. You may write to the courts at the following addresses: United States Tax Court 400 Second Street, NW Washington, DC 20217 U.S. Court of Federal Claims 717 Madison Place, NW Washington, DC 20005 U.S. District Court for the District of Columbia 333 Constitution Ave., N.W. Washington, DC 20001 Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory judgment under section 7428 of the Internal Revenue Code. You may be eligible for help from the Taxpayer Advocate Service (TAS). TAS is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778. If you have any questions about this letter, please contact the person whose name and telephone number are shown in the heading of this letter. Sincerely yours, Maria Hooke Director, EO Examinations Enclosures: Publication 892 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Division Exempt Organizations Examination Date: 03/30/2018 Taxpayer ID number: Form: Tax periods ended: Person to contact: Employee ID number: Telephone number: Fax: Address: Manager's contact information: Employee ID number Telephone number: Response due date: CERTIFIED MAIL. -- Return Receipt Requested Dear *******: Why you're receiving this letter If you agree If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. We'll issue a final adverse letter determining that you aren't an organization described in IRC Section 501(c)(3) for the periods above. If you disagree 1. Request a meeting or telephone conference with the manager shown at the top of this letter. 2. Send any information you want us to consider. 3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information. The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For your protest to he valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't apply now that we've issued this letter. 4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the IRS. If you're considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals. If we don't hear from you If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final adverse determination letter. Contacting the Taxpayer Advocate Office is a taxpayer right The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778. Additional information You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person shown at the top of this letter. Sincerely, Maria Hooke Director, Exempt Organizations Examinations Enclosures: Form 886-A Form 6018 ISSUE Whether the tax-exempt status of ******* as an organization described in section 501(c)(3) should be revoked, effective January 1, 20XX, due to the following: a. ******* was engaged in for profit activities that were not properly reported; b. More than an insubstantial part of ******* activities were in furtherance of a nonexempt purpose; c. ******* was operated for benefit of private interests, rather than public interests; and d. The net earnings of ******* inured to the benefit of ******* and other insiders. FACTS ******* (*******) was incorporated pursuant to the Non-Profit Corporation Law in the state of in 20XX. According ******* Articles of Incorporation, provided with the Application for Recognition of Exemption-Form 1023, the corporation was formed to establish a charitable organization to operate exclusively for nonprofit purposes, including distributing contributions to other organizations operating as 501(c)(3) organizations. ******* F-1023 Application for Exemption was signed by ******* CPA on 6/17/XX. ******* were the officer/directors at that time. The application stated that 0% of net income was to be donated to 501(c)(3) charitable organizations. In 20XX the ******* State Liquor board had their own requirements in order to obtain a liquor license, 0% of gross receipts from liquor sales had to be donated to a 501(c)(3) org. ******* Articles of Incorporation, also included with the application, state no part of earnings shall inur to the benefit of any director, trustee, creator or organizer; the corporation is authorized to pay "reasonable" compensation and make payments in furtherance of its charitable purpose; the corporation shall not engage in political or legislative activities; and the corporation shall not directly or indirectly carry on any activity which would prevent it from obtaining exemption from federal income taxation as a non-profit. As part of ******* application for recognition of exemption, the organization submitted a narrative description of their activities in which it was stated that ******* "plans to hold convention type rallies where motorcycle enthusiasts come together to share their common interests." Events "are designed to raise money for different charities that have been approved by the Internal Revenue Service as 501(c)(3) organizations." The organization was granted exemption under section (c)(3) on letter 1045 dated 11/14/20XX. Their foundation status was granted under section 509(a)(1). ******* Form 990 Return for Organizations exempt from Income Tax for the year ended December 31, 20XX states that the organization's mission or most significant activities are " a week-long experience catering to individuals whom are active in riding motorcycles activities for these individual including rides, vendors, entertainment, food, drinking and camping " Their program services listed on Part III of the 990 described the organization's mission as "to raise funds through a series of various activities during ******* Bike Week. Other fun rides are schedule for the participation of avid motor cycle enthusiasts. We also help to provide support to other local charities." ******* Form 990 for the year ended December 31, 20XX and 20XX reiterate the statements reported on the 20XX return. ******* Forms 990 Returns of Organization Exempt from Tax for the years ending December 31, 20XX affirm that the organization did not become aware of an excess benefit transaction with a disqualified person from a prior year. ******* Forms 990 for the year ending December 31, 20XX report that with the exception of *******, vice president, who received $0 in 20XX from the organization, the organization officer's received no reportable compensation from the organization, from related organizations or any estimated other (non-reportable) compensation from the organization and related organizations. Furthermore, the returns convey that none of the officers received or accrued compensation from any unrelated organization or individual for services rendered to the organization. There are no directors listed on the Form 990. ******* is the president of ******* for all examined years. ******* has signature authority over the bank accounts as well as the accounts for related for-profit organizations, ******* (*******), ******* and ******* He has complete control over every aspect of the businesses. In 20XX he received wages from ******* ******* does not have signature authority over the corporate bank accounts. She is listed as the ******* Vice President in part VII of the F-990 and received $0 from ******* in 20XX. As of 1/1/20XX, she is a shareholder in *******. ******* does not have signature authority over the corporate bank accounts. He is listed as the Treasurer in part VII of the F-990 and no compensation is reported. He resides in ******* and he and his son received "consulting fees" from ******* which were described as services provided on Farmland formerly owned by *******, and as of 20XX owned by ******* (0%) and ******* parents (0%). ******* became a shareholder in ******* on 1/1/20XX. ******* is a for-profit corporation, which files on a fiscal year in relationship to the annual ******* BIKE WEEK event (which occurs in *******). ******* and ******* are owners of this entity. Prior to 20XX, ******* reported the receipts and expenses related to the Bike Week event according to the taxpayer. The history of ******* is intertwined with that of *******. In November 20XX, ******* established and purchased the rights to ******* BIKE WEEK from ******* owned and operated by ******* and *******, the original filers of the F-1023 for ******* (20XX). The assets, contracts and trade names were purchased under a promissory note signed by ******* for $0.00. The directors of ******* were ******* (0 shares of *******), ******* (0 shares of ******* under the name *******) & ******* (0 shares of *******). Total outstanding shares of ******* were 0 shares. In January 20XX, ******* resigned and ******* represented by *******, as president, promised to pay $0 (principle & interest) for ******* 0 shares of ******* due on May 1, 20XX at 0% interest. ******* also agreed to sell their shares at the same terms for 0% interest 1. The redeemed stock was re-sold as follows: 1 An audit of ******* in 20XX (included in the administrative files and reference below) includes comments by the Revenue Agent: "0 of the original 0 partners want out of the arrangement and are in process of being bought out while 0 others are buying into the venture. As the original 0 partners remain on the note, shares of these 0 individuals are held in Trust, pending payoff. The 0 new partners have contributed capital. There were some questions during the interview concerning structure of the buy-outs. Agent has requested additional documentation and will consider. *******, too, is interested in selling as the initial investment has created enormous debt. The company has generated minimal profit, if any, since the acquisition. The company pays no salary to the owner (owner living off income from his ******* firm and liquidation of investments). Company also pays no rent as it is operated out of same facility used by owner's ******* firm. Note terms with the original seller were renegotiated in 20XX, reducing the annual payment from $0 to $0. ******* states $0 of the $0 is to be designated interest for extension of the note. Revisions to the note were not documented in writing. Agent takes issue with the $0 interest designation as the additional $0 payment is due irrespective of the outstanding principal. As a result the effective interest rate on the note incrementally increases from 0% to in excess of 0% in later years. As actual interest rates are decreasing with the depressed economy, and because no documentation exists specifying treatment of the $0, Agent will consider the amount as additional principal." Evidence of the renegotiation which is "not documented in writing" was not produced during the current audit. However intangibles were addressed in the ******* Audit and therefore, will not be addressed here. CHART DELETED The existence of ******* is not disclosed on the F-990, with the exception of a comment as an asset on Part IX (Balance Sheet) of the 20XX F-990 [DUE FROM ******* $0). Related entities are not disclosed on line 34 part IV of the F-990 which asks the question "was the organization related to any tax exempt or taxable entity?" No compensation to officers from related organizations was reported on Part VII of the F-990. The 20XX and 20XX F-1120s for ******* were audited in 20XX. The agent made the following statements in her interview notes in regard to the relationship between ******* and *******: "Liquor laws in ******* stipulate liquor can't be provided unless a special events liquor license is obtained. Per *******, the company is ineligible to apply for the license, and as is typical, affiliates it(s)elf with a charity which acquires the event license. In turn, ******* contracts with the charity for right to use the license. In exchange, the company gives the charity 0% of the liquor proceeds." This comment in the ******* audit file was discussed during the audit of ******* and according to the power of attorney, ******* is the charity described in this statement. It was also explained at that time that ******* liquor laws no longer have this requirement (this statement is in dispute now). According to the current bookkeeper, *******, former CPA *******, suggested that ******* consolidate the operations for BIKE WEEK under *******. In addition, to *******, ******* is 0% owner of ******* and ******* None of these organizations were disclosed on the ******* F-990. The audit of ******* conducted in 20XX, also identified ******* as the owner of *******, described as "a design firm". The Revenue Agent states that ******* pays no rent "as it is operating out of the same facility used by (the) owner's design firm". In 20XX (and 20XX-20XX), *******, *******, ******* and ******* are still operating out the same address: *******, *******. However in 20XX, ******* paid $0 to ******* for the use of ******* and *******, as well as $0 for "consulting" which is comprised of compensation for ******* and ******* services according to ******* (******* and ******* wages are paid by *******). ******* which operates a year-round business paid $0 according to *******. PRIVATE BENEFIT/INURMENT: Over the course of the audit, transactions deducted as expenses on the ******* F-990 were examined. ******* possessed a ******* credit card #0 under the name of "*******/*******". ******* made all the payments on the credit card for the year ending 12/31/20XX. The total payments made in 20XX by ******* were $0. There were no records to support whether any of these charges were attributable to ******* nor that they are "in furtherance of. In addition, there was no evidence that ******* repaid ******* for any of these disbursements. Furthermore, ******* never claimed to have made any repayments to *******. The individual transactions were input into QuickBooks accounting software and coded as business expenses and eventually deducted from income on the ******* F-990 for the year ending December 31, 20XX. As stated earlier, in 20XX ******* was involved in zero annual events which had previous been reported on the Form 1120 for *******. ******* Bike Week took place in the spring running primarily over 0 days. ******* is a one-day event which takes place in November. In previous years, ******* handled ******* for a ******* dealership in *******. Despite the periodic activities, the transactions paid for and deducted by ******* occurred consistently over a 0 month period. Among the transactions appearing on the credit card statement were at least one trip for *******, his mother,*******, and his ******* children, ******* and *******; road trip expenses for ******* to a motorcycle event in ******* near his parent's home; and a trip to *******. There are numerous meals and entertainment expenses which are not supported with documentation of a business purpose. There are transactions related to the improvements to a residence owned by *******. There are dental payments and vehicle payments for which there are no supporting documents related to business purpose. In addition to the credit card payments, direct payments were made from the ******* bank accounts; a small business checking account #0 (*******-0) and a ******* checking account #0 (*******-0). These payments included $0 to *******. The memos on these checks reference ******* and *******, properties owned by ******* and his family. Check memo statements and QuickBook descriptions indicate the checks were for TV, Internet and telephone services. According to statements and records, ******* was occupied by ******* and ******* was occupied by ******* and *******, ******* corporations. Direct payments were also made to ******* ($0), ******* ($0), ******* ($0), ******* (0), ******* ($0), ******* ($0), ******* ($0) and the ******* ($0). None of these payments have been tied to a charitable activity. Check#0 dated 4/30/XX to ******* in the amount of $0 is referenced as "*******" for ******* and dated 4/30/20XX. An additional check for $0 was paid by ******* in June for "sprinkler repair". The location is a residence owned by ******* and *******. Check #0 dated 1/6/XX to ******* in the amount of $0 is referenced as "0". Note the bill was paid in 20XX, but was included as a deduction in 20XX as Repairs & Maintenance. ******* is a cash-based taxpayer according to the form 990. Check #0 dated 5/8/XX to ******* Services in the amount of $0 is referenced as "Landscaping @*******". Additional payments to ******* are made from ******* personal account and an account under the name of *******. Check #0 dated 1/5/XX to ******* in the amount of $0.00 is referenced as "*******". Note the bill was paid in 20XX, but was included as a deduction in 20XX as "Other Expenses" and then a journal entry was made which included this amount to reduce an income category entitled "commissions". ******* is a cash-based taxpayer according to the form 990. Check #0 dated 1/9/XX to ******* in the amount of $0.00 is referenced as "*******". Other information reviewed stated that it is for a house remodel interior authorized by *******. Note the bill was paid in 20XX, but was included as a deduction in 20XX as Repairs & Maintenance. ******* is a cash based taxpayer according to the form 990. Two checks totaling$0.00 were paid to *******. It was explained that ******* acts as a management company for some of ******* properties. Check #0 dated 3/20/XX for $0.00 is reference as "******* Repair". Other information reviewed indicated it was for "paint, shutters-******* repairs". A second check #0 dated 12/24/20XX in the amount of $0.00 referenced "******* house-labor-*******". Other information reviewed stated "*******, *******". *******. *******, is a residential property purchased by ******* Corporation in 20XX. ******* eventually uses this property as his residence. Note, he is paying for pool maintenance in 20XX on a monthly basis. Two checks totaling $0.00 were paid to *******. The first check #0 dated 2/14/20XX for $0.00 was referenced as "concrete pad install". Receipt #0 dated 2/14/XX was a bill for $0.00. Handwritten on the bill was "paid $0k per *******". The second check #0 dated 4/18/XX was for 0.00 and referenced "Concrete pad Ck #0 $0.00". ******* explained that the concrete pad was needed to park a trailer used for the various events and that it would have removed when the property was sold. Zero payments were made to the *******. The website states that payments are for Water & Sewer, Waste & Recycling, and Gas. The checks indicate that they are for "*******, *******" and they total $0.00. Total payments made by ******* for the benefit of ******* or individuals and organizations associated with ******* were calculated to be $0.00. In addition, ******* made $0,00 in payments to *******, ******* in 20XX. Some of these payments were identified as "consulting fees" and/or "rent". The taxpayers were requested to provide the methods used to calculate these payments, but none were provided. It was stated, however, that ******* and ******* salaries were paid by *******, ******* with funds provided by *******. ******* made payment of $0.00 to ******* in 20XX. A payment of $0.00 in July 20XX was identified as "dividend payback". NON-EXEMPT PURPOSE: As explained above, according to the bookkeeper, the festival activities formerly reported by for-profit entity, *******, were consolidated under the non-profit *******. ******* had formerly been responsible for collecting donations from designated charitable "rides" and turning the donations over to various other 501(c)(3) organizations. In 20XX, ******* F-990 reported $0.00 in charitable donations. According to QuickBooks records these donations are as follows: CHART DELETED The transactions making up the return item were traced to the bank records, support for three of these transactions (totaling $0.00 -- 0% of the deduction) could not be identified and was not provided by the taxpayer. In addition, Go Motorcycles, to which a donation of $0.00 was reported, is not a 501(c)(3) organization. In 20XX, ******* reported gross receipts of $0.00. The $0.00 deducted as charitable contributions represents 0% of the funds reported as collected in conjunction with the Bike Week festivities and the two smaller events held during the year by *******. ******* reported $0 in deductible expenses that year, which included the "charitable" donations, as well as ******* personal expenses totaling $0.00, $0.00 to ******* and $0.00 to *******. The 20XX F-990 for ******* reported an excess of revenues less expenses of $0.00 in 20XX. Previous and subsequent returns reflect similar circumstances. Furthermore, the 20XX ******* Form 990 reported beginning "net assets or fund balances" of $0.00 and ending balances of $0.00. Previous and subsequent F-990s reflect similar increases. In addition, the balance sheet on the F-990 reported loans to related organizations. The ending balance due from ******* was reported to be $0.00. The balance due from ******* was reported as $0.00 and another $0.00 was due from *******. ******* three major expenses reported in 20XX were reported as (1) entertainment expenses (0% of total expenses), (2) equipment rental expenses (0%) and (3) occupancy (0%). The entertainment expenses are consistent with information provided on the website "Out and About in *******, *******" which reported that the 20XX event included concerts with national known entertainers including ******* & the *******, ******* and *******. In addition, the website listed other events such as factory demo rides, vendors and attractions. Attractions in 20XX included *******, *******, *******, *******, ******* and a "*******" special appearance. The only charitable activities identified were seven "charity rides". The organizers also offered campground rental and RV space to attendees for a fee. ( EXHIBIT A ) The occupancy expense included rental of the ******* facility, but it also included monthly office rent paid to related corporation, *******. These were monthly payments totaling $0.00 for facilities shared with other ******* organizations. In 20XX, the ******* Bike Week/******* website advertised the ******* event with links to events, vendors, camping and rally gear. The only mention of a possible charitable connection was the ******* logo on the homepage. ( EXHIBIT B ) LAW Internal Revenue Code Section 501(c)(3) describes corporations exempt from income tax as, "Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which 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. " Treas.Reg. 1.501(c)(3)-1 explains that, "in order to be exempt as an organization described in section 501(c)(3), an organization must be both organized and operated exclusively for one or more of the purposes specified in such section. If an organization fails to meet either the organizational test or the operational test, it is not exempt." The regulations provide both an organization test, as well as an operational test which must be satisfied in order for an organization to maintain its exempt status. Treas.Reg. 1.501(c)(3)-1(c)(1) is one of four tests that an organization must pass in order to sustain its status under section 501(c)(3). This section states that the organization must engage primarily in activities which accomplish one or more of the exempt purposes specified under the code section. This section provides that an organization will be regarded as "operating exclusively" for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of the exempt purposes specified under IRC Section 501(c)(3). The term "exclusively" has not been construed to mean "solely" or "absolutely without exception". An organization that engages in exempt activities qualifies for exempt status so long as those nonexempt activities are only incidental and less than substantial. Better Business Bureau of Washington, D.C. v. United States, 326 U.S. 2789 (1945); Copyright Clearance Center v. Commissioner, 79 T.C. 793, 804 (1982). In Better Business Bureau of Washington D.C., the Supreme Court held that the presence of a single non-exempt purpose, if substantial in nature, will prevent exemption regardless of the number or importance of truly exempt purposes. The Court held that a trade association had an "underlying commercial motive" that distinguished its educational program from that carried on by a university. Treas.Reg. 1.501(c)(3)-1(d)(2) defines the term charitable is used in section 501(c)(3) in its generally accepted legal sense and is, therefore, not to be construed as limited by the separate enumeration in section 501(c)(3) of other tax-exempt purposes which may fall within the broad outlines of charity as developed by judicial decision. Such term includes: Relief of the poor and distressed or of the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening of the burdens of Government; and promotion of social welfare by organizations designed to accomplish any of the above purposes, or (i) to lessen neighborhood tensions; (ii) to eliminate prejudice and discrimination; (iii) to defend human and civil rights secured by law; or (iv) to combat community deterioration and juvenile delinquency. Treas.Reg. 1.501(c)(3)-1(c)(2) explains that an exempt organization must not allow its net earnings to inure to the benefit of private shareholder or individuals. If an organization fails to comply with any of these requirements, it will fail the operation test and lose its IRC Section 501(c)(3) exemption. Harding Hospital, Inc. v. U.S., 505 F.2d 1068, 1072 (6th Cir. 1974). I.R.C. § 503 explains that an organization operating under Section 501(c) shall not be exempt if it has engaged in a prohibited transaction. Such transactions include (1) lends any part of its income or corpus, without the receipt of adequate security and a reasonable rate of interest, to; (2) pays any compensation, in excess of a reasonable allowance for salaries or other compensation for personal services actually rendered, to: (3) makes any part of its services available on a preferential basis to; (4) makes any substantial purchase of securities or any other property, for more than adequate consideration in money or money's worth, from; (5) sells any substantial part of its securities or other property, for less than an adequate consideration in money or money's worth, to; or (6) engages in any other transaction which results in a substantial diversion of its income or corpus to; the creator of such organization (if a trust); a person who has made a substantial contribution to such organization; a member of the family (as defined in section 267(c)(4)) of an individual who is the creator of such trust or who has made a substantial contribution to such organization; or a corporation controlled by such creator or person through the ownership, directly or indirectly, of 50 percent or more of the total combined voting power of all classes of stock entitled to vote or 50 percent or more of the total value of shares of all classes of stock of the corporation. I.R.C. § 511 imposes a tax on unrelated business income of organizations described in Section 501(c). I.R.C. § 512 describes "unrelated business taxable income" as the gross income derived by any organization from any unrelated trade or business (as defined in section 513) regularly carried on by it, less the deductions allowed by this chapter which are directly connected with the carrying on of such trade or business. unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization's exemption TAXPAYER'S POSITION The taxpayer states that the activities engaged in by the organization are all related to charity. ARGUMENT/GOVERNMENTS POSITION The taxpayer's opinion, as expressed during the audit, is that the activity involving charitable rides is sufficient to render the entire social event to be organized for charitable purposes. They illustrate this position with annual donations to various 501(c)(3) organizations, only a portion of which have been supported with adequate records. However, the government argues that the events organized in the name of ******* are primarily social in nature and that the funds donated to charitable organizations are merely donations. The principle purpose as stated on the Form 990 is to provide an experience for motorcycle enthusiasts, which includes: rides, vendors, entertainment, food, drinking and camping. The program services activity reported as "raising funds" and supporting "local charities" is a minor and insignificant matter when compared with the entire experience. Furthermore, under IRC § 1.501(c)(3) an organization is not described in this section "if it serves a private interest more than incidentally". The private interest doctrine is described in IRS General Counsel's Memorandum issued in 1987, which noted that: An organization is not described in section 501(c)(3) if it serves a private interest more than incidentally.... A private benefit is considered incidental only if it is incidental in both a qualitative and a quantitative sense. In order to be incidental in a qualitative sense, the benefit must be a necessary concomitant of the activity which benefits the public at large, i.e., the activity can be accomplished only by benefitting certain private individuals.... To be incidental in a quantitative sense, the private benefit must not be substantial after considering the overall public benefit." In the case of ******* the private benefit is not incidental. The Bike Week event, as well as the other events, benefit the shareholders of *******, ******* and his related organizations, as well as motorcycle enthusiasts who wish to pay to participate in the activities. The organization does not serve a broad charitable class. In this case, the incidental benefit is provided to the local charities. CONCLUSION: As of 1/1/20XX, ******* is determined to be organized and operated for primarily private benefit and activities social in nature rather than exclusively for an exempt purpose as described under IRC 501(c)(3). As a result, the organization exempt status is revoked as of that date.

Private Letter Ruling Number: 202006004 Internal Revenue Service September 18, 2019 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202006004 Release Date: 2/7/2020 Index Number: 671.00-00, 671.02-00, 1014.00-00, 2041.03-00, 2511.00-00, 2514.03-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:04 PLR-108365-19 Date: September 18, 2019 Dear ********: This letter responds to your authorized representative's letter of April 11, 2019, requesting rulings under §§ 671, 2501, 2514, 2041 and 1014 of the Internal Revenue Code. The facts submitted and representations made are as follows: On Date, Grantor 1 and Grantor 2 (collectively, Grantors) created Trust, an irrevocable trust, for the benefit of Grantors and the following class of beneficiaries: Grantors' issue, Brother and Friend (collectively, the Beneficiaries). A corporate trustee located in State 1 is Trustee of Trust. Trust is a domestic legal trust sited in State 1 and, pursuant to the Trust agreement, is governed by the laws of State 1. The Grantors represent that State 1 law provides that the interest of the grantor in a trust governed by State 1 law and in compliance with that law is not subject to claims of the creditors of the grantor, unless the grantor transferred property with an intent to defraud a specific creditor. Further, the Trust instrument provides that the interest of a beneficiary (including the Grantors) may not be voluntarily or involuntarily transferred before the payment or delivery of such interest to the beneficiary by the Trustee, and that the Trust shall not be liable for or subject to the debts of any beneficiary of such trust. Grantors are married and reside in State 2, a community property state. Trust provides that all property transferred to Trust is community property. Moreover, any and all property transferred to Trust prior to the death of the first Grantor to die (the Predeceased Grantor) is and shall retain its character as community property. If and only if the Power of Appointment Committee is in existence, then, until the Distribution Date ( i.e., the death of the survivor of Grantors), Trustee must distribute such amounts of net income and principal to each Grantor and/or the Beneficiaries as directed by the Power of Appointment Committee or Grantors, as follows: (1) Trustee, pursuant to a writing executed by either of the Grantors and by a majority of the other members of the Power of Appointment Committee, shall distribute to the Beneficiaries or Grantors such amounts of income or principal as the Power of Appointment Committee appoints (Grantor's Consent Power); (2) Trustee, pursuant to a writing executed by all then serving members of the Power of Appointment Committee other than Grantors, shall distribute to or for the benefit of the Beneficiaries or Grantors such amounts of income or principal as the Power of Appointment Committee appoints (Unanimous Member Power); and (3) Each Grantor has the power, in a non-fiduciary capacity, at any time and from time to time, to appoint such amount of the principal to any one or more of the Beneficiaries as such Grantor deems advisable to provide for the health, education, maintenance, or support of the Beneficiaries (Grantor's Sole Power). The Power of Appointment Committee may appoint income or principal equally or unequally to or for the benefit of either or both of Grantors, or any one or more of the Beneficiaries of Trust to the exclusion of others. Any net income not distributed by Trustee will be accumulated and added to principal. If the Power of Appointment Committee ceases to exist prior to the termination of the trust, Trustee may, pursuant to a written instrument, at any time distribute to the Beneficiaries and/or Grantors such amounts of the net income or principal of Trust (including the whole thereof) as Trustee determines. In determining whether to make any such distribution to the Beneficiaries and/or Grantors, Trustee shall be required to take into consideration the distributee's own income and property and any other income or property which any individual provides or is obligated to provide. Additionally, the Power of Appointment Committee and Trustee have the power until the Distribution Date to appoint all or any portion of Trust to any one or more Qualified Trusts. Qualified Trust is defined as a trust that benefits one or more members of Grantors' Family and complies with certain other technical requirements. Grantors' Family is defined in Trust as Grantors, the issue of each of Grantors' parents and all charities. The committee may exercise this power under the Grantor's Consent Power and the Unanimous Member Power. The initial members of the Power of Appointment Committee are Grantors, Guardian 1 acting on behalf of Daughter, Guardian 2 acting on behalf of Son, Brother and Friend. Daughter and Son, while minors, are considered members of the Power of Appointment Committee acting through their Guardians. If at any time the Power of Appointment Committee includes three or more members, other than Grantors, then all the members of the Power of Appointment Committee including Grantors may by unanimous vote, at any time and from time to time, add one or more members of the Power of Appointment Committee provided that such members are Beneficiaries (i.e., a descendant of Grantors) and, provided further that, if any one or more of them is a minor, the members of the Power of Appointment Committee shall by unanimous vote designate an individual to serve as guardian for such minor. The members of the Power of Appointment Committee in their capacities as such shall not serve or act in a fiduciary capacity. The Power of Appointment Committee ceases to exist upon the first to occur of the Distribution Date or the date the Power of Appointment Committee is reduced to fewer than two (2) members other than Grantors. Any distribution from Trust to either Grantor prior to the death of the Predeceased Grantor will be a distribution of community property. Any distribution of income or principal from Trust to a beneficiary prior to the death of the Predeceased Grantor, whether made by the Power of Appointment Committee, the Trustee, or a Grantor's exercise of the powers retained by Grantors will be a distribution of community property. With respect to the lifetime powers of appointment retained by Grantors, prior to the death of the Predeceased Grantor, any such appointment by Grantor of the principal of Trust will be funded equally from each Grantor's share of community property. Each Grantor consents to all distributions by the other Grantor. With respect to the testamentary power of appointment retained by the Predeceased Grantor, any appointment by the Predeceased Grantor shall be funded solely from the Predeceased Grantor's one-half interest in the property of Trust. Upon the death of the Predeceased Grantor, Trustee shall distribute the Predeceased Grantor's entire one-half interest in the trust property to or for the benefit of any person or entity or entities, other than the Predeceased Grantor's estate, the Predeceased Grantor's creditors, or the creditors of the Predeceased Grantor's estate, as Predeceased Grantor appoints by will. Upon the death of the Predeceased Grantor, any remaining property held in Trust in the Predeceased Grantor's one-half interest that has not been effectively appointed by will, shall be distributed **** percent ( **** %) to each serving member of the Power of Appointment Committee other than Grantors' issue, and any remaining balance shall be distributed, per stirpes, to Grantors' issue who are then living (subject to restrictions in the trust for beneficiaries article). If none, such remaining balance shall be disposed of under an alternate disposition article which provides for distributions to more distant relatives. Upon the death of the Grantor surviving the Predeceased Grantor (the Surviving Grantor), Trustee shall distribute the balance of Trust to or for the benefit of any person or entity, other than the Surviving Grantor's estate, the Surviving Grantor's creditors, or the creditors of the Surviving Grantor's estate, as Surviving Grantor appoints by will. Upon the death of the Surviving Grantor, any remaining property held in Trust that has not been effectively appointed by will shall be distributed **** percent ( **** %) to each serving member of the Power of Appointment Committee other than Grantors' issue, and any remaining balance shall be distributed, per stirpes, to Grantors' issue who are then living subject to restrictions in the trust for beneficiaries article. If none, such remaining balance shall be disposed of under an alternate disposition article which provides for distributions according to applicable state law. No distribution by the Trustee to a beneficiary, and no distribution to a beneficiary pursuant to the exercise of a power of appointment granted hereunder, shall discharge any individual's legal obligation to support the beneficiary. You have requested the following rulings: 1. As long as the Power of Appointment Committee is serving, no portion of the items of income, deductions, and credits against tax of Trust shall be included in computing under § 671 the taxable income, deductions, and credits of Grantors or any member of the Power of Appointment Committee. 2. The contribution of property to Trust by Grantors will not be a completed gift subject to federal gift tax. 3. Any distribution of property by the Power of Appointment Committee from Trust to either Grantor will not be a completed gift, subject to federal gift tax, by any member of the Power of Appointment Committee. 4. Any distribution of property by the Power of Appointment Committee from Trust to any beneficiary of Trust, other than to either Grantor, will not be a completed gift subject to federal gift tax, by any member of the Power of Appointment Committee. 5. No member of the Power of Appointment Committee upon his or her death will include in his or her estate any property held in Trust because such member is deemed to have a general power of appointment within the meaning of § 2041 over property held in Trust. 6. The basis of all community property in Trust on the date of the death of the Predeceased Grantor will receive an adjustment in basis to the fair market value of such property at the date of death of the Predeceased Grantor. RULING 1 Section 671 provides that where it is specified in subpart E of part I of subchapter J that the grantor or another person shall be treated as the owner of any portion of a trust, there shall then be included in computing the taxable income and credits of the grantor or the other person those items of income, deductions, and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter 1 in computing taxable income or credits against the tax of an individual. Section 672(a) provides, for purposes of subpart E, the term "adverse party" means any person having a substantial beneficial interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust. Sections 673 through 677 specify the circumstances under which the grantor is treated as the owner of a portion of a trust. Section 673(a) provides that the grantor shall be treated as the owner of any portion of a trust in which the grantor has a reversionary interest in either the corpus or the income therefrom, if, as of the inception of that portion of the trust, the value of such interest exceeds five (5) percent of the value of such portion. Section 674(a) provides, in general, that the grantor shall be treated as the owner of any portion of a trust in respect of which the beneficial enjoyment of the corpus or the income therefrom is subject to a power of disposition, exercisable by the grantor or a nonadverse party, or both, without the approval or consent of any adverse party. Section 674(b) provides that § 674(a) shall not apply to the powers described in § 674(b) regardless of whom held. Section 674(b)(3) provides that § 674(a) shall not apply to a power exercisable only by will, other than a power in the grantor to appoint by will the income of the trust where the income is accumulated for such disposition by the grantor or may be so accumulated in the discretion of the grantor or a nonadverse party, or both, without the approval or consent of any adverse party. Section 674(b)(5) provides that § 674(a) shall not apply to a power to distribute corpus to or for a beneficiary, provided that the power is limited by a reasonably definite standard. Under § 675 and applicable regulations, the grantor is treated as the owner of any portion of a trust if, under the terms of the trust agreement or circumstances attendant on its operation, administrative control is exercisable primarily for the benefit of the grantor rather than the beneficiary of the trust. Section 676(a) provides that the grantor shall be treated as the owner of any portion of a trust, whether or not he is treated as such owner under any other provision of part I, subchapter J, chapter 1, where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a nonadverse party, or both. Section 677(a) provides, in general, that the grantor shall be treated as the owner of any portion of a trust, whether or not he is treated as such owner under § 674, whose income without the approval or consent of any adverse party is, or, in the discretion of the grantor or a nonadverse party, or both, may be (1) distributed to the grantor or the grantor's spouse; (2) held or accumulated for future distribution to the grantor or the grantor's spouse; or (3) applied to the payment of premiums on policies of insurance on the life of the grantor or the grantor's spouse. Section 678(a) provides that a person other than the grantor shall be treated as the owner of any portion of a trust with respect to which: (1) such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself, or (2) such person has previously partially released or otherwise modified such a power and after the release or modification retains such control as would, within the principles of §§ 671-677, inclusive, subject a grantor of a trust to treatment as the owner thereof. Accordingly, based solely on the facts submitted and the representations made, we conclude that an examination of Trust reveals none of the circumstances that would cause either Grantor to be treated as the owner of any portion of Trust under § 673, 674, 676, or 677 as long as the Power of Appointment Committee remains in existence. Because none of the members of the Power of Appointment Committee has a power exercisable by himself to vest trust income or corpus in himself, none shall be treated as the owner of Trust under § 678(a). We further conclude that an examination of Trust reveals none of the circumstances that would cause administrative controls to be considered exercisable primarily for the benefit of either of the Grantors under § 675. Thus, the circumstances attendant on the operation of Trust will determine whether either of the Grantors will be treated as the owner of any portion of Trust under § 675. This is a question of fact, the determination of which must be deferred until the federal income tax returns of the parties involved have been examined by the office with responsibility for such examination. RULINGS 2 AND 3 Section 2501(a)(1) provides that a tax is imposed for each calendar year on the transfer of property by gift during such calendar year by any individual, resident or nonresident. Section 2511(a) provides that the gift tax applies whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. Section 25.2511-2(b) of the Gift Tax Regulations provides that a gift is complete as to any property, or part thereof or interest therein, of which the donor has so parted with dominion and control as to leave in the donor no power to change its disposition, whether for his own benefit or for the benefit of another. But if upon a transfer of property (whether in trust or otherwise) the donor reserves any power over its disposition, the gift may be wholly incomplete, or may be partially complete and partially incomplete, depending upon all the facts in the particular case. Accordingly, in every case of a transfer of property subject to a reserved power, the terms of the power must be examined and its scope determined. Section 25.2511-2(b) provides an example, where the donor transfers property to another in trust to pay the income to the donor or accumulate it in the discretion of the trustee, and the donor retains a testamentary power to appoint the remainder among the donor's descendants. The regulation concludes that no portion of the transfer is a completed gift. However, if the donor had not retained a testamentary power of appointment, but instead provided that the remainder should go to X or his heirs, the entire transfer would be a completed gift. Section 25.2511-2(c) provides that a gift is incomplete in every instance in which a donor reserves the power to revest the beneficial title in himself or herself. A gift is also incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed or ascertainable standard. Under § 25.2511-2(e), a donor is considered as himself having a power if it is exercisable by the donor in conjunction with any person not having a substantial adverse interest in the disposition of the transferred property or the income therefrom. A trustee, as such, is not a person having an adverse interest in the disposition of the trust property or its income. Section 25.2511-2(f) provides that the relinquishment or termination of a power to change the beneficiaries of transferred property, occurring otherwise than by death of the donor, is regarded as the event which completes the gift and causes the gift tax to apply. Section 25.2511-2(g) provides that if a donor transfers property to himself as trustee (or to himself and some other person, not possessing a substantial adverse interest, as trustees), and retains no beneficial interest in the trust property and no power over it except fiduciary powers, the exercise or nonexercise of which is limited by a fixed or ascertainable standard, to change the beneficiaries of the transferred property, the donor has made a completed gift and the entire value of the transferred property is subject to the gift tax. Section 25.2511-2(e) does not define "substantial adverse interest." Section 25.2514-3(b)(2) provides, in part, that a taker in default of appointment under a power has an interest that is adverse to an exercise of the power. Section 25.2514-3(b)(2) also provides that a co-holder of a power is considered as having an adverse interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself, his estate, his creditors, or the creditors of his estate. In Estate of Sanford v. Commissioner, 308 U.S. 39 (1939), the taxpayer created a trust for the benefit of named beneficiaries and reserved the power to revoke the trust in whole or in part, and to designate new beneficiaries other than himself. Six years later, in 1919, the taxpayer relinquished the power to revoke the trust, but retained the right to change the beneficiaries. In 1924, the taxpayer relinquished the right to change the beneficiaries. The Court stated that the taxpayer's gift is not complete, for purposes of the gift tax, when the donor has reserved the power to determine those others who would ultimately receive the property. Accordingly, the Court held that the taxpayer's gift was complete in 1924, when he relinquished his right to change the beneficiaries of the trust. A taxpayer's retention of a power to change the beneficial interests in a trust causes the transfer to the trust to be incomplete for gift tax purposes, even though the power may be defeated by the actions of third parties. Goldstein v. Commissioner, 37 T.C. 897 (1962); See also Estate of Goelet v. Commissioner, 51 T.C. 352 (1968). In this case, Grantors each retained the Grantor's Consent Power over the income and principal of Trust. Under § 25.2511-2(e), a donor is considered as himself having a power if it is exercisable by him in conjunction with any person not having a substantial adverse interest in the disposition of the transferred property or the income therefrom. Pursuant to Trust, upon the Predeceased Grantor's death, the Predeceased Grantor's remaining interest in Trust (i.e., one-half) that the Predeceased Grantor did not effectively appoint pursuant to his or her limited testamentary power of appointment shall be distributed out of, and shall no longer be subject to, the terms of Trust. Consequently, upon the death of the Predeceased Grantor, the Power of Appointment Committee will no longer possess any powers over the property transferred to Trust by the Predeceased Grantor. Under § 25.2514-3(b)(2), a co-holder of a power is only considered as having an adverse interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself, his estate, his creditors, or the creditors of his estate. Accordingly, upon the Predeceased Grantor's death, the Power of Appointment Committee members would not be takers in default and do not have interests adverse to the Predeceased Grantor under § 25.2514-3(b)(2) and for purposes of § 25.2511-2(e). They are merely co-holders of the power at the time of the Predeceased Grantor's death. Therefore, the Predeceased Grantor is considered as himself or herself possessing the power to distribute income and principal to any beneficiary because he or she retained the Grantor's Consent Power. The retention of the power with respect to the Predeceased Grantor causes the transfer of property to Trust to be wholly incomplete for federal gift tax purposes. Likewise, after the Predeceased Grantor's death, the Surviving Grantor continues to retain the Grantor's Consent Power over the balance of Trust. The Committee members are not takers in default for purposes of § 25.2514-3(b)(2). They are merely co-holders of the power. The Power of Appointment Committee ceases to exist upon the death of the Surviving Grantor. Accordingly, upon the Surviving Grantor's death, the Power of Appointment Committee members do not have interests adverse to the Surviving Grantor under § 25.2514-3(b)(2) and for purposes of § 25.2511-2(e). Therefore, the Surviving Grantor is considered as himself or herself possessing the power to distribute income and principal to any beneficiary because he or she retained the Grantor's Consent Power. The retention of the power with respect to the Surviving Grantor causes the transfer of property to Trust to be wholly incomplete for federal gift tax purposes. If the Committee ceases to exist, the Trustee has the power to distribute net income or principal to the Beneficiaries. However, the Trustee's power is not a condition precedent to each Grantor's Consent Power. Each Grantor's Consent Power over income and principal is presently exercisable and not subject to a condition precedent. Thus, the Trustee's power to distribute net income and principal does not cause the transfer of property to be complete with respect to the interests in Trust for federal gift tax purposes. Therefore, each Grantor is considered as possessing the power to distribute income or principal to any beneficiary himself or herself because he or she retained the Grantor's Consent Power. Each Grantor also retained the Grantor's Sole Power over the principal of Trust. Under § 25.2511-2(c), a gift is incomplete if and to the extent that a reserved power gives the donor the power to name new beneficiaries or to change the interests of the beneficiaries as between themselves unless the power is a fiduciary power limited by a fixed or ascertainable standard. In this case, the Grantor's Sole Power gives each Grantor the power to change the interests of the beneficiaries. Even though each Grantor's power is limited by an ascertainable standard ( i.e., health, education, maintenance and support) each Grantor's power is not a fiduciary power. Accordingly, the retention of the Grantor's Consent Power and the Grantor's Sole power causes the transfer of property to Trust to be incomplete for federal gift tax purposes. If the Power of Appointment Committee ceases to exist, the Trustee, in its fiduciary capacity, also has the power to distribute principal to one or more beneficiaries. The powers of the Trustee are not conditions precedent to the Grantors' powers. Each Grantor's Sole Power over principal is presently exercisable and not subject to a condition precedent. Accordingly, each Grantor retains dominion and control over the principal of Trust until the Trustee exercises his or her power to appoint principal. See Goldstein v. Commissioner, 37 T.C. 897 (1962). Thus, the Trustee's powers to distribute principal do not cause the transfer of property to be complete with respect to the remainder in Trust for federal gift tax purposes. Accordingly, the retention of the Grantor's Consent Power and the Grantor's Sole Power causes the transfer of property to Trust to be incomplete for federal gift tax purposes. Further, each Grantor retained either Predeceased Grantor's Testamentary Power or Surviving Grantor's Testamentary Power (depending on the order of deaths) to appoint the property in Trust to any persons, other than to the Grantor's estates, Grantor's creditors, or the creditors of Grantor's estates. Under § 25.2514-3(b)(2), the retention of a testamentary power to appoint the remainder of a trust is considered a retention of dominion and control over the remainder. Accordingly, the retention of this power causes the transfer of property to Trust to be incomplete with respect to the remainder for federal tax purposes. Finally, the Power of Appointment Committee members possess the Unanimous Member Power over income and principal. This power is not a condition precedent to Grantors' powers. Each of Grantors' powers over the income and principal are presently exercisable and not subject to a condition precedent. Each Grantor retains dominion and control over the income and principal of Trust until the Power of Appointment Committee members exercise their Unanimous Member Powers. Accordingly, the Unanimous Member Power does not cause the transfer of property to be complete with respect to the income interest for federal gift tax purposes. See Goldstein v. Commissioner, 37 T.C. 897 (1962); Estate of Goelet v. Commissioner, 51 T.C. 352 (1968). Accordingly, based on the facts submitted and the representations made, we conclude that the contribution of property to Trust by either Grantor is not a completed gift subject to federal gift tax. Any distribution from Trust to either Grantor prior to the death of the Predeceased Grantor is a distribution of community property. Any distribution from Trust to either Grantor is merely a return of each Grantor's property. Therefore, we conclude that any distribution of property from Trust by the Power of Appointment Committee to either Grantor will not be a completed gift subject to federal gift tax, by any member of the Power of Appointment Committee. Further, upon the Predeceased Grantor's death, the fair market value of the Predeceased Grantor's interest in Trust is includible in the Predeceased Grantor's gross estate for federal estate tax purposes. Moreover, upon the Surviving Grantor's death, the fair market value of the balance in Trust is includible in the Surviving Grantor's gross estate for federal estate tax purposes. RULINGS 4 AND 5 Section 2514(b) provides that the exercise or release of a general power of appointment created after October 21, 1942, shall be deemed a transfer of property by the individual possessing such power. Section 2514(c) provides that the term "general power of appointment" means a power which is exercisable in favor of the individual possessing the power (possessor), the possessor's estate, the possessor's creditors, or the creditors of the possessor's estate. Section 25.2514-1(c)(1) provides that a power of appointment is not a general power if by its terms it is exercisable only in favor of one or more designated persons or classes other than the possessor or his creditors, or the possessor's estate or the creditors of the estate or expressly not exercisable in favor or the possessor or his creditors, or the possessor's estate or the creditors of his estate. Section 2514(c)(3)(A) provides that, in the case of a power of appointment created after October 21, 1942, if the power is exercisable by the possessor only in conjunction with the creator of the power, such power is not deemed a general power of appointment. Section 2514(c)(3)(B) provides, that in the case of a power of appointment created after October 21, 1942, if the power is not exercisable by the possessor except in conjunction with a person having a substantial interest in the property subject to the power, which is adverse to the exercise of the power in favor of the possessor, such power shall not be deemed a general power of appointment. For purposes of § 2514(c)(3)(B), a person who, after the death of the possessor, may be possessed of a power of appointment (with respect to the property subject to the possessor's power) which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the possessor's power. Section 25.2514-3(b)(2) provides, in part, that a co-holder of a power has no adverse interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power. However, a co-holder of a power is considered as having an adverse interest where he may possess the power after the possessor's death and may exercise it at that time in favor of himself, his estate, his creditors, or the creditors of his estate. Thus, for example, if X, Y, and Z held a power jointly to appoint among a group of persons which includes themselves and if on the death of X the power will pass to Y and Z jointly, then Y and Z are considered to have interests adverse to the exercise of the power in favor of X. Similarly, if on Y's death the power will pass to Z, Z is considered to have an interest adverse to the exercise of the power in favor of Y. Section 2041(a)(2) provides that the value of the gross estate shall include the value of all property to the extent of any property with respect to which the decedent has at the time of death a general power of appointment created after October 21, 1942, or with respect to which the decedent has at any time exercised or released such a power by a disposition which is of such nature that if it were a transfer of property owned by the decedent, such property would be includible in the decedent's gross estate under §§ 2035 to 2038, inclusive. Under § 2041(b)(1), the term "general power of appointment" is defined,, in relevant part, to mean a power which is exercisable in favor of the decedent, his estate, his creditors, or the creditors of his estate. Section 2041(b)(1)(C)(i) provides, however, that in the case of a power of appointment created after October 21, 1942, if the power is not exercisable by the decedent except in conjunction with the creator of the power, such power is not deemed a general power of appointment. Section 2041(b)(1)(C)(ii) provides, however, that in the case of a power of appointment created after October 21, 1942, if the power is not exercisable by the decedent except in conjunction with a person having a substantial interest in the property, subject to the power, which is adverse to the exercise of the power in favor of the decedent--such power shall not be deemed a general power of appointment. For purposes of § 2041(b)(1)(C)(ii), a person who, after the death of the decedent, may be possessed of a power of appointment (with respect to the property subject to the decedent's power) which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the decedent's power. Section 20.2041-3(c)(2) of the Estate Tax Regulations provides, in part, that a co-holder of a power of appointment has no adverse interest merely because of his joint possession of the power nor merely because he is a permissible appointee under a power. However, a co-holder of a power is considered as having an adverse interest where he may possess the power after the decedent's death and may exercise it at that time in favor of himself, his estate, his creditors, or the creditors of his estate. Thus, for example, if X, Y, and Z held a power jointly to appoint among a group of persons which includes themselves and if on the death of X the power will pass to Y and Z jointly, then Y and Z are considered to have interests adverse to the exercise of the power in favor of X. Similarly, if on Y's death the power will pass to Z, Z is considered to have an interest adverse to the exercise of the power in favor of Y. The powers held by the Power of Appointment Committee members under the Grantor's Consent Power are powers that are exercisable only in conjunction with the creators (i.e., either Grantor, or the survivor thereof). Accordingly, under §§ 2514(b) and 2041(a)(2), the Power of Appointment Committee members do not possess general powers of appointment by virtue of possessing these powers. Further, the powers held by the Power of Appointment Committee members under the Unanimous Member Power are not general powers of appointment for purposes of §§ 2514(b) and 2041(a)(2). As in the examples in §§ 25.2514-3(b)(2) and 20.2041-3(c)(2), the Power of Appointment Committee members have substantial adverse interests in the property subject to this power. Accordingly, any distribution made from Trust to a beneficiary, other than to either Grantor, pursuant to the exercise of these powers, the Grantor's Consent Power and the Unanimous Member Power, are not gifts by the Power of Appointment Committee members. Instead, such distributions are gifts by Grantors. Based upon the facts submitted and representations made, we conclude that any distribution of property by the Power of Appointment Committee from Trust to any beneficiary of Trust, other than Grantors, will not be a completed gift subject to federal gift tax, by any member of the Power of Appointment Committee. Further, we conclude that any distribution of property from Trust to a beneficiary other than Grantors will be a completed gift by Grantors. Trust provides that all distributions of the net income or principal prior to the death of the Predeceased Grantor, whether made by the Power of Appointment Committee, the Trustee or a Grantor's exercise of the powers retained by such Grantor, to a beneficiary is and shall be a distribution out of community property. Accordingly, distributions to beneficiaries, other than Grantors, will be gifts made one-half by each Grantor. Finally, we conclude that the powers held by the Power of Appointment Committee members are not general powers of appointment for purposes of § 2041(a)(2) and, accordingly, the possession of these powers by the Power of Appointment Committee members will not cause Trust property to be includible in any Committee member's gross estate under § 2041(a)(2). RULING 6 Section 1014(a) provides, in part, that, except as otherwise provided in this section, the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent will, if not sold, exchanged, or otherwise disposed of before the decedent's death by such person, be the fair market value of the property at the date of the decedent's death. Section 1014(b)(6) provides that, in the case of decedents dying after December 31, 1947, property which represents the surviving spouse's one-half share of community property held by the decedent and the surviving spouse under the community property laws of any State, is considered, for purposes of § 1014(a), to have been acquired from or to have passed from the decedent if at least one-half of the whole of the community interest in such property was includible in determining the value of the decedent's gross estate. Section 2036(a) provides that the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for adequate and full consideration in money or money's worth), by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death (1) the possession or enjoyment of, or the right to the income from, the property, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom. Section 2038(a)(1) provides that the value of the decedent's gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for adequate and full consideration in money or money's worth), by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in whatever capacity exercisable) by the decedent alone or by the decedent in conjunction with any other person (without regard to when or from what source the decedent acquired such power), to alter, amend, revoke, or terminate, or where any such power is relinquished during the three-year period on the date of the decedent's death. Grantors are married and reside in State 2, a community property state. Trust provides that all transferred property to Trust is community property. Moreover, any and all property transferred to Trust prior to the death of the Predeceased Grantor shall be a distribution of community property. As concluded above, upon the death of each Grantor, his or her respective interest in Trust as either the Predeceased Grantor or the Surviving Grantor will be includible in his or her respective gross estate for federal estate tax purposes. Accordingly, based upon the facts submitted and representations made, we conclude that the basis of all community property in Trust on the date of death of the Predeceased Grantor will receive an adjustment in basis to the fair market value of such property at the date of death of the Predeceased Grantor. Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express no opinion the tax consequences of the trust provisions permitting Trustee to distribute income or principal to trustees of other Qualified Trusts (decanting). This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative. Sincerely, Lorraine E. Gardner Lorraine E. Gardner Senior Counsel, Branch 4 Office of Associate Chief Counsel (Passthroughs & Special Industries) Enclosures (2): Copy for § 6110 purposes Copy of this letter cc: cc:

Private Letter Ruling Number 202422003 Internal Revenue Service February 28, 2024 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202422003 Release Date: 5/31/2024 Index Number: 9100.00-00, 1400Z.02-00 [Third Party Communication: Date of Communication: Month DD, YYYY] Person To Contact: ID No. Telephone Number: Refer Reply To: CC:ITA:B05 PLR-117018-23 Date: February 28, 2024 Dear ******: This ruling responds to Taxpayer's request dated Date 1. Specifically, Taxpayer requests relief under §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations, granting an extension of time to make a timely election under § 1.1400Z-2(a)-1(a)(2)(i) of the Income Tax Regulations to self-certify as a Qualified Opportunity Fund (QOF), as defined in § 1400Z-2(d) of the Internal Revenue Code (Code). This letter is being issued electronically in accordance with Rev.Proc. 2020-29, 2020-21 I.R.B. 859. A paper copy will not be mailed to Taxpayer. FACTS Taxpayer represents the facts as follows: Taxpayer is a limited liability company organized under the laws of State on Date 2. Taxpayer is treated as a partnership for Federal income tax purposes. Taxpayer uses the accrual method of accounting and the calendar year as its taxable year. Taxpayer was formed for the purpose of investing in real and personal property and operating as a QOF as defined in § 1400Z-2(d)(1) on Date 2. A second operating agreement was executed on Date 3 to reflect the entity's name change and additional members. The revised operating agreement also clearly states that the Taxpayer was formed for the purpose of operating as a QOF. Shortly after the Taxpayer was formed, all three investors made capital contributions to the Taxpayer, which were intended to be qualifying investments under § 1400Z-2 and the regulations thereunder. Taxpayer engaged Accounting Firm to prepare and file its necessary tax filings for Year 1, including its partnership return and its Form 8996, Qualified Opportunity Fund. Accounting Firm had previously provided services to Taxpayer's related affiliates in prior tax periods. Accounting Firm was aware of Taxpayer's intent to be treated as a QOF. Accounting Firm timely filed Form 7004, Application for Automatic Extension of Time for the Taxpayer's initial period in Year 1, extending the filing deadline to Date 4. Accounting Firm began preparing the return prior but failed to complete and file the return by Date 4 due to administrative error. In Year 2, a member of Taxpayer received a notice that Taxpayer and its EIN as included on the member's Form 8997 were not associated with a certain QOF. Taxpayer's Manager reached out to Accounting Firm for assistance. Upon review, Accounting Firm discovered that it had not completed and filed Taxpayer's Year 1 partnership return. Once it became clear that the return had not been filed, Taxpayer discussed the issue with Accounting Firm and sought assistance from Accounting Firm 2. Based on these discussions, Taxpayer requested this Private Letter Ruling. LAW AND ANALYSIS Section 1400Z-2(e)(4)(A) of the Internal Revenue Code directs the Secretary to prescribe regulations for rules for the certification of QOFs. Section 1.1400Z2(d)-1(a)(2) of the Income Tax Regulations provides the rules for an entity to self-certify as a QOF. Section 1.1400Z2(d)-1(a)(2)(i) provides that the entity electing to be certified as a QOF must do so annually on a timely filed return in such form and manner as may be prescribed by the Commissioner of Internal Revenue in the Internal Revenue Service forms or instructions, or in publications or guidance published in the Internal Revenue Bulletin. To self-certify as a QOF, a taxpayer must file Form 8996, Qualified Opportunity Fund, with its tax return for the year to which the certification applies. The Form 8996 must be filed by the due date of the tax return (including extensions). The information pr ovided indicates that Taxpayer did not file its Form 8996 by the due date of its income tax return due to the Accounting Firm's failure to timely file Taxpayer's Year 1 return. Because § 1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for an entity to self-certify as a QOF, these elections are regulatory elections, as defined in section 301.9100-1(b). Sections 301.9100-1 through 301.9100-3 provide the standards that the Commissioner will use to determine whether to grant an extension of time to make a regulatory election. Section 301.9100-3(a) provides that requests for extensions of time for regulatory elections (other than automatic extensions covered in § 301.9100-2) will be granted when the taxpayer provides evidence (including affidavits) to establish that the taxpayer acted reasonably and in good faith and the grant of relief will not prejudice the interests of the Government. Under § 301.9100-3(b) a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer requests relief before the failure to make the regulatory election is discovered by the Service, or reasonably relied on a qualified tax professional, and the tax professional failed to make, or advise the taxpayer to make, the election. However, a taxpayer is not considered to have reasonably relied on a qualified tax professional if the taxpayer knew or should have known that the professional was not competent to render advice on the regulatory election or was not aware of all relevant facts. In addition, § 301.9100-3(b)(3) provides that a taxpayer is deemed not to have acted reasonably and in good faith if the taxpayer-- (i) seeks to alter a return position for which an accuracy-related penalty has been or could be imposed under § 6662 at the time the taxpayer requests relief, and the new position requires or permits a regulatory election for which relief is requested; (ii) was fully informed in all material respects of the required election and related tax consequences but chose not to make the election; or (iii) uses hindsight in requesting relief. If specific facts have changed since the original deadline that make the election advantageous to a taxpayer, the Service will not ordinarily grant relief. Section 301.9100-3(c)(1) provides that the Commissioner will grant a reasonable extension of time to make the regulatory election only when the interests of the Government will not be prejudiced by the granting of relief. Section 301.9100-3(c)(1)(i) provides that the interests of the Government are prejudiced if granting relief would result in a taxpayer having a lower tax liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made (taking into account the time value of money). Section 301.9100-3(c)(1)(ii) provides that the interests of the government are ordinarily prejudiced if the taxable year in which the regulatory election should have been made or any taxable year that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under § 6501(a) before the taxpayer's receipt of a ruling granting relief under this section. Based on the facts and information submitted and the representations made, we conclude that Taxpayer has acted reasonably and in good faith, and that the granting of relief would not prejudice the interests of the government. Accordingly, based solely on the facts and information submitted, and the representations made in the ruling request, we grant Taxpayer an extension of 60 days from the date of this letter ruling to file a Form 8996 for Year 1 to make the election to self-certify as a QOF under section 1400Z-2 and section 1.1400Z2(d)-1(a)(2)(i). The election must be made on a completed Form 8996 attached to the Taxpayer's tax return for Year 1. This letter ruling grants an extension of time to file a Form 8996 for Year 1. This letter ruling does not grant an extension of time to file Taxpayer's Form 1065 for Year 1. This ruling is based upon facts and representations submitted by Taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. This office has not verified any of the material submitted in support of the request for a ruling. However, as part of an examination process, the Service may verify the factual information, representations, and other data submitted. Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express no opinion, either express or implied, concerning whether any investments made into Taxpayer are qualifying investments as defined in § 1.1400Z2 (a)-1(b)(34) or whether Taxpayer meets the requirements under § 1400Z-2 and the regulations thereunder to be a QOF. Further, we express no opinion on whether any interest owned in any entity by Taxpayer qualifies as qualified opportunity zone property, as defined in section 1400Z-2(d)(2), or whether such entity would be treated as a qualified opportunity zone business, as defined in section 1400Z-2(d)(3). We express no opinion regarding the tax treatment of the instant transaction under the provisions of any other sections of the Code or regulations that may be applicable, or regarding the tax treatment of any conditions existing at the time of, or effects resulting from, the instant transaction. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. A copy of this letter must be attached to any income tax return to which it is relevant. Alternatively, taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter ruling. The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. In accordance with the Power of Attorney on file with this office, a copy of this letter is being faxed to your authorized representative. Sincerely, Kyle C. Griffin Senior Counsel, Branch 5 Office of Associate Chief Counsel (Income Tax & Accounting) cc:

Treasury Decision 9973 Internal Revenue Service 2023-11 I.R.B. 557 26 CFR 1.1502-80(j): Special rules for application of section 951(a)(2)(B) to distributions to which section 959(b) applies T.D. 9973 DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 Single-Entity Treatment of Consolidated Groups for Specific Purposes AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. SUMMARY: This document contains final regulations that treat members of a consolidated group as a single United States shareholder in certain cases for purposes of section 951(a)(2)(B) of the Internal Revenue Code (the "Code"). The document finalizes proposed regulations published on December 14, 2022. The final regulations affect consolidated groups that own stock of foreign corporations. DATES: Effective date: These regulations are effective on February 23, 2023. Applicability date: These regulations apply to taxable years for which the original consolidated return is due (without extensions) after February 23, 2023. FOR FURTHER INFORMATION CONTACT: Austin Diamond-Jones, (202) 317 - 5085 (Corporate) and Julie T. Wang, (202) 317 - 6975 (Corporate) regarding section 1502 and the amendments to§1.1502 - 80, and Joshua P. Roffenbender, (202) 317 - 6934 (International) regarding sections 951, 951A, and 959. SUPPLEMENTARY INFORMATION: Background On December 14, 2022, the Department of the Treasury ("Treasury Department") and the IRS published a notice of proposed rulemaking (REG-113839 - 22) in the Federal Register (87 FR 76430) under sections 1502 and 7805(a) of the Code (the "proposed regulations"). No comments were received from the public in response to the notice of proposed rulemaking. No public hearing was requested or held. This Treasury Decision adopts the proposed regulations as final regulations without modification. Applicability Date The final regulations apply to taxable years for which the original consolidated return is due (without extensions) after February 23, 2023. See section 1503(a). Special Analyses I. Regulatory Planning and Review -- Economic Analysis These final regulations are not subject to review under section 6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Treasury Department and the Office of Management and Budget regarding review of tax regulations. II. Regulatory Flexibility Act Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that these final regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that these final regulations apply only to corporations that file consolidated Federal income tax returns, and that such corporations almost exclusively consist of larger businesses. Specifically, based on data available to the IRS, corporations that file consolidated Federal income tax returns represent only approximately two percent of all filers of Forms 1120 (U.S. Corporation Income Tax Return). However, these consolidated Federal income tax returns account for approximately 95 percent of the aggregate amount of receipts provided on all Forms 1120. Therefore, these final regulations would not create additional obligations for, or impose an economic impact on, small entities. Accordingly, the Secretary certifies that the final regulations will not have a significant economic impact on a substantial number of small entities. III. Section 7805(f) Pursuant to section 7805(f), the proposed regulations (REG - 113839 - 22) preceding these final regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business, and no comments were received. IV. Unfunded Mandates Reform Act Section 202 of the Unfunded Mandates Reform Act of 1995 requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a state, local, or tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. These final regulations do not include any Federal mandate that may result in expenditures by state, local, or tribal governments, or by the private sector in excess of that threshold. V. Executive Order 13132: Federalism Executive Order 13132 (entitled "Federalism") prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on state and local governments, and is not required by statute, or preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. These final regulations do not have federalism implications and do not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the Executive order. Drafting Information The principal authors of these regulations are Joshua P. Roffenbender, Office of Associate Chief Counsel (International), and Jeremy Aron-Dine and Gregory J. Galvin, Office of Associate Chief Counsel (Corporate). However, other personnel from the IRS and the Treasury Department participated in their development. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Adoption of 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. In§1.1502 - 80, reserved paragraph (i) and paragraph (j) are added to read as follows:§1.1502-80 Applicability of other provisions of law. * * * * * (i) [Reserved] (j) Special rules for application of section 951(a)(2)(B) to distributions to which section 959(b) applies --(1) Single United States shareholder treatment. In determining the amount described in section 951(a)(2)(B) that is attributable to distributions to which section 959(b) applies, members of a group are treated as a single United States shareholder (within the meaning of section 951(b) (or section 953(c)(1)(A), if applicable)) for purposes of determining the part of the year during which such shareholder did not own (within the meaning of section 958(a)) the stock described in section 951(a)(2)(A). The purpose of this paragraph (j) is to facilitate the clear reflection of income of a consolidated group by ensuring that the location of ownership of stock of a foreign corporation within the group does not affect the amount of the group's income by reason of sections 951(a)(1)(A) and 951A(a). (2) Examples. The following examples illustrate the application of paragraph (j)(1) of this section. For purposes of the examples in this paragraph (j)(2): M1 and M2 are members of a consolidated group of which P is the common parent (P group); each of CFC1, CFC2, and CFC3 is a controlled foreign corporation (within the meaning of section 957(a)) with the U.S. dollar as its functional currency (within the meaning of section 985); the taxable year of all entities is the calendar year for Federal income tax purposes; and a reference to stock owned means stock owned within the meaning of section 958(a). These examples do not address common law doctrines or other authorities that might apply to recast a transaction or to otherwise affect the tax treatment of a transaction. (i) Example 1: Intercompany transfer of stock of a controlled foreign corporation --(A) Facts. Throughout Year 1, M1 directly owns all the stock of CFC1, which directly owns all the stock of CFC2. In Year 1, CFC2 has $100x of subpart F income (as defined in section 952). M1's pro rata share of CFC2's subpart F income for Year 1 is $100x, which M1 includes in its gross income under section 951(a)(1)(A). In Year 2, CFC2 has $80x of subpart F income and distributes $80x to CFC1 (the CFC2 Distribution). Section 959(b) applies to the entire CFC2 Distribution. On December 29, Year 2, M1 transfers all of its CFC1 stock to M2 in an exchange described in section 351(a). As a result, on December 31, Year 2 (the last day of Year 2 on which CFC2 is a controlled foreign corporation), M2 owns 100% of the stock of CFC1, which owns 100% of the stock of CFC2. (B) Analysis. Under paragraph (j)(1) of this section, in determining the amount described in section 951(a)(2)(B) that is attributable to the CFC2 Distribution, all members of the P group are treated as a single United States shareholder for purposes of determining the part of Year 2 during which such shareholder did not own the stock of CFC2. Thus, the ratio of the number of days in Year 2 that such United States shareholder did not own the stock of CFC2 to the total number of days in Year 2 is 0/365. The amount described in section 951(a)(2)(B) is $0, M2's pro rata share of CFC2's subpart F income for Year 2 is $80x ($80x - $0), and M2 must include $80x in its gross income under section 951(a)(1)(A). (ii) Example 2: Transfer of stock of a controlled foreign corporation between controlled foreign corporations --(A) Facts. The facts are the same as in paragraph (j)(2)(i)(A) of this section (the facts in Example 1 ), except that M1 does not transfer its CFC1 stock to M2. Additionally, throughout Year 1 and from January 1, Year 2, to December 29, Year 2, M2 directly owns all 90 shares of the only class of stock of CFC3. Further, on December 29, Year 2, CFC3 acquires all the CFC2 stock from CFC1 in exchange for 10 newly issued shares of the same class of CFC3 stock in a transaction described in section 368(a)(1)(B). As a result, on December 31, Year 2, M1 owns 10% of the stock of CFC2, and M2 owns 90% of the stock of CFC2. (B) Analysis. Under paragraph (j)(1) of this section, in determining the amount described in section 951(a)(2)(B) that is attributable to the portion of the CFC2 Distribution with respect to each of the CFC2 stock that M1 owns on December 31, Year 2, and the CFC2 stock that M2 owns on that day, all members of the P group are treated as a single United States shareholder for purposes of determining the part of Year 2 during which such shareholder did not own such stock. In each case, the ratio of the number of days in Year 2 that such United States shareholder did not own such stock to the total number of days in Year 2 is 0/365, and the amount described in section 951(a)(2)(B) is $0. M1's and M2's pro rata shares of CFC2's subpart F income for Year 2 are $8x ($8x - $0) and $72x ($72x - $0), respectively, and M1 and M2 must include $8x and $72x in gross income under section 951(a)(1)(A), respectively. (3) Applicability date. This paragraph (j) applies to taxable years for which the original consolidated Federal income tax return is due (without extensions) after February 23, 2023. Melanie R. Krause, Acting Deputy Commissioner for Services and Enforcement. Approved: February 6, 2023. Lily L. Batchelder, Assistant Secretary of the Treasury (Tax Policy). (Filed by the Office of the Federal Register on February 22, 2023, 8:45 a.m., and published in the issue of the Federal Register for February 23, 2023, 88 F.R. 11393)

Private Letter Ruling Number: 202343020 Internal Revenue Service July 27, 2023 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202343020 Release Date: 10/27/2023 Index Number: 2501.00-00, 2601.00-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:04 P LR-102061-23 Date: July 27, 2023 Dear ******: This letter responds to your authorized representative's letter dated December 27, 2022, and subsequent correspondence, requesting rulings concerning the federal gift and generation-skipping transfer tax consequences of a court-approved settlement agreement. FACTS The facts submitted and representations made are as follows. Settlor died testate on Date 1, a date prior to September 25, 1985. Settlor's Will consists of the original instrument dated Date 2, a first codicil dated Date 3, a second codicil dated Date 4, a third codicil dated Date 5, and a fourth codicil dated Date 6 (collectively, Settlor's Will). At his death, Article Fourth of Settlor's Will created separate trusts for the benefit of his three children, Child 1, Child 2, and Child 3 (collectively, Children), their spouses, and their descendants: Trust A for the benefit of Child 1; Trust B for the benefit of Child 2; and Trust C for the benefit of Child 3. In addition to the trusts for the primary benefit of Children, Article Third of Settlor's Will created a marital trust for Settlor's wife, Spouse, which granted Spouse a testamentary general power of appointment over any trust property remaining in the marital trust at the time of her death. Spouse exercised her power of appointment under Article VII of Spouse's Will, dated Date 7, with a first codicil dated Date 8 (collectively, Spouse's Will). Pursuant to Spouse's Will, upon Spouse's death on Date 9, the remaining property of the marital trust was divided into three separate trusts for the benefit of Children, their spouses, and their descendants: Trust D for the benefit of Child 1; Trust E for the benefit of Child 2; and Trust F for the benefit of Child 3. Section 8 of Article VI of Spouse's Will provides that to the extent not specifically stated otherwise, all trusts created by Spouse's Will would be governed by the provisions of Settlor's Will. Child 3 died on Date 10, leaving no surviving spouse or descendants. Upon Child 3's death, the property held in Trust C was divided into two equal shares and each share distributed to Trust A and Trust B. Similarly, the property of Trust F was divided into two equal shares and each share distributed to Trust D and Trust E. On Date 11, pursuant to a State Court order, Trust D for the primary benefit of Child 1 was divided into six separate trusts for the benefit of Child 1's six children and their respective descendants, as well as Child 1 and Child 1's spouse: Trust D1 for the benefit of Grandchild 1; Trust D2 for the benefit of Grandchild 2; Trust D3 for the benefit of Grandchild 3; Trust D4 for the benefit of Grandchild 4; Trust D5 for the benefit of Grandchild 5; and Trust D6 for the benefit of Grandchild 6. On Date 12, pursuant to a State Court order, Trust A for the primary benefit of Child 1 was divided into six separate trusts for the benefit of Child 1's six children and their respective descendants, as well as Child 1 and Child 1's spouse: Trust A1 for the benefit of Grandchild 1; Trust A2 for the benefit of Grandchild 2; Trust A3 for the benefit of Grandchild 3; Trust A4 for the benefit of Grandchild 4; Trust A5 for the benefit of Grandchild 5; and Trust A6 for the benefit of Grandchild 6. In a companion State Court order on the same date, Trust B for the primary benefit of Child 2 and Trust E for the primary benefit of Child 2, were divided into two separate trusts for the benefit of Child 2's two children, Grandchild 7 and Grandchild 8 and their respective descendants, as well as Child 2 and Child 2's spouse. The divided trusts were subsequently merged into two trusts known as Trust BE1 for the benefit of Grandchild 7 and Trust BE2 for the benefit of Grandchild 8. Article Fourth of Settlor's Will governs the distribution provisions of Trust A, Trust B, Trust D, Trust E, Trusts A1 through A6, Trusts D1 through D6, and Trusts BE1 and BE2 (collectively, the Family Trusts). Until a trust for whom a grandchild is named terminates, the Trustee has discretion to make distributions of income from such trust to the grandchild. The portion of income not distributed may be accumulated or may be distributed to the grandchild's spouse, the surviving parents of the grandchild, and the descendants of grandchild, in whole or in part, in the discretion of the Trustee. Trustee has unfettered discretion to make distributions of principal to a grandchild for whom a trust is established. A trust for whom a grandchild is named shall terminate upon the later to occur of the death of the grandchild or the grandchild's spouse, if any, and at such time the share for such grandchild shall be distributed to the descendants of such grandchild, per stirpes. Section 4 of Article Fifth of Settlor's Will provides that any trust established pursuant to Settlor's Will shall cease and terminate upon the expiration of twenty-one years after the death of the last surviving of Settlor's descendants who were in being at the time of Settlor's death, and if at the expiration of this period any property is still held in trust, such property shall immediately be distributed to and among the persons receiving or entitled to have the benefit of the income therefrom in equal shares. Pursuant to Article Fourth of Settlor's Will, if a grandchild of Settlor dies without a living spouse or descendants, the trust principal of such grandchild's trust will be distributed to Settlor's other descendants. Section 3 of Article Fifth of Settlor's Will provides as follows: The words "children" and "descendants" shall be deemed to refer to issue of the body born in lawful wedlock and to children adopted by legal proceedings of public record and to their children and descendants so defined. Of Settlor's eight grandchildren, Grandchild 5 and Grandchild 7 currently have biological descendants. Grandchild 2 adopted Adoptee 1 and Grandchild 3 adopted Adoptee 2 and Adoptee 3. Each adopted individual was adopted after reaching the age of majority (collectively, Adult Adoptees). The Trustee of each Family Trust is Trust Company. On Date 13, Trustee filed a petition with the State Court requesting an order construing the terms "children" and "descendants" under Section 3 of Article Fifth of Settlor's Will to determine whether individuals adopted as adults qualify as "descendants" under Settlor's Will. A controversy exists among the descendants of Settlor as to whether the Adult Adoptees are "descendants" of Settlor under Settlor's Will. If the Adult Adoptees are considered descendants of Settlor, the number of potential remainder beneficiaries increases and affects the per stirpital shares at the time of final distribution of the Family Trusts. On Date 14, State Court issued a memorandum opinion and order for evidentiary hearing to determine whether Grandchild 2 and/or Grandchild 3 functioned as parents to the Adult Adoptees before they reached age 18, based on State Law 1, which was enacted after Settlor's date of death. Grandchild 1, joined by other family members, filed a motion for summary judgment and amendment of the Date 14 order in objection to the State Court's application of State Law 1 rather than the law at the time of Settlor's date of death. State Law 1 provides that in construing a dispositive provision of a transferor who is not the adoptive parent, an adoptee is not considered the child of the adoptive parent unless the adoptive parent functioned as a parent of the adoptee before the adoptee reached 18 years of age. State Law 2 provides that the effective date of the title of State Law 1 is Date 15, a date that is after Settlor's date of death, and applies to any proceedings in court then pending or thereafter commenced regardless of the time of the death of decedent except to the extent that in the opinion of the court the former procedure should be made applicable in a particular case in the interest of justice or because of infeasibility of application of the procedure of the title. Over several years, the interested parties engaged in substantial litigation and other proceedings in preparation for trial, including filing cross motions for summary judgment, extensive discovery, and voluntary mediation. Based on the issue before State Court, the outcome of the litigation would be that the Adult Adoptees are determined to be or not be descendants of Settlor. After several attempts to resolve the contested issues, on Date 16 the parties entered into a Settlement Agreement resolving the litigation regarding the status of the Adult Adoptees as descendants of Settlor. The Settlement Agreement was revised on Date 17 (Revised Settlement Agreement). Both the Settlement Agreement and the Revised Settlement Agreement were approved by order of State Court and contingent upon receipt of a favorable private letter ruling from the Internal Revenue Service (IRS). All parties to the agreement were represented by legal counsel. The Revised Settlement Agreement provides for certain payments to and for the benefit of Adoptee 1. It provides that the amount of $a will be distributed outright and in cash to Adoptee 1 from Trusts A1 through A6 and Trusts D1 through D6 (each trust distributing $b). In addition, the amount of $a will be distributed outright and in cash to Grandchild 2 (adoptive parent of Adoptee 1) from Trust A2 and Trust D2 (each trust for the primary benefit of Grandchild 2 and each distributing $c), whereupon Grandchild 2, as settlor and transferor, will immediately establish (and contribute the $a in cash to) a special needs trust for the primary benefit of Adoptee 1. Finally, the amount of $d will be distributed outright and in cash to Adoptee 1 from Trust A2 and Trust D2 (each trust distributing $e). Upon receipt of cash in the amounts of $a and $d, Adoptee 1, as settlor and transferor, will immediately establish (and contribute the sum of $a and $d in cash to) a revocable trust for his primary benefit. The Revised Settlement Agreement provides for certain payments to and for the benefit of Adoptee 2 and Adoptee 3. It provides that the amount of $a will be distributed outright and in cash to each of Adoptee 2 and Adoptee 3 from Trusts A1 through A6 and Trusts D1 through D6 (each distributing $b). Further, after the cash distributions to Adoptee 2 and Adoptee 3 are made, the assets then making up Trust A3 and Trust D3 (collectively referred to going forward as the Grandchild 3 Settlement Trusts), each for the primary benefit of Grandchild 3 (adoptive parent of Adoptee 2 and Adoptee 3), will be kept separate and segregated from the assets of any other Family Trust. No further additions shall be made to the Grandchild 3 Settlement Trusts from any other Family Trust by reason of the death of any beneficiary of those other Family Trusts. Except for certain excluded property related to agricultural land and business interests in entities whose primary holding is agricultural land (Excluded Property), Adoptee 2 and Adoptee 3 are the named beneficiaries of the Grandchild 3 Settlement Trusts. Upon the death of the survivor of Child 1's spouse, Grandchild 3, and Grandchild 3's spouse, the remaining assets of the Grandchild 3 Settlement Trusts, less the Excluded Property, will be distributed in equal shares to Adoptee 2 and Adoptee 3, or all to the survivor. Adoptee 2 and Adoptee 3 have a testamentary power to appoint such individual's respective share of the Grandchild 3 Settlement Trusts to or for the benefit of such individual's spouse or descendants. If Adoptee 2 or Adoptee 3 does not exercise such power of appointment but has living descendants, the Trustee shall distribute such individual's respective share to such descendants, per stirpes. Any asset appointed under the terms of the Revised Settlement Agreement (including the assets of the Grandchild 3 Settlement Trusts) may not extend the time for vesting of that asset beyond a period of twenty-one years after the death of the last surviving descendant of Settlor who was in being on Date 18. Any remaining assets of the Grandchild 3 Settlement Trusts not otherwise distributed (including the Excluded Property) shall be distributed according to Settlor's Will without regard to any surviving Adult Adoptees or their descendants. Under the Revised Settlement Agreement, all claims by the Adult Adoptees with regard to Settlor and Settlor's Spouse's trusts and estates are resolved and, after obtaining a favorable private letter ruling from the IRS, Trustee will agree to dismiss the petition filed in State Court with prejudice and all parties will agree that State Court can enter the dismissal without awarding costs to any party and without further notice. It is represented that each Family Trust was irrevocable on September 25, 1985, and that there were no additions, constructive or actual, after that date. You have requested the following rulings: 1. The Revised Settlement Agreement, the State Court order approving the Revised Settlement Agreement, and the implementation and distributions made in accordance with the Revised Settlement Agreement, will not cause any of the Family Trusts to lose their status as trusts exempt from GST tax for purposes of chapter 13 of the Code. 2. Entering into the Revised Settlement Agreement will not cause any party to the Settlement Agreement to be treated as having made a gift to any other individual for purposes of chapter 12 of the Code. LAW AND ANALYSIS Ruling 1 Section 2601 imposes a tax on every generation-skipping transfer (GST), which is defined under § 2611 as a taxable distribution, a taxable termination, and a direct skip. Under § 1433(a) of the Tax Reform Act of 1986 (Act) and § 26.2601-1(a) of the Generation-Skipping Transfer Tax Regulations, the GST tax is generally applicable to GSTs made after October 22, 1986. However, under § 1433(b)(2)(A) of the Act and § 26.2601-1(b)(1)(i), the tax does not apply to a transfer under a trust (as defined in § 2652(b)) that was irrevocable on September 25, 1985, but only to the extent that such transfer is not made out of corpus added to the trust after September 25, 1985 (or out of income attributable to corpus so added). Section 26.2601-1(b)(4) provides rules for determining when a modification, judicial construction, settlement agreement, or trustee action with respect to a trust that is exempt from the GST tax under § 26.2601-1(b)(1), (b)(2), or (b)(3) will not cause the trust to lose its exempt status. The rules of § 26.2601-1(b)(4) are applicable only for purposes of determining whether an exempt trust retains its exempt status for GST tax purposes. They do not apply in determining, for example, whether the transaction results in a gift subject to gift tax, or may cause the trust to be included in the gross estate of a beneficiary, or may result in the realization of capital gain for purposes of § 1001. Section 26.2601-1(b)(4)(i)(B) provides that a court-approved settlement of a bona fide issue regarding the administration of a trust or the construction of terms of the governing instrument will not cause an exempt trust to be subject to the provisions of chapter 13, if -- ( 1 ) The settlement is the product of arm's length negotiations; and ( 2 ) The settlement is within the range of reasonable outcomes under the governing instrument and applicable state law addressing the issues resolved by the settlement. A settlement that results in a compromise between the positions of the litigating parties and reflects the parties' assessments of the relative strengths of their positions is a settlement that is within the range of reasonable outcomes. In the present case, each Family Trust was created and was irrevocable before September 25, 1985. It is represented that no additions, constructive or actual, have been made to any of the Family Trusts on or after September 25, 1985. Consequently, each Family Trust is currently exempt from GST tax. In this case, each party was represented by separate legal counsel. The prospective beneficiaries had distinct and adverse economic and administrative interests. The parties were involved in protracted and substantial litigation to resolve the issue of the identity of Settlor's descendants under Settlor's Will. Settlement negotiations were carried out over several years until the Revised Settlement Agreement was reached. The parties have obtained State Court approval of the Revised Settlement Agreement pending the issuance of this private letter ruling. We conclude that the Revised Settlement Agreement constitutes a settlement of a bona fide issue regarding construction of the terms "children" and "descendants" in Settlor's Will. We further conclude that the terms of the Revised Settlement Agreement are the product of arm's length negotiations. Finally, we conclude that the Revised Settlement Agreement represents a compromise between the positions of the interested parties and reflects the assessments of the relative strengths of their positions; therefore, we additionally conclude that the Revised Settlement Agreement is within the range of reasonable outcomes under the governing instrument and the applicable State law addressing the issues resolved by the Revised Settlement Agreement. Accordingly, based on the facts submitted and the representations made, we rule that the Revised Settlement Agreement, the State Court order approving the Revised Settlement Agreement, and the implementation and distributions made in accordance with the Revised Settlement Agreement, will not cause any of the Family Trusts to lose their status as trusts exempt from GST tax for purposes of chapter 13 of the Code. Ruling 2 Section 2501 imposes a tax for each calendar year on the transfer of property by gift during such calendar year by any individual. Section 2511 provides that the tax imposed by § 2501 applies whether the transfer is in trust or otherwise, direct or indirect, and whether the property transferred is real or personal, tangible or intangible. Section 25.2511-1(c)(1) of the Gift Tax Regulations provides that any transaction in which an interest in property is gratuitously passed or conferred upon another, regardless of the means or device employed, constitutes a gift subject to tax. Whether an agreement settling a dispute is effective for gift tax purposes depends on whether the settlement is based on a valid enforceable claim asserted by the parties and, to the extent feasible, produces an economically fair result. See Ahmanson Foundation v. United States, 674 F.2d 761, 774-775 (9 th Cir. 1981). Thus, state law must be examined to ascertain the legitimacy of each party's claim. A settlement that fairly reflects the relative merits and economic values of the various claims asserted by the parties and reaches a settlement that is within a range of reasonable settlements will not result in a transfer for gift tax purposes. As discussed above, the Revised Settlement Agreement represents the resolution of a bona fide controversy among the family members as beneficiaries of Settlor's Will. All interested parties have been represented in the proceedings that culminated in the Court Order approving the Revised Settlement Agreement. Further, based on the facts as presented, the terms of the Revised Settlement Agreement are the product of arm's length negotiations among all the interested parties. We conclude that the Revis ed Settlement Agreement reflects the rights of the parties under the applicable law of State that would be applied by the highest court of State. Accordingly, based on the facts submitted and representations made, we rule that implementation of the Revised Settlement Agreement will not result in a gift under § 2501 by the parties to the Revised Settlement Agreement. Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative. The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. Sincerely, Karlene M. Lesho Karlene M. Lesho Chief, Branch 4 Office of Associate Chief Counsel (Passthroughs and Special Industries) Enclosures Copy for § 6110 purposes cc:

Private Letter Ruling Number: 202223003 Internal Revenue Service March 10, 2022 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202223003 Release Date: 6/10/2022 Index Number: 2010.04-00, 9100.35-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:4 PLR-107717-21 Date: March 10, 2022 Dear *******: This letter responds to a letter dated March 24, 2021, and subsequent correspondence, submitted on behalf of Decedent's estate, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make an election. Decedent's estate is requesting to make an election under § 2010(c)(5)(A) of the Internal Revenue Code (a "portability" election)) to allow a decedent's surviving spouse to take into account that decedent's deceased spousal unused exclusion (DSUE) amount. The information submitted for consideration is summarized below. Decedent died on Date, survived by Spouse. It is represented that based on the value of Decedent's gross estate and taking into account any taxable gifts, Decedent's estate is not required under § 6018(a) to file an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return). It is further represented that there is an unused portion of Decedent's applicable exclusion amount and that a portability election is required to allow Spouse to take into account that amount (the "DSUE" amount)). A portability election is made upon the timely filing of a complete and properly prepared estate tax return, unless the requirements for opting out are satisfied. See § 20.2010-2(a)(2) of the Estate Tax Regulations. For various reasons, an estate tax return was not timely filed and a portability election was not made. After discovery of this, Decedent's estate submitted this request for an extension of time under § 301.9100-3 to make a portability election. LAW AND ANALYSIS Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. Section 2010(a) provides that a credit of the applicable credit amount shall be allowed to the estate of every decedent against the tax imposed by § 2001. Section 2010(c)(1) provides that the applicable credit amount is the amount of the tentative tax that would be determined under § 2001(c) if the amount with respect to which such tentative tax is to be computed were equal to the applicable exclusion amount. On December 17, 2010, Congress amended § 2010(c), effective for estates of decedents dying and gifts made after December 31, 2010, to allow portability of a decedent's unused applicable exclusion amount between spouses. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111-312, § 303, 124 Stat. 3296, 3302 (2010). Section 2010(c)(2) provides that the applicable exclusion amount is the sum of the basic exclusion amount, and, in the case of a surviving spouse, the DSUE amount. Section 2010(c)(3) provides the basic exclusion amount available to the estate of every decedent, an amount to be adjusted for inflation annually after calendar year 2011. Section 2010(c)(4) defines the DSUE amount to mean the lesser of (A) the basic exclusion amount, or (B) the excess of -- (i) the applicable exclusion amount of the last deceased spouse of the surviving spouse, over (ii) the amount with respect to which the tentative tax is determined under § 2001(b)(1) on the estate of such deceased spouse. Section 2010(c)(5)(A) provides that a DSUE amount may not be taken into account by a surviving spouse under § 2010(c)(2) unless the executor of the estate of the deceased spouse files an estate tax return on which such amount is computed and makes an election on such return that such amount may be so taken into account. The election, once made, shall be irrevocable. No election may be made if such return is filed after the time prescribed by law (including extensions) for filing such return. Section 20.2010-2(a)(1) provides that the due date of an estate tax return required to elect portability is nine months after the decedent's date of death or the last day of the period covered by an extension (if an extension of time for filing has been obtained). Further, an extension of time under § 301.9100-3 to make a portability election may be granted in the case of an estate that is not required to file an estate tax return under § 6018(a), as determined solely based on the value of the gross estate and any adjusted taxable gifts (and without regard to § 20.2010-2(a)). Under § 301.9100-1(c), the Commissioner has discretion to grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time to make an election whose due date is prescribed by a regulation (and not expressly provided by statute). Requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. In this case, based on the representation as to the value of the gross estate and any adjusted taxable gifts, the time for filing the portability election is fixed by the regulations. Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Decedent's estate to elect portability, provided Decedent's estate establishes it acted reasonably and in good faith, the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government. Information, affidavits, and representations submitted on behalf of Decedent's estate explain the circumstances that resulted in the failure to timely file a valid election. Based solely on the information submitted and the representations made, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Therefore, we grant an extension of time of 120 days from the date of this letter in which to make the portability election. The election should be made by filing a complete and properly prepared Form 706 and a copy of this letter, within 120 days from the date of this letter, with the Kansas City Service Center, at the following address: Department of the Treasury, Internal Revenue Center, Kansas City, MO 64999. For purposes of electing portability, a Form 706 filed by Decedent's estate within 120 days from the date of this letter will be considered to be timely filed. If it is later determined that, based on the value of the gross estate and taking into account any taxable gifts, Decedent's estate is required to file an estate tax return pursuant to § 6018(a), the Commissioner is without authority under § 301.9100-3 to grant an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void. See § 20.2010-2(a)(1). We neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In particular, we express no opinion as to the DSUE amount to be potentially taken into account by Spouse. Any claimed DSUE amount will be included in the applicable exclusion amount of Spouse only to the extent that Spouse can substantiate such amount and will be subject to determination by the Director's office upon audit of relevant Federal gift or estate tax returns. See § 20.2010-3(c)(1) and (d). The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, we have sent a copy of this letter to your authorized representative. Sincerely, Associate Chief Counsel (Passthroughs & Special Industries) By: Leslie H. Finlow Leslie H. Finlow Senior Technician Reviewer, Branch 4 Office of the Associate Chief Counsel (Passthroughs & Special Industries) Enclosure Copy for § 6110 purposes cc:

Private Letter Ruling Number: 202303006 Internal Revenue Service October 18, 2022 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202303006 Release Date: 1/20/2023 Index Number: 1001.00-00, 1015.00-00, 1015.03-00, 1015.03-01, 1223.00-00, 2036.00-00, 2036.01-00, 2038.00-00, 2038.01-00, 2038.01-01, 2501.00-00, 2501.01-00, 2601.00-00, 2601.01-00, 61.00-00, 661.00-00, 662.00-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:4 PLR-110418-22 Date: October 18, 2022 Dear ******: This letter responds to your authorized representatives' letter of May 19, 2022, and subsequent correspondence, requesting rulings regarding the income, estate, gift, and generation-skipping transfer (GST) tax consequences of the proposed division of Trust 1. The facts and representations submitted are as follows: Grandparent died on Date 1, leaving the residue of Grandparent's probate estate in equal shares to Trust 1 and Trust 2, testamentary trusts established under Will. Trust 1 is held for the benefit of Grandchild 1 and Grandchild 1's descendants, and Trust 2 is held for the benefit of Grandchild 2 and Grandchild 2's descendants. Grandchild 1 has five children, Great-Grandchild 1, Great-Grandchild 2, Great-Grandchild 3, Great-Grandchild 4, and Great-Grandchild 5. Grandchild 2 has one child, Great-Grandchild 6. Neither Grandchild 1 nor Grandchild 2 has any deceased children. Trustees serve as trustees of Trust 1. Trust 1 is the subject of this ruling request. Section 9(a) of Trust 1 provides that Trustees may distribute the net income of Trust 1 to or for the benefit of Grandchild 1 and Grandchild 1's descendants in such proportions and at such times as Trustees determine is desirable or necessary, considering their needs, best interests, and other sources of income, or may annually accumulate and add all or part of the net income to the principal of Trust 1. Section 9(b) of Trust 1 provides that Trustees may distribute the principal of Trust 1 to or for the benefit of Grandchild 1 and Grandchild 1's descendants in such proportions and at such times as Trustees determine is desirable or necessary for their medical care, comfortable maintenance, education, or general support and welfare, considering their other resources. Section 9(c) of Trust 1 provides that Trust 1 will terminate 21 years after the death of the survivor of Grandchild 1 and Grandchild 2, and the principal of Trust 1 will be distributed to Grandchild 1's descendants, per stirpes. If, however, Grandchild 1 and Grandchild 1's descendants all die before that date, Trust 1 will terminate early, and the principal of Trust 1 will be distributed to Trust 2. Grandchild 1's descendants have differing personal and financial situations and, consequently, Trustees, propose to divide Trust 1 along family lines into five separate shares (Resulting Trusts), one for the benefit of each of Grandchild 1's children and their respective descendants plus Grandchild 1, and to fund each Resulting Trust with one-fifth of each asset of Trust 1 (Proposed Division). Any distribution to Grandchild 1 from a Resulting Trust will be made pro rata from each Resulting Trust. The provisions of each Resulting Trust otherwise will be identical and unchanged from the provisions of Trust 1. In accordance with Trust 1, each Resulting Trust will terminate 21 years after the death of the survivor of Grandchild 1 and Grandchild 2, and the principal will be distributed to the child of Grandchild 1 for whom Resulting Trust was created or, if such child is deceased, to the child's descendants, per stirpes. If, however, Grandchild 1, the child of Grandchild 1 for whom Resulting Trust was created, and such child's descendants all die before that date, Resulting Trust will terminate early, and the principal will be distributed equally among the other Resulting Trusts. If Grandchild 1 and Grandchild 1's descendants all die before that date, the principal instead will be distributed to Trust 2. Under the authority of Statutes, Court issued Order on Date 2 and Amended Order on Date 3 authorizing the Proposed Division upon receipt of a favorable private letter ruling from the Internal Revenue Service. Trust 1 was irrevocable prior to September 25, 1985, and no additions, actual or constructive, have been made to Trust 1. You request the following rulings: 1. Proposed Division will not cause Trust 1 or any Resulting Trust to lose grandfathered status for purposes of the GST tax, or otherwise become subject to GST tax. 2. Proposed Division will not be treated as a distribution and cause any Resulting Trust to recognize income, gain or loss from a sale or other disposition of property under § 61, § 661, § 662, or § 1001. 3. The adjusted basis and holding period of each of the Resulting Trust assets will be the same as the adjusted basis and holding periods of the Trust 1 assets under § 1015 and § 1223(2). 4. Proposed Division will not cause such assets to be includable in the gross estate of any of the beneficiaries under § 2036, § 2037, or § 2038. 5. Proposed Division will not constitute a transfer subject to federal gift tax under § 2501. Ruling 1 Section 2601 imposes a tax on every GST, which is defined under § 2611 as a taxable distribution, a taxable termination, and a direct skip. Under § 1433(a) of the Tax Reform Act of 1986 (Act) and § 26.2601-1(a) of the Generation-Skipping Transfer Tax Regulations, the GST tax is generally applicable to generation-skipping transfers made after October 22, 1986. However, under § 1433(b)(2)(A) of the Act and § 26.2601-1(b)(1)(i), the tax does not apply to a transfer under a trust that was irrevocable on September 25, 1985, but only to the extent that such transfer is not made out of corpus added to the trust after September 25, 1985 (or out of income attributable to corpus so added). Section 26.2601-1(b)(4)(i) provides rules for determining when a modification, judicial construction, settlement agreement, or trustee action with respect to a trust that is exempt from the GST tax will not cause the trust to lose its exempt status. In general, unless specifically provided otherwise, the rules contained in this paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for GST tax purposes. Thus (unless specifically noted), the rules do not apply in determining, for example, whether the transaction results in a gift subject to gift tax, or may cause the trust to be included in the gross estate of a beneficiary, or may result in the realization of gain for purposes of § 1001. Section 26.2601-1(b)(4)(i)(D) provides that a modification of the governing instrument of an exempt trust (including a trustee distribution, settlement, or construction that does not satisfy § 26.2601-1(b)(4)(i)(A), (B), or (C)) by judicial reformation, or nonjudicial reformation that is valid under applicable state law, will not cause an exempt trust to be subject to the provisions of chapter 13, if the modification does not shift a beneficial interest in the trust to any beneficiary who occupies a lower generation (as defined in § 2651) than the person or persons who held the beneficial interest prior to the modification, and the modification does not extend the time for vesting of any beneficial interest in the trust beyond the period provided for in the original trust. A modification of an exempt trust will result in a shift in beneficial interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a GST or the creation of a new GST. Section 26.2601-1(b)(4)(i)(E), Example 5, provides as follows. In 1980, Trustor established an irrevocable trust for the benefit of his two children, A and B, and their issue. Under the terms of the trust, the trustee has the discretion to distribute income and principal to A, B, and their issue in such amounts as the trustee deems appropriate. On the death of the last to die of A and B, the trust principal is to be distributed to the living issue of A and B, per stirpes. In 2002, the appropriate local court approved the division of the trust into two equal trusts, one for the benefit of A and A's issue and one for the benefit of B and B's issue. The trust for A and A's issue provides that the trustee has the discretion to distribute trust income and principal to A and A's issue in such amounts as the trustee deems appropriate. On A's death, the trust principal is to be distributed equally to A's issue, per stirpes. If A dies with no living descendants, the principal will be added to the trust for B and B's issue. The trust for B and B's issue is identical (except for the beneficiaries), and terminates at B's death at which time the trust principal is to be distributed equally to B's issue, per stirpes. If B dies with no living descendants, principal will be added to the trust for A and A's issue. The division of the trust into two trusts does not shift any beneficial interest in the trust to a beneficiary who occupies a lower generation (as defined in § 2651) than the person or persons who held the beneficial interest prior to the division. In addition, the division does not extend the time for vesting of any beneficial interest in the trust beyond the period provided for in the original trust. Therefore, the two partitioned trusts resulting from the division will not be subject to the provisions of chapter 13. In the present case, Trust 1 was irrevocable on September 25, 1985. It is represented that no additions, actual or constructive, have been made to Trust 1 after that date. Proposed Division is substantially similar to the situation described in § 26.2601-1(b)(4)(i)(E), Example 5. Under Proposed Division, Resulting Trusts will, except as described above, be administered under the original provisions of Trust 1. Based on the facts submitted and the representations made, we conclude that Proposed Division will not shift any beneficial interest in Trust 1 to a person who occupies a lower generation than the persons holding the beneficial interest prior to Proposed Division. In addition, Proposed Division will not extend the time for vesting of any beneficial interest beyond the period provided for in Trust 1. Accordingly, Proposed Division will not cause Trust 1 or any Resulting Trust to lose grandfathered status for purposes of the GST tax, or otherwise become subject to GST tax. Ruling 2 Section 61(a)(3) and (15) provides that gross income includes gains derived from dealings in property and income from an interest in a trust. Section 661(a) provides that in any taxable year a deduction is allowed in computing the taxable income of a trust (other than a trust to which subpart B applies), for the sum of (1) the amount of income for such taxable year required to be distributed currently; and (2) any other amounts properly paid or credited or required to be distributed for such taxable year. Section 1.661(a)-2(f) of the Income Tax Regulations provides that gain or loss is realized by the trust or estate (or the other beneficiaries) by reason of a distribution of property in kind if the distribution is in satisfaction of a right to receive a distribution of a specific dollar amount, of specific property other than that distributed, or of income as defined under § 643(b) and the applicable regulations, if income is required to be distributed currently. Section 662 provides that there shall be included in the gross income of a beneficiary to whom an amount specified in § 661(a) is paid, credited, or required to be distributed (by an estate or trust described in § 661), the sum of the following amounts: (1) the amount of income for the taxable year required to be distributed currently to such beneficiary, whether distributed or not; and (2) all other amounts properly paid, credited, or required to be distributed to such beneficiary for the taxable year. Section 1001(a) provides that the gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis provided in § 1011 for determining gain, and the loss shall be the excess of the adjusted basis provided in § 1011 for determining loss over the amount realized. Section 1001(b) states that the amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property (other than money) received. Under § 1001(c), except as otherwise provided in subtitle A, the entire amount of gain or loss, determined under § 1001, on the sale or exchange of property shall be recognized. Section 1.1001-1(a) provides that the gain or loss realized from the conversion of property into cash, or from the exchange of property for other property differing materially either in kind or in extent, is treated as income or loss sustained. A partition of jointly owned property is not a sale or other disposition of property where the co-owners of the joint property sever their joint interests, but do not acquire a new or additional interest as a result thereof. Thus, neither gain nor loss is realized on a partition. See Rev.Rul. 56-437, 1956-2 C.B. 507 (conversion of a joint tenancy in stock to a tenancy in common in order to eliminate the survivorship feature and the partition of a joint tenancy in stock are not sales or exchanges). Similarly, divisions of trusts are also not sales or exchanges of trust interests where each asset is divided pro rata among the new trusts. See Rev.Rul. 69-486, 1969-2 C.B. 159 ( pro rata distribution of trust assets not a sale or exchange). In the present case, the legal entitlements, as well as the rights and powers, of the beneficiaries will remain the same in kind and extent after Proposed Division. Accordingly, based on the facts submitted and representations made, Proposed Division will not result in the realization of gain or loss under § 61 and § 1001. Moreover, based solely on the facts submitted and representations made, we conclude that Proposed Division is not a distribution under § 661 or § 1.661(a)-2(f). We further conclude that Proposed Division will not cause Trust 1, Resulting Trusts, or the beneficiaries of Trust 1 or any Resulting Trust to recognize any income under § 662. Ruling 3 Section 1015(b) provides that if property is acquired after December 31, 1920, by a transfer in trust (other than a transfer in trust by a gift, bequest, or devise), the basis shall be the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on such transfer. Section 1.1015-2(a)(1) provides that in the case of property acquired after December 31, 1920, by transfer in trust (other than by transfer in trust by gift, bequest, or devise), the basis of property so acquired is the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on the transfer under the law applicable to the year in which the transfer was made. If the taxpayer acquired the property by transfer in trust, this basis applies whether the property is in the hands of the trustee or the beneficiary, and whether acquired prior to termination of the trust and distribution of the property, or thereafter. Section 1223(2) provides that in determining the period for which the taxpayer has held property, however it is acquired, there shall be included the period for which the property was held by any other person, if under this chapter such property has, for the purpose of determining gain or loss from a sale or exchange, the same basis in whole or in part in his hands as it would have in the hands of the other person. Based on the facts submitted and the representations made, we conclude that because § 1001 does not apply to Proposed Division, under § 1015 the basis of the assets received by Resulting Trusts will be the same as the respective basis of the assets held by Trust 1. We further conclude that under § 1223(2) the holding periods of the assets received by Resulting Trusts will be the same as the holding periods of the assets in Trust 1. Ruling 4 Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. Section 2033 provides that the value of the gross estate includes the value of all property to the extent of the interest therein of the decedent at the time of death. Section 2036(a) provides that the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death (1) the possession or enjoyment of, or the right to the income from, the property, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom. Section 2037(a) provides that the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, if (1) possession or enjoyment of the property can, through ownership of such interest, be obtained only by surviving the decedent, and (2) the decedent has retained a reversionary interest in the property, and the value of such reversionary interest immediately before the death of the decedent exceeds 5 percent of the value of such property. Section 2038(a)(1) provides that the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, where the enjoyment thereof was subject at the date of decedent's death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, revoke, or terminate, or where the decedent relinquished any such power during the 3-year period ending on the date of the decedent's death. In order for § 2036 through § 2038 to apply, the decedent must have made a transfer of property or any interest therein (except in the case of a bona fide sale for an adequate and full consideration in money or money's worth) under which the decedent retained an interest in, or power over, the income or corpus of the transferred property. In the present case, the beneficiaries of Resulting Trusts will have the same interests after Proposed Division that they had as beneficiaries under Trust 1. The distribution, management, and termination provisions of each Resulting Trust will be substantially similar to the current distribution, management, and distribution provisions of Trust 1. Accordingly, based on the facts submitted and the representations made, we conclude that Proposed Division will not cause any portion of the assets of Resulting Trusts to be includible in the gross estate of any of the beneficiaries of Resulting Trusts under § 2036, § 2037, or § 2038. Ruling 5 Section 2501 imposes a tax for each calendar year on the transfer of property by gift during such calendar year by any individual, resident or nonresident. Section 2511 provides that, subject to certain limitations, the gift tax applies whether the transfer is in trust or otherwise, direct or indirect, and whether the property transferred is real or personal, tangible or intangible. Section 2512(a) provides that if the gift is made in property, the value thereof at the date of the gift is considered the amount of the gift. Section 2512(b) provides that where property is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the value of the property exceeded the value of the consideration is deemed a gift that is included in computing the amount of gifts made during the calendar year. In the present case, the beneficial interests, rights, and expectancies of the beneficiaries will be substantially the same, both before and after Proposed Division. Thus, no transfer of property will be deemed to occur as a result of Proposed Division. Accordingly, based on the facts submitted and representations made, we conclude that Proposed Division will not result in a transfer by any beneficiary of Trust 1 that is subject to the gift tax under § 2501. Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. A copy of this letter must be attached to any income tax return to which it is relevant. Alternatively, taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter ruling. The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representatives. Sincerely, Associate Chief Counsel (Passthroughs & Special Industries) By: Melissa C. Liquerman Melissa C. Liquerman Senior Counsel, Branch 4 Office of the Associate Chief Counsel (Passthroughs & Special Industries) Enclosure Copy for § 6110 purposes cc:

Internal Revenue Service - Information Release IR-2024-36 IRS warns tax professionals to be aware of EFIN scam email; special webinars offered next week February 8, 2024 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 IRS warns tax professionals to be aware of EFIN scam email; special webinars offered next week IR-2024-36, Feb. 8, 2024 WASHINGTON -- The Internal Revenue Service and Security Summit partners today alerted tax professionals of a scam email impersonating various software companies in an attempt to steal Electronic Filing Identification Numbers (EFINs). The IRS warned that scammers are posing as tax software providers and requesting EFIN documents from tax professionals under the guise of a required verification to transmit tax returns. These thieves attempt to steal client data and tax preparers' identities, creating the potential for them to file fraudulent tax returns for refunds. To help protect tax professionals against this emerging scam, the IRS is hosting a special series of educational webinars aimed at the tax community. The sessions will begin Feb. 12 and run each day next week. "With filing season underway, scammers use this time of year to target tax professionals as well as taxpayers in hopes of stealing information that can be used to try filing fraudulent tax returns," said IRS Commissioner Danny Werfel. "The IRS and the Security Summit partners have noticed a new surge of an EFIN scam email that targets professionals. This scam serves as a powerful reminder that tax professionals should ensure strong security at their practices, including reminding employees to be careful with any emails coming in that could be posing as an official communication. A little extra caution can mean a world of difference for tax professionals during this busy period." The IRS has already received dozens of reports of the scam targeting tax professionals. They should be alert for a scam email that includes a U.S.-based area code for faxing EFIN documents and also provides instructions on obtaining EFIN documentation from the IRS e-Services site if unavailable. Scam variations being seen use different fax numbers for software vendors. Other warning signs of a scam include inconsistencies in the email wording and a German footer in the email. The IRS cautions tax professionals who receive these should not respond to the email and should not proceed with any of the steps displayed in the email. The body of the fraudulent email states: Dear [recipient_email_address], Help us protect you. Because many Electronic Filing Identification Numbers (EFINs) are stolen each year and used to file fraudulent tax returns, the IRS has asked software vendors, such as Software A, to verify who the EFIN owner is by getting a copy of the IRS issued EFIN document(s). Our records show that we do not have a document for one or more of the EFINs that you transmit with. What this means for you: Until your EFIN is verified, you will be unable to transmit returns. Please provide a copy of your EFIN Account Summary from IRS e-Services, with a status of 'Completed', to Software B for verification. To send us your EFIN Summary document: 1. Fax to Software B at 631-995-5984 PLEASE NOTE THAT YOUR PREPARER TAX IDENTIFICATION NUMBER (PTIN) APPLICATION CANNOT BE USED AS DOCUMENTATION FOR YOUR EFIN. If you do not have the above documentation you can get a copy of your IRS Application Summary from IRS e-Services by following the below steps or call the IRS e-Services helpline at 866-255-0654. 1. Sign in to your IRS e-Services account 2. Choose your organization from the list provided and click Submit 3. Click the Application link to access your existing application 4. Click the e-File Application link 5. Select the existing application link that applies to your organization 6. Click the Application Summary link for the area of the application you wish to enter 7. Click the Print Summary link at the bottom of the summary presented on the screen If you have any questions please contact the Compliance Department at xxx-xx-xxxx for assistance. Thank you for your business. We look forward to serving you this coming season. Software B (edited) Special webinars planned to help tax professionals To address this fast-moving scam, the IRS will be providing special webinars next week for tax professionals where agency cybersecurity experts will share information. To register for a session, tax professionals can click on the date/time below. Space is limited; continuing education credits will not be offered: - Monday, Feb. 12, at 12 p.m. Eastern 11 a.m. Central 10 a.m. Mountain & Arizona9 a.m. Pacific8 a.m. Alaska 7 a.m. Hawaii-Aleutian. - Tuesday, Feb. 13, at 1 p.m. Eastern 12 p.m. Central 11 a.m. Mountain & Arizona10 a.m. Pacific9 a.m. Alaska 8 a.m. Hawaii-Aleutian. - Wednesday, Feb. 14, at 2 p.m. Eastern 1 p.m. Central 12 p.m. Mountain & Arizona11 a.m. Pacific10 a.m. Alaska 9 a.m. Hawaii-Aleutian. - Thursday, Feb. 15, at 3 p.m. Eastern 2 p.m. Central 1 p.m. Mountain & Arizona12 p.m. Pacific11 a.m. Alaska 10 a.m. Hawaii-Aleutian. - Friday, Feb. 16, at 3 p.m. Eastern 2 p.m. Central 1 p.m. Mountain & Arizona12 p.m. Pacific11 a.m. Alaska 10 a.m. Hawaii-Aleutian. Tips to avoid and how to report potential scams Tax-related identity theft scams consistently target tax professionals with a slew of scams and schemes that seek to gain access to sensitive taxpayer information. As these schemes continue to evolve and increase in volume, they pose a threat to both tax professionals and the clients they serve. Earlier this year, the IRS warned tax professionals of a surge of a new client scheme, and they should continue watching for this scam. Some phishing scams are ransomware schemes in which the thief obtains control of the tax professionals' computer systems and holds the data hostage until a ransom is paid. The Federal Bureau of Investigation (FBI) has warned against paying a ransom because thieves typically leave the data encrypted. Tax pros who receive the scam email should notify the Treasury Inspector General for Tax Administration (TIGTA) to report the IRS impersonation scam. They should also save the email and send it as an attachment to phishing@irs.gov. If there is suspicion that data theft has occurred, tax pros should report it to their local IRS Stakeholder Liaison as soon as possible. IRS Stakeholder Liaison staff will ensure all appropriate IRS offices are alerted and can take steps to block fraudulent returns in the clients' names as well as assist tax pros through the process. Tax professionals should be attentive to other phishing scams that seek EFINs, Preparer Tax Identification Numbers (PTINs), or e-Services usernames and passwords. Additional Resources - Identity Theft Central - Publication 4557, Safeguarding Taxpayer Data PDF - Identity Theft Information for Tax Professionals

Private Letter Ruling Number: 202406007 Internal Revenue Service February 13, 2023 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202406007 Release Date: 2/9/2024 Index Number: 118.01-00, 305.04-00, 2501.00-00, 2511.00-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:CORP:2 PLR-115608-22 Date: February 13, 2023 Dear ******: This letter responds to your authorized representative's letter dated August 10, 2022, requesting rulings under sections 118, 305, 2501, 2511, 2512, and 2702 of the Internal Revenue Code (the "Code"). The information provided in that letter and in later correspondence is summarized below. The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalties of perjury statement executed by an appropriate party. This office has not verified any of the material submitted in support of the request for rulings, but such material is subject to verification on examination. Summary of Facts Company is a State A corporation and the parent of an affiliated group of corporations that files a consolidated U.S. federal income tax return on a calendar year basis. Company was incorporated in Year 1. Company is engaged in Business A. Executive is an executive of Company. On Date 1, Executive established Trust 1 for the benefit of Family Member. Also on Date 1, Executive established Trust 2 for the benefit of the Family Beneficiaries. On Date 2 and Date 4, Executive established Trust 3 and Trust 4, respectively, for the benefit of Family Member. On Date 3, Executive established Trust 5 for the benefit of Person 1. Also on Date 2, Executive established GRAT (Grantor Retained Annuity Trust) 1 for the benefit of Executive and Person 1. On Date 8, Executive established GRAT 2 and GRAT 3 for the benefit of Executive, Person 2, Person 3, Person 4, and a trust, not part of this ruling request, for Person 2, Person 3, and Person 4. On Date 9, Executive established GRAT 4 for the benefit of Trust 2. Trust 1, Trust 2, Trust 3, Trust 4, Trust 5, GRAT 1, GRAT 2, GRAT 3, and GRAT 4 are hereinafter referred to collectively as "Trusts". Executive's interest in GRAT 4 is a "qualified interest" under section 2702(b). Executive's interests in GRAT 1, GRAT 2, and GRAT 3 are not subject to the special valuation rules of section 2702(a) because the beneficiaries of GRAT 1, GRAT 2, and GRAT 3 are not members of Executive's family as defined in section 2702(e) and section 2704(c)(2). On Date 5, Company formed LLC, which is disregarded as an entity separate from Company for U.S. federal income tax purposes. LLC was formed for Company Purpose. However, Company is not required under the operating agreement to use LLC for Company Purpose and may dissolve LLC at any time. Company has three classes of common stock outstanding: Stock A, Stock B, and Stock C. Stock A is widely held and, since Date 7, has been publicly traded on the Exchange. The shares of Stock A and Stock B are identical other than the voting power. Each share of Stock B has a times the voting power of each share of Stock A. Stock B is held, in part, by Executive and GRATs 1 through 4, and Trusts 1 through 4. Trust 5 owns shares of Stock A. All of the issued shares of Stock C are held by LLC and are not considered outstanding for U.S. federal income tax purposes. Stock C has no voting rights except as otherwise required by law. Upon the transfer to a holder other than LLC or another subsidiary of Company, shares of Stock C will automatically convert on a share-for-share basis into shares of Stock A. On Date 6, Company made an initial contribution of b newly-issued shares of Stock C to LLC. On Date 10, Company announced that its board of directors approved a share repurchase program with authorization to purchase Company's Stock A at the discretion of Company's management (the " Share Repurchase Program "). None of the Contributing Shareholders (defined below) have participated in the Share Repurchase Program. The Share Repurchase Program and the Proposed Transaction are each driven by separate valid business purposes. Executive, Trusts, and Company intend to enter into a binding agreement ("Agreement") wherein Executive and Trusts will each surrender c percent (valued at approximately $d) of their shares of Stock A or Stock B, as the case may be, to Company. Company will subsequently retire those contributed shares and will transfer a like number of newly issued shares of Stock C to LLC. Proposed Transaction For what are represented to be valid business purposes, the following transaction has been proposed (the "Proposed Transaction"): (i) Trusts and Executive (each a " Contributing Shareholder ", and collectively, the " Contributing Shareholders ") will contribute in one or more installments a portion of their Stock A or Stock B to the capital of Company for the benefit of LLC. Executive intends to contribute stock of an amount equal to approximately $d or c percent of shares of Stock B owned by Executive. The Trusts will contribute a number of shares to Company that is proportionate on a percentage basis to the number of shares contributed by Executive (collectively, the " Contribution ") or approximately c percent of their shares of Stock A or Stock B, as the case may be, to the capital of Company. The Contributing Shareholders and Company will enter into a binding agreement pursuant to which the Contribution will be effected (the " Contribution Agreement " or " Agreement "). The Contribution may take place in more than one installment. The Contributing Shareholders and Company will enter into a new Contribution Agreement for each separate contribution, if any. The shareholders of Company other than the Contributing Shareholders are referred to as the " Non-Contributing Shareholders ". (ii) When Company receives shares from Contributing Shareholders pursuant to the Contribution Agreement, Company will retire such shares and transfer a like number of newly issued shares of Stock C to LLC. (iii) LLC will use cash derived from Stock C for Company Purpose. (iv) Company owns all of the membership interests of the LLC and therefore will control the policies of LLC related to the Company Purpose. Representations Company and the Contributing Shareholders make the following representations regarding the Proposed Transaction: (a) The Contributing Shareholders will not receive any consideration from Company with respect to the surrender of their stock to the capital of Company in the Proposed Transaction. (b) The stock surrendered to the capital of Company in the Proposed Transaction will be canceled and such stock or similar shares of stock of Company will not be returned to the Contributing Shareholders following the Proposed Transaction. (c) Company does not intend to fund LLC with property other than Stock C or cash. (d) GRAT 1, GRAT 2, GRAT 3, and GRAT 4 each have the terms necessary to satisfy the requirements to be a qualified interest under § 25.2702-3 of the Gift Tax Regulations. (e) There is no plan to transfer the shares of Stock C to any employee or independent contractor in connection with the performance of services within the meaning of section 83 or otherwise. (f) The Contributing Shareholders are not related to any of the Non-Contributing Shareholders such that stock ownership of a Contributing Shareholder would be attributed to a Non-Contributing Shareholder pursuant to section 318(a)(1) or section 267(c)(2). (g) There is no reason to believe that any of the stock purchases pursuant to the Share Repurchase Program will be taxed as dividends to the participating shareholders and there is no reason to believe that such stock purchases are dividends within the meaning of sections 301 and 302. (h) The Proposed Transaction is an isolated transaction that is not related to any other past or future transactions. (i) The Proposed Transaction is motivated solely by the Contributing Shareholders' and Company's business considerations and is not motivated by any intent to confer a U.S. federal income tax benefit on any shareholder, including as a substitute for a dividend. (j) The Proposed Transaction is not part of a plan to periodically increase the proportionate share of any shareholder in the assets or earnings and profits of Company. (k) There is no plan for the Contributing Shareholders to make contributions to Company that are not otherwise described herein. (l) If the Contributions pursuant to the Proposed Transaction occur in more than one installment, the final contribution will occur within a e month period of the first contribution. (m) Persons 1 through 4 are not employees of Company or Executive. Transactional Rulings Based solely on the information and representations submitted, we rule as follows: (1) The surrenders of Stock A or Stock B by the Contributing Shareholders to Company in the Proposed Transaction are a non-taxable contribution to the capital of Company and accordingly, the Contributing Shareholders will not recognize gain or loss on such contribution. See Commissioner v. Fink, 483 U.S. 89 (1987). (2) Each Contributing Shareholder's basis in the shares surrendered in the Proposed Transaction will be allocated to the Contributing Shareholder's basis in their remaining shares. See Commissioner v. Fink, 483 U.S. 89 (1987). (3) Company's receipt of shares of Stock A or B from the Contributing Shareholders will not be taxable to Company. See section 118(a). (4) The Non-Contributing Shareholders will not recognize any income as a result of the Proposed Transaction and the Contributing Shareholders' surrender of shares to Company will not be treated as a distribution of property to the Non-Contributing Shareholders. See Treas.Reg. §§ 1.305-3(b)(3) and 1.305-3(e), Example (13). See also Rev.Rul. 77-19, 1979-1 C.B. 83. Gift Tax Rulings Ruling 5 Under section 2501(a)(1) of the Code, tax is imposed for each calendar year on the transfer of property by gift during such calendar year by any individual, resident, or nonresident. Under section 2511(a), the tax imposed by section 2501 shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. Under section 2512(b), where property is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the value of the property exceeded the value of the consideration shall be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year. Section 25.2511-1(c)(1) of the Gift Tax Regulations provides that any transaction in which an interest in property is gratuitously passed or conferred upon another, regardless of the means or device employed, constitutes a gift subject to tax. Under § 25.2511-1(g)(1), the gift tax is not applicable to a transfer for a full and adequate consideration in money or money's worth, or to ordinary business transactions, described in § 25.2512-8. Under § 25.2511-1(h), a transfer of property by B to a corporation generally represents gifts by B to the other individual shareholders of the corporation to the extent of their proportionate interests in the corporation. Under § 25.2512-8, a sale, exchange, or other transfer of property made in the ordinary course of business (a transaction which is bona fide, at arm's length, and free from any donative intent), will be considered as made for an adequate and full consideration in money or money's worth. In Rev. Rul. 80-196, 1980-2 C.B. 32, two shareholders transferred stock to three employees as a bonus in consideration of past services to the corporation. The two shareholders were not related to the three employees, nor did any special personal relationship exist between the shareholders and the three employees. The ruling holds, for gift tax purposes, that the transfers to the three employees were in the ordinary course of business under § 25.2512-8 because the transfers were motivated by a valid business reason, that is, retaining valuable personnel in the employment of the corporation. Therefore, the transfers were not subject to gift tax. In Anderson v. Commissioner, 8 T.C. 706 (1947), senior executives of a corporation sold shares to junior executives as part of a plan to shift management responsibilities to the junior executives. The Tax Court held that the sale was not subject to gift tax because it was made in the ordinary course of business. See Galluzzo v. Commission, 43 T.C.M. 199 (T.C. 1981). Company is owned by Executive, Trusts, and Non-Contributing Shareholders. In Agreement, Executive and Trusts agree to surrender shares to Company in order to fund LLC. By entering into Agreement, Executive and Trusts are increasing the value of the shares held by the Non-Contributing Shareholders. For gift tax purposes, this transfer is characterized as an indirect transfer of property from Executive and Trusts to Non-Contributing Shareholders. See §§ 25.2511-1(c)(1) and 25.2511-1(h). See also Rev.Rul. 71-443, 1971 C.B. 337; Bosca v. Commissioner, T.C. Memo. 1998-251; Kincaid v. United States, 682 F.2d 1220 (5 th Cir. 1982); Estate of Trenchard, T.C. Memo. 1995-121. Under § 25.2512-8, a transfer of property made in the ordinary course of business (a transaction which is bona fide, at arm's length, and free from any donative intent), will be considered as made for adequate and full consideration in money or money's worth. Under the facts presented in this ruling, the transfer made through Agreement satisfies all three of the requirements to be considered as made in the ordinary course of business. First, Agreement is for the bona fide business purpose of furthering Company Purpose. Second, the transfer from Executive and Trusts to Non-Contributing Shareholders is at arm's length because the transaction is a business transaction, the parties act in their own self-interest and are not subject to pressure from the other parties, and the Non-Contributing Shareholders are not related to Executive or Trusts. Finally, the transfer is made without donative intent because the transfer is made for the sole purpose of furthering Company Purpose. Accordingly, the indirect transfer from Executive and Trusts to the Non-Contributing Shareholders is deemed to be made for adequate and full consideration in money or money's worth. Therefore, based on the facts presented and the representations made, the transfers made to the Non-Contributing Shareholders pursuant to Agreement do not constitute gifts from Executive or Trusts. By entering into Agreement, each party is increasing the value of the shares held by others (i.e., Executive is increasing the value of the shares held by Trusts, Trusts are increasing the value of shares held by Executive, and each individual trust is increasing the value of each other individual trust). The transfers between Executive and Trusts are not at arm's length, and, therefore, they are not made in the ordinary course of business. However, under Agreement, Executive and Trusts are each surrendering an equal proportion of their shares of Company, and, consequently, the value of the indirect transfers made by each of the parties to the Agreement will be equal to the value of the indirect transfers received by each party. Accordingly, the indirect transfers made from Executive to Trusts and from Trusts to Executive (and each other trust) are made for full and adequate consideration in money or money's worth. Therefore, based on the facts presented and the representations made, the Contributing Shareholders will not be subject to gift tax under sections 2501, 2511, 2512, and regulations thereunder as a result of the Proposed Transaction. Ruling 6 Section 2702(a)(1) provides that solely for purposes of determining whether a transfer of an interest in trust to (or for the benefit of) a member of the transferor's family is a gift (and the value of such transfer), the value of any interest in such trust retained by the transferor or any applicable family member (as defined in section 2701(e)(2)) shall be determined as provided in section 2702(a)(2). Section 2702(a)(2)(A) provides that the value of any retained interest which is not a qualified interest shall be treated as being zero. Section 2702(b) provides that the term "qualified interest" means: (1) any interest which consists of the right to receive fixed amounts payable not less frequently than annually, (2) any interest which consists of the right to receive amounts which are payable not less frequently than annually and are a fixed percentage of the fair market value of the property in the trust (determined annually), and (3) any noncontingent remainder interest if all of the other interests in the trust consist of interests described in paragraph (1) or (2). Section 25.2702-2(a)(6) provides, in part, that a qualified interest means a qualified annuity interest, a qualified unitrust interest, or a qualified remainder interest. Section 25.2702-3(b)(1) provides that an interest is a qualified annuity interest only if it meets the requirements of this paragraph and § 25.2702-3(d). A qualified annuity interest is an irrevocable right to receive a fixed amount. The annuity amount must be payable to (or for the benefit of) the holder of the annuity interest at least annually. Under § 25.2702-3(d)(3), the governing instrument must prohibit distributions from the trust to or for the benefit of any person other than the holder of the qualified annuity or unitrust interest during the term of the qualified interest. The terms of GRAT 4 prohibit distributions to anyone other than Executive during the term of Executive's interest in GRAT 4 in accordance with § 25.2702-3(d)(3). Under the terms of Agreement, the contribution of shares to Company and resulting indirect transfer from GRAT 4 to Executive and Non-Contributing Shareholders will be made for adequate and full consideration in money or money's worth within the meaning of § 25.2511-1(g)(1). Accordingly, such transfers are not characterized as distributions from GRAT 4. These transfers are deemed investments because GRAT 4 receives or is deemed to receive value in money or money's worth equal to the transfer. As a result, GRAT 4 will not violate the terms of the trust instruments or the requirement under § 25.2702-3(d)(3) prohibiting a distribution for the benefit of any person other than Executive during the term of Executive's qualified interest. Therefore, based on the facts presented and the representations made, Executive's interest in GRAT 4 will not cease to qualify as a qualified interest under § 25.2702-3 or otherwise under section 2702(b) as a result of the Proposed Transaction. Caveats Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Procedural Statements This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representatives. A copy of this letter must be attached to any income tax return to which it is relevant. Alternatively, taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter ruling. Sincerely, Gerald B. Fleming Senior Technician Reviewer, Branch 2 (Corporate) cc:

Treasury Decision 9968 Internal Revenue Service 2022-45 I.R.B. 409 26 CFR§ 301.6104(c)-1 T.D. 9968 DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 Affordability of Employer Coverage for Family Members of Employees AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. SUMMARY: This document contains final regulations under section 36B of the Internal Revenue Code (Code) that amend the regulations regarding eligibility for the premium tax credit (PTC) to provide that affordability of employer-sponsored minimum essential coverage (employer coverage) for family members of an employee is determined based on the employee's share of the cost of covering the employee and those family members, not the cost of covering only the employee. The final regulations also add a minimum value rule for family members of employees based on the benefits provided to the family members. The final regulations affect taxpayers who enroll, or enroll a family member, in individual health insurance coverage through a Health Insurance Exchange (Exchange) and who may be allowed a PTC for the coverage. DATES: These final regulations are effective on December 12, 2022. FOR FURTHER INFORMATION CONTACT: Clara Raymond at (202) 317-4718 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background I. Overview This document amends the Income Tax Regulations (26 CFR part 1) under section 36B of the Code. On April 7, 2022, the Department of the Treasury (Treasury Department) and the IRS published a notice of proposed rulemaking (REG-114339-21) in the Federal Register (87 FR 20354) under section 36B (proposed regulations). A public hearing was held on June 27, 2022. The Treasury Department and the IRS also received written comments on the proposed regulations. After consideration of the testimony heard at the public hearing and the comments received, the proposed regulations are adopted as amended by this Treasury decision (final regulations). These final regulations provide that, for purposes of determining eligibility for PTC, affordability of employer coverage for individuals eligible to enroll in the coverage because of their relationship to an employee of the employer (related individuals) is determined based on the employee's share of the cost of covering the employee and the related individuals. As further explained in the Summary of Comments and Explanation of Revisions, the affordability rule for related individuals in these final regulations represents the better reading of the relevant statutes and is consistent with Congress's purpose in the Affordable Care Act (ACA) 1 to expand access to affordable health care coverage. The final regulations also include amendments to the rules relating to the determination of whether employer coverage provides a minimum level of benefits, referred to as minimum value; conforming amendments to the current regulations; and clarification of the treatment of premium refunds. 1 The term ACA in this preamble means the Patient Protection and Affordable Care Act, Pub. L. 111-148, 124 Stat. 119 (2010), as amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. 111-152, 124 Stat. 1029 (2010). II. Eligibility for Employer Coverage Under Section 36B Section 36B provides a PTC for applicable taxpayers who meet certain eligibility requirements, including that a member of the taxpayer's family enrolls in a qualified health plan through an Exchange (QHP or Exchange coverage) for one or more "coverage months." Under§1.36B-1(d) of the Income Tax Regulations, a taxpayer's family consists of the taxpayer, the taxpayer's spouse if filing jointly, and any dependents of the taxpayer. Section 1.36B-3(d)(1) provides that the PTC for a coverage month is the lesser of: (i) the premiums for the month, reduced by any amounts that were refunded, for one or more QHPs in which a taxpayer or a member of the taxpayer's family enrolls (enrollment premiums); or (ii) the excess of the adjusted monthly premium for the applicable benchmark plan over 1/12 of the product of a taxpayer's household income and the applicable percentage for the taxable year (taxpayer's contribution amount). Under section 36B(c)(2)(B) and§1.36B-3(c), a month is a coverage month for an individual only if the individual is not eligible for minimum essential coverage (MEC) for that full calendar month (other than coverage under a health care plan offered in the individual market within a state). Under section 5000A(f)(1)(B) of the Code, the term MEC includes employer coverage. If an individual is eligible for employer coverage for a given month, no PTC is allowed for the individual for that month. Section 36B(c)(2)(C) generally provides that an individual is not treated as eligible for employer coverage if the coverage offered is unaffordable or does not provide minimum value. However, if the individual enrolls in employer coverage, the individual is eligible for MEC, irrespective of whether the employer coverage is affordable or provides minimum value. See section 36B(c)(2)(C)(iii) and§1.36B-2(c)(3)(vii). Under the affordability test in section 36B(c)(2)(C)(i)(II), an employee who does not enroll in employer coverage is not treated as eligible for the coverage if "the employee's required contribution (within the meaning of section 5000A(e)(1)(B)) with respect to the plan exceeds 9.5 percent of the applicable taxpayer's household income." 2 The flush language following this provision provides that "[t]his clause shall also apply to an individual who is eligible to enroll in the plan by reason of a relationship the individual bears to the employee." 2 This required contribution percentage of 9.5 is indexed annually under section 36B(c)(2)(C)(iv). For simplicity, this preamble refers to 9.5 percent as the required contribution percentage. Section 5000A generally requires applicable individuals 3 to make an individual shared responsibility payment 4 with their tax return if they do not maintain minimum essential coverage for themselves and any dependents. Section 5000A(e)(1) establishes exemptions from the individual shared responsibility payment that would otherwise apply for "individuals who cannot afford coverage," which the statute defines in section 5000A(e)(1)(A) to be applicable individuals whose required contribution for coverage exceeds a specified percentage of their household income. Section 5000A(e)(1)(B)(i) provides that, for an employee eligible to purchase employer coverage, the term "required contribution" means "the portion of the annual premium which would be paid by the individual... for self-only coverage." For related individuals, the definition of "required contribution" in section 5000A(e)(1)(B)(i) is modified by a "special rule" in section 5000A(e)(1)(C). Section 5000A(e)(1)(C) provides that "[f]or purposes of [section 5000A(e)(1)](B)(i), if an applicable individual is eligible for minimum essential coverage through an employer by reason of a relationship to an employee, the determination [of affordability] under subparagraph (A) shall be made by reference to [the] required contribution of the employee." The regulations under section 5000A interpret section 5000A(e)(1)(C) as modifying the required contribution rule in section 5000A(e)(1)(B)(i) regarding coverage for related individuals to take into account the cost of covering the employee and the related individuals, not just the employee. Specifically, for related individuals,§1.5000A-3(e)(3)(ii)(B) provides that the required contribution is the amount an employee must pay to cover the employee and the related individuals who are included in the employee's family. 5 Thus, under§1.5000A-3(e)(3)(ii)(B), employer coverage is affordable for those related individuals if the share of the annual premium the employee must pay to cover the employee and the related individuals is not greater than the required contribution percentage of household income. 3 Section 5000A(d)(1) defines an applicable individual as any individual other than an individual with a religious conscience exemption, an individual who is not lawfully present or an individual who is incarcerated. 4 Public Law 115-97 (2017), commonly referred to as the Tax Cuts and Jobs Act, reduced the individual shared responsibility payment amount to zero for months beginning after December 31, 2018. 5 For purposes of this exemption for unaffordable coverage, an employee or related individual who is otherwise exempt under§1.5000A-3 is not included in determining the required contribution. In contrast to the affordability rule for related individuals in§1.5000A-3(e)(3)(ii)(B), the Treasury Department and the IRS issued final regulations in 2013 for purposes of the PTC providing that employer coverage is affordable for the related individuals if the share of the annual premium the employee must pay for self-only coverage is not greater than the required contribution percentage of household income, regardless of how expensive the annual premium for family coverage would be. See§1.36B-2(c)(3)(v)(A)( 2 ) (the 2013 regulations or 2013 affordability rule). Thus, under the 2013 affordability rule, the employee's share of the premium for family coverage, as defined in§1.36B-1(m), 6 was not considered in determining whether employer coverage is affordable for related individuals. 6 Section 1.36B-1(m) defines family coverage as health insurance that covers more than one individual and provides coverage for the essential health benefits as defined in section 1302(b)(1) of the ACA. When the 2013 regulations were issued, the Treasury Department and the IRS considered the statutory language of section 36B(c)(2)(C)(i)(II) and its cross-reference to section 5000A(e)(1)(B), as well as the statutory language of section 5000A(e)(1)(B) and the cross-reference in section 5000A(e)(1)(C) to section 5000A(e)(1)(B). In the preamble to those regulations, the Treasury Department and the IRS interpreted the language of section 36B, through the cross-reference to section 5000A(e)(1)(B), to provide that the affordability test for related individuals is based on the cost of self-only coverage. Thus, if the cost of self-only coverage is affordable, no PTC is allowed for the Exchange coverage of related individuals even if family coverage through the employer costs more than 9.5 percent of household income. As noted above, section 36B(c)(2)(C) generally provides that an individual is not treated as eligible for employer coverage if the coverage offered is unaffordable or does not provide minimum value. An eligible employer-sponsored plan provides minimum value under section 36B(c)(2)(C)(ii) and§1.36B-6(a)(1) only if the plan's share of the total allowed costs of benefits provided to an employee is at least 60 percent. On November 4, 2014, the IRS released Notice 2014-69, 2014-48 I.R.B. 903, which advised employers of the intent to propose regulations providing that group health plans that fail to provide substantial coverage for inpatient hospitalization or physician services do not provide minimum value. Notice 2014-69 noted that the Department of Health and Human Services (HHS) was concurrently issuing parallel guidance and also provided that, pending issuance of final Treasury regulations, an employee would not be required to treat a non-hospital/non-physician services plan as providing minimum value for purposes of an employee's eligibility for a PTC. On November 26, 2014, HHS issued proposed regulations providing that an eligible employer-sponsored plan provides minimum value only if, in addition to covering at least 60 percent of the total allowed costs of benefits provided under the plan, the plan benefits include substantial coverage of inpatient hospital services and physician services. See 79 FR 70674. On February 27, 2015, HHS finalized this minimum value rule at 45 CFR 156.145(a). See 80 FR 10750, 10872. On September 1, 2015, the Treasury Department and the IRS issued proposed regulations under section 36B (REG-143800-14, 80 FR 52678) (2015 proposed regulations) to incorporate the substance of the HHS final regulations regarding the minimum value rule. The 2015 proposed regulations issued by the Treasury Department and the IRS relating to substantial coverage of inpatient hospital services and physician services have not been finalized. III. EO 14009 On January 28, 2021, President Biden issued Executive Order (EO) 14009, Strengthening Medicaid and the Affordable Care Act (ACA). Section 3(a) of EO 14009 directed the Secretary of the Treasury to review, as soon as practicable, all existing regulations and other agency actions to determine whether the actions are inconsistent with the policy to protect and strengthen the ACA and, as part of this review, to examine policies or practices that may reduce the affordability of coverage or financial assistance for coverage, including for dependents. Consistent with the EO, the Treasury Department and the IRS reviewed the regulations under section 36B, including§1.36B-2(c)(3)(v)(A)( 2 ). IV. Proposed Regulations On April 7, 2022, the Treasury Department and the IRS published proposed regulations proposing to amend§1.36B-2(c)(3)(v)(A)( 2 ) to change the rule regarding the affordability of employer coverage for related individuals. The proposed regulations provided that, for purposes of determining eligibility for PTC, affordability of employer coverage for related individuals in the employee's family would be determined based on the cost of covering the employee and those related individuals--just as affordability is determined in the regulations implementing section 5000A. For this purpose, affordability for related individuals would be based on the portion of the annual premium the employee must pay for coverage of the employee and all other individuals included in the employee's family, within the meaning of§1.36B-1(d), who are offered the coverage. Although some individuals who are not part of the family might be offered the employer coverage through the employee, the cost of covering individuals not in the family would not be considered in determining whether the related individuals in the employee's family have an offer of affordable employer coverage. The proposed regulations would not change the affordability rule for employees. As required by statute, employees have an offer of affordable employer coverage if the employee's required contribution for self-only coverage of the employee does not exceed the required contribution percentage of household income. The proposed regulations also addressed the minimum value rules in section 36B. Under the proposed regulations, a separate minimum value rule would be provided for related individuals that is based on the level of coverage provided to related individuals under an eligible employer-sponsored plan. In addition, the proposed regulations withdrew the 2015 proposed regulations and re-proposed the rule regarding substantial coverage of inpatient hospitalization services and physician services. Thus, under the proposed regulations, an eligible employer-sponsored plan would provide minimum value only if the plan covers at least 60 percent of the total allowed costs of benefits provided to an employee under the plan and the plan benefits include substantial coverage of inpatient hospital services and physician services. Finally, the proposed regulations would amend§1.36B-3(d)(1)(i) to clarify that, in computing the PTC for a coverage month, a taxpayer's enrollment premiums for the month are the premiums for the month, reduced by any amounts that were refunded in the same taxable year the taxpayer incurred the premium liability. Summary of Comments and Explanation of Revisions I. Overview The Treasury Department and the IRS received 3,888 comments on the proposed regulations, the overwhelming majority of which were in support of the rules in the proposed regulations, including the affordability test for related individuals that is based on the cost of family coverage offered to the related individuals. Many commenters recounted personal stories of family members being uninsured due to the unaffordability of family coverage offered by an employer and the unavailability of a PTC for Exchange coverage. One married couple even testified to a state legislature that they divorced solely to retain the husband's eligibility for the PTC after his wife got a new job with an offer of family coverage at a cost of $16,000, over half of the husband's annual earnings. 7 Some commenters made the point that an affordability test for related individuals that is based on the cost of the coverage offered to the employee and related individuals is family-friendly because it is more likely to provide all family members with access to affordable coverage. Many commenters agreed with the analysis in the preamble to the proposed regulations that the language of section 36B(c)(2)(C)(i) is best interpreted to require a separate affordability determination for related individuals that is based on the employee's cost to cover the employee and related individuals rather than a single affordability determination for both employees and related individuals that is based on the cost of self-only coverage to employees, and provided persuasive legal support for this position. Commenters also overwhelmingly supported the minimum value rules provided in the proposed regulations and agreed that a failure to provide a separate minimum value rule for related individuals could undermine the separate affordability rule for related individuals. 7 See https://legislature.maine.gov/legis/bills/getTestimonyDoc.asp?id=161949. Other commenters expressed the view that the separate affordability test and minimum value rule for related individuals in the proposed regulations are contrary to the language of section 36B, and that the Treasury Department and the IRS do not have the authority to change those rules. Several of these commenters provided legal analyses in support of their position as well as policy arguments against the proposed affordability test and minimum value rule for related individuals. For reasons explained in sections II and III of this Summary of Comments and Explanation of Revisions, the Treasury Department and the IRS are not persuaded by these arguments. Some commenters suggested that the Treasury Department and the IRS adopt various changes to the rules in the proposed regulations. Other commenters requested outreach by HHS, the Treasury Department, and the IRS to educate individuals, employers, and other stakeholders about the final regulations once they are issued. Several commenters requested clarification on certain issues related to employers, including information reporting requirements under section 6056 of the Code and the effect of the final regulations on individuals enrolled in non-calendar year plans. These comments are addressed in sections IV, V, and VI of the Summary of Comments and Explanation of Revisions. Finally, many commenters supported the minimum value rule in the proposed regulations under which an eligible employer-sponsored plan would provide minimum value to an employee only if, in addition to covering at least 60 percent of the total allowed costs of benefits provided to an employee under the plan, the plan's benefits include substantial coverage of inpatient hospitalization services and physician services. In addition, many commenters supported the proposed amendment to§1.36B-3(d)(1)(i) to clarify that, in computing the PTC for a coverage month, a taxpayer's enrollment premiums for the month are the premiums for the month, reduced by any amounts that were refunded in the same taxable year the taxpayer incurred the premium liability. Because commenters supported these rules and did not request any modifications to them, both the proposed minimum value rule for employees related to inpatient hospitalization services and physician services and the proposed clarification of the premium refund rule are being finalized without change. II. Comments on Legal Analysis A. Statutory analysis of affordability rule Under section 36B(c)(2)(C)(i)(II), an employee who does not enroll in employer coverage is not considered eligible for the coverage if "the employee's required contribution (within the meaning of section 5000A(e)(1)(B)) with respect to the plan exceeds 9.5 percent of the applicable taxpayer's household income." The flush language following this provision provides that "[t]his clause shall also apply to an individual who is eligible to enroll in the plan by reason of a relationship the individual bears to the employee." As discussed in the preamble to the proposed regulations, the flush language in section 36B(c)(2)(C)(i) does not state clearly and expressly how section 36B(c)(2)(C)(i)(II) applies to related individuals or how the cross-reference to section 5000A(e)(1)(B) applies to coverage for related individuals. Section 5000A(e)(1)(B)(i) provides that, for an employee eligible to purchase employer coverage, the term "required contribution" means "the portion of the annual premium which would be paid by the individual... for self-only coverage." For related individuals, the definition of "required contribution" in section 5000A(e)(1)(B)(i) is modified by a "special rule" in section 5000A(e)(1)(C). Section 5000A(e)(1)(C) provides that "[f]or purposes of [section 5000A(e)(1)](B)(i), if an applicable individual is eligible for minimum essential coverage through an employer by reason of a relationship to an employee, the determination under [section 5000(e)(1)(A)] shall be made by reference to [the] required contribution of the employee." The regulations under section 5000A interpret section 5000A(e)(1)(C) as modifying the required contribution rule in section 5000A(e)(1)(B)(i) for coverage for a related individual to provide that the determination under section 5000A(e)(1)(A) is made by reference to the required contribution of the employee for coverage for the employee and that related individual. Specifically, for related individuals,§1.5000A-3(e)(3)(ii)(B) provides that the required contribution for related individuals is the amount an employee must pay to cover the employee and all related individuals who are included in the employee's family. 8 This long-standing rule under section 5000A was proposed in February 2013 9 and did not generate any critical comments. The proposed rule was finalized without change in August 2013 10 and has never been challenged. 8 For purposes of this exemption for unaffordable coverage, an employee or related individual who is otherwise exempt under§1.5000A-3 is not included in determining the required contribution. 9 REG-148500-12 (78 FR 7314). 10 TD 9632 (78 FR 53646). Similar to the regulations implementing section 5000A, the proposed regulations provided an affordability rule for related individuals for section 36B purposes that looks to the cost of coverage for the employee and related individuals and is separate from the affordability rule for employees of the employer offering the coverage. Under the proposed regulations, affordability for related individuals would be based on the portion of the annual premium the employee must pay for coverage of the employee and all other individuals included in the employee's family, within the meaning of§1.36B-1(d), who are offered the coverage. Some commenters expressed the view that the affordability rule in the proposed regulations conflicts with the language in section 36B, that the 2013 affordability rule is correct, and that the affordability rule for related individuals in the proposed regulations should be withdrawn. These commenters argued that section 36B unambiguously establishes a single affordability test for both employees and related individuals that is based on the cost of self-only coverage to the employee. As explained later in this section II.A. of the Summary of Comments and Explanation of Revisions, however, the proposed rule's approach represents the better reading of the statute and the better means of implementing it. After careful consideration, the Treasury Department and the IRS are adopting the affordability test as proposed. The Treasury Department and the IRS are of the view that section 36B(c)(2)(C)(i), including the flush language that follows section 36B(c)(2)(C)(i)(II), is correctly interpreted to provide that the affordability test for a related individual is based on the cost of coverage for the employee and the related individual. The flush language provides as follows: "[t]his clause shall also apply to a [related individual]." Thus, taking into account the flush language, section 36B(c)(2)(C)(i) may be read to apply to a related individual as follows: [A related individual] shall not be treated as eligible for minimum essential coverage if such coverage (I) consists of an eligible employer-sponsored plan [ ], and (II) the employee's 11 required contribution (within the meaning of section 5000A(e)(1)(B)) with respect to the plan exceeds 9.5 percent of the applicable taxpayer's household income. 11 The term "employee" would not be replaced with "related individual" here because it is the employee who makes contributions (through salary reduction or otherwise) to pay for employer coverage, even if the employer coverage includes family members of the employee. This language includes four references to the coverage provided by the employee's employer: "minimum essential coverage," "such coverage," "eligible employer-sponsored plan," and "the plan." Without question, "such coverage" refers to the minimum essential coverage offered by the employee's employer to the related individual, as do references to "employer-sponsored plan" and "the plan." Unless a related individual is also employed by that employer, the related individual may not enroll in the employer's coverage on a self-only basis. Thus, the minimum essential coverage referred to in section 36B(c)(2)(C)(i), as it applies to related individuals, is the coverage the related individual may enroll in, which is the family coverage offered by the employer. Under this reading, the reference to "the employee's required contribution... with respect to the plan" is the required contribution for family coverage. This reading gives full effect to section 36B(c)(2)(C)(i)(II)'s cross reference to section 5000A(e)(1)(B). As noted earlier in this section II.A of the Summary of Comments and Explanation of Revisions, section 36B(c)(2)(C)(i) specifies rules to determine the affordability of coverage under an eligible employer-sponsored plan both for an employee and for related individuals. Taken in isolation, section 5000A(e)(1)(B) would specify a rule for determining the affordability of a required contribution only with respect to coverage for an employee, even though the flush language in section 36B(c)(2)(C)(i) requires a calculation to be performed for related individuals as well. Section 5000A(e)(1)(C) provides a rule for that calculation by specifying a "special rule" for purposes of the calculation of the employee's required contribution for coverage that includes the related individual. As explained earlier in this section II.A. of the Summary of Comments and Explanation of Revisions, the Treasury Department and the IRS have long understood section 5000A(e)(1)(C) in this way. See§ 1.5000A-3(e)(3)(ii)(B), promulgated in 2013. As noted in section I of this Summary of Comments and Explanation of Revisions, the vast majority of commenters supported the proposed affordability rule for related individuals, and several of these commenters provided detailed technical analyses in support of this interpretation of the statute. Some of those commenters argued that section 36B unambiguously establishes a separate affordability test for related individuals that is based on the cost of family coverage. For example, one commenter asserted that the proposed affordability rule for related individuals follows the plain language of the statute and that section 5000A(c)(1)(C) states on its face that it must be read into 5000A(c)(1)(B). Another commenter argued that the plain text of the statute indicates that a related individual's eligibility for the PTC is based on the cost of family coverage and that the affordability rule in the 2013 regulations reflected a strained reading of the statute. One commenter supported the proposed affordability rule for related individuals but disagreed that the rule adopts an "alternative" reading of the statute. Instead, the commenter opined that the interpretation in the proposed regulations is correct and that the affordability rule in the 2013 regulations reflected an erroneous interpretation of the ACA. Finally, one commenter stated that the 2013 regulations implementing section 36B badly misinterpret the statute and that section 36B mandates a family-based affordability test. The commenter noted that if Congress had intended a self-only test, it would have mandated that coverage be deemed affordable for a related family member so long as the employee can afford self-only coverage, rather than obliquely stating that the special rule applies to related family members as well. For reasons explained in section III of this Summary of Comments and Explanation of Revisions, the Treasury Department and the IRS have concluded that the affordability rule for related individuals in the proposed regulations, as finalized in these regulations, is the better reading of the statute and the better means of implementing the statute. Further, the Treasury Department and the IRS believe that the affordability rule in these final regulations is consistent with the goal of the ACA to provide access to affordable, quality health care for all Americans. 12 Indeed, under the 2013 regulations, some family members of employees could not access any PTC for Exchange coverage even if their only offer of employer coverage was a family plan with exorbitant premiums (about 16% of income, on average), 13 solely because the employee had access to affordable self-only coverage. 12 See H.R. Rep. No. 111-443 (2009). 13 https://www.healthaffairs.org/doi/10.1377/hlthaff.2015.1491. As explained earlier in this section II.A of the Summary of Comments and Explanation of Revisions, the Treasury Department and the IRS disagree with commenters who argued that section 36B unambiguously establishes a single affordability test for both employees and related individuals that is based on the cost of self-only coverage to the employee. Some of these commenters argued that, because section 36B(c)(2)(C)(i)(II) does not cross-reference section 5000A(e)(1)(C) in defining the term "required contribution," section 5000A(e)(1)(C) cannot be considered in determining whether a related individual has been offered affordable employer coverage for purposes of section 36B. One of those commenters also argued that, under the negative-implication canon of statutory interpretation, 14 the reference to section 5000A(e)(1)(A) in section 5000A(e)(1)(C) precludes the use of the rule in section 5000A(e)(1)(C) for other purposes, such as providing a rationale for an affordability test in section 36B for related individuals that is separate from the test for employees. 14 The negative-implication canon of construction - expressio unius est exclusio alterius -- means the expression of one thing implies the exclusion of the other. The Treasury Department and the IRS disagree. As noted in the Background section and earlier in this section II.A. of the Summary of Comments and Explanation of Revisions, the definition of "required contribution" in section 5000A(e)(1)(B)(i) is modified by a "special rule" in section 5000A(e)(1)(C) that is applicable to related individuals. Section 5000A(e)(1)(C) provides that "[f]or purposes of [section 5000A(e)(1)](B)(i), if an applicable individual is eligible for minimum essential coverage through an employer by reason of a relationship to an employee, the determination under subparagraph (A) shall be made by reference to [the] required contribution of the employee." The regulations under section 5000A interpret section 5000A(e)(1)(C) as modifying the required contribution rule in section 5000A(e)(1)(B)(i) regarding coverage for related individuals to take into account the cost of covering the employee and the related individuals, not just the employee. Specifically,§1.5000A-3(e)(3)(ii)(B) provides that the required contribution for related individuals is the amount an employee must pay to cover the employee and the related individuals who are included in the employee's family. 15 Because section 5000A(e)(1)(C) begins with the language "[f]or purposes of [section 5000A(e)(1)](B)(i)," the parenthetical cross reference in section 36B(c)(2)(C)(i)(II) to section 5000A(e)(1)(B)(i) incorporates the special rule in section 5000A(e)(1)(C) and modifies section 5000A(e)(1)(B)(i) when the coverage in question is for related individuals. Accordingly, a specific reference to section 5000A(e)(1)(C) in the flush language of section 36B(c)(2)(C)(i) is not necessary to require the consideration of section 5000A(e)(1)(C) for determining whether coverage offered to related individuals is affordable under section 36B. 15 For purposes of this exemption for unaffordable coverage, an employee or related individual who is otherwise exempt under§1.5000A-3 is not included in determining the required contribution. In addition, the Treasury Department and the IRS disagree that the negative-implication canon of statutory construction compels the conclusion that the reference to section 5000A(e)(1)(A) in section 5000A(e)(1)(C) precludes the use of the rule in section 5000A(e)(1)(C) for section 36B purposes. As the Supreme Court has emphasized in numerous cases, the force of any negative implication depends on the context, and the negative-implication canon applies only when circumstances support a sensible inference that the term left out must have been meant to be excluded. See, for example, Chevron U.S.A. Inc. v. Echazabal, 536 U.S. 73, 81 (2002) ("The [negative-implication canon] is fine when it applies, but this case joins some others in showing when it does not."); United States v. Vonn, 535 U.S. 55, 65 (2002) ("At best, as we have said before, the [negative-implication canon] is only a guide, whose fallibility can be shown by contrary indications that adopting a particular rule or statute was probably not meant to signal any exclusion of its common relatives"); United Dominion Industries v. United States, 532 U.S. 822, 836 (2001) ("But here, as always, the soundness of the [negative-implication canon] is a function of timing"). 16 See also Antonin Scalia & Bryan Garner, Reading Law: The Interpretation of Legal Texts 107 (2012), stating that the negative-implication canon "must be applied with great caution since its application depends so much on context." Here, the context points in favor of not restricting the use of section 5000A(e)(1)(C) to the determination in 5000A(e)(1)(A). Instead, the context points in favor of reading the reference in section 36B(c)(2)(C)(i) to section 5000A(e)(1)(B) as incorporating the modification of that subparagraph in section 5000A(e)(1)(C). This reading creates a clear and consistent rule for determining the affordability of coverage for related individuals for purposes of both section 36B and section 5000A. And, as explained earlier in this section II.A. of the Summary of Comments and Explanation of Revisions, without incorporating section 5000A(e)(1)(C), the statute would point only to a calculation of affordability for the employee's coverage, even though section 36B requires a calculation of affordability for the related individuals as well. 16 Notably, in U.S. Venture, Inc. v. United States, 2 F.4th 1034 (7th Cir. 2021), the court rejected an argument by a taxpayer that the negative-implication canon of statutory interpretation required an outcome consistent with the taxpayer's interpretation of a provision of the Internal Revenue Code. The question considered by the court was whether a taxpayer's sale of a butane and gasoline mix qualified for the alternative fuel mixture credit in section 6426 of the Code. In discussing whether the sale of the butane and gasoline mix should qualify for the credit, the court rejected the taxpayer's argument that a specific cross reference in section 6426(e) to section 4083(a)(1) for the definition of a term in section 6426(e) forecloses using a third provision, section 4083(a)(2), to further illuminate the definition in section 4083(a)(1). The court "decline[d]" the taxpayer's invitation "to follow a congressionally mandated cross-reference only part of the way. Instead, we must accept and follow the cross-referenced definition in full." U.S. Venture, Inc., 2 F.4th at 1042. "Whether the cross-reference is to the individual sub-paragraphs or to the whole statute does not change the meaning that Congress chose to give "gasoline" in§ 4083 and, consequently, in§ 6426(e)." Id. Moreover, had Congress intended section 5000A(e)(1)(C) to apply only to the affordability determination under section 5000A, excluding all other provisions, it could have done so through explicit means, such as using the language "solely for purposes of the determination under section 5000A(e)(1)(A)." See, for example, section 4980H(c)(2)(D) and section 4980H(c)(2)(E), also enacted under the ACA and which provide "solely for purposes of" limiting language. No such limiting language is included in section 5000A(e)(1)(C). More generally, had Congress intended a self-only affordability test for related individuals, it could have explicitly provided that coverage is affordable for a related individual so long as the employee is offered affordable self-only coverage. Congress did just that in 2016 when it enacted section 36B(c)(4), relating to the affordability of employer coverage under a qualified small employer health reimbursement arrangement (QSEHRA). Under section 36B(c)(4)(A), a PTC is not allowed for a month for the Exchange coverage of "an employee (or any spouse or dependent of such employee) if for such month the employee is provided a [QSEHRA] which constitutes affordable coverage." A QSEHRA is affordable for a month if the excess of (1) the monthly premium for the second lowest cost silver plan for self-only coverage of the employee offered in the Exchange for the rating area in which the employee resides, over (2) 1/12 of the employee's permitted benefit (as defined in section 9831(d)(3)(C)) under the QSEHRA, does not exceed 1/12 of 9.5 percent of the employee's household income. In contrast to the language in section 36B(c)(2)(C)(i)(II), section 36B(c)(4)(A) does not reference section 5000A(e)(1)(B) for the QSEHRA affordability determination or provide that "this clause shall also apply" to a related individual. Instead, it provides the same affordability rule for both employees and related individuals by stating that affordability for coverage under a QSEHRA for "an employee (or any spouse or dependent of such employee)" is based on the cost of self-only coverage of the employee. That is far different from the language in section 36B(c)(2)(C)(i)(II) and, therefore, it is reasonable to conclude that the affordability rule in section 36B(c)(2)(C)(i)(II) for related individuals is not the same as the affordability rule for related individuals in section 36B(c)(4)(A). Additionally, the structure and context of sections 36B and 5000A suggest that Congress did not intend to preclude the use of section 5000A(e)(1)(C) in determining the affordability of employer coverage for related individuals for purposes of PTC eligibility under section 36B. Foremost, when the coverage in question is for related individuals, section 36B(c)(2)(C)(i)(II) specifically refers to the definition of required contribution in section 5000A(e)(1)(B)(i), and section 5000A in turn specifically incorporates the special rule in section 5000A(e)(1)(C) "for purposes of" section 5000A(e)(1)(B)(i). Under this statutory structure, a specific reference to section 5000A(e)(1)(C) in the flush language of section 36B(c)(2)(C)(i) is not necessary to require the consideration of section 5000A(e)(1)(C) in determining affordability for related individuals for section 36B purposes. This consideration of section 5000A(e)(1)(C) is particularly sensible given the flush language in section 36B(c)(2)(C)(i)(II). That is, the flush language evinces Congress's intent to provide an affordability rule for related individuals. Given that there are numerous cross references in section 36B to section 5000A and that section 5000A confronts a similar situation relating to affordability for related individuals that is resolved through section 5000A(e)(1)(C), it is logical to consider section 5000A(e)(1)(C) for purposes of the affordability rule for related individuals under section 36B. Finally, using the rule in section 5000A(e)(1)(C) in determining the affordability of employer coverage for related individuals for section 36B purposes supports the goal of the ACA to provide affordable, quality health care for all Americans. See H.R. Rep. No. 111-443 (2009). B. Consistency between the affordability rules of sections 36B and 5000A The preamble to the proposed regulations noted that the proposed affordability rule under section 36B would create greater consistency between the section 36B affordability rules and the rules in section 5000A used to determine whether an individual is exempt from the individual shared responsibility payment under section 5000A because employer coverage is unaffordable. With the finalization of the proposed section 36B affordability rule in these final regulations, both rules provide that affordability for employees is based on the employee's cost for self-only coverage and that affordability for family members is generally based on the amount an employee must pay to cover the employee and the related individuals included in the employee's family. Thus, these final regulations promote consistency between these two affordability rules. One commenter argued that Congress did not intend the affordability rules of section 36B and section 5000A to be consistent, suggesting that it instead sought to make it easier for a taxpayer to avoid a section 5000A individual shared responsibility payment for a related individual than to qualify for a PTC for such individual. In other words, the commenter seems to be suggesting that Congress's intent was to make it easier to go without health insurance coverage than to qualify for subsidized Exchange coverage. However, the commenter does not point to any evidence of this beyond the assertion that the statutory text compels this result. As explained above, the Treasury Department and the IRS disagree with the commenter's reading of the statutory text. The commenter's argument also ignores Congress's broader goal of expanding access to affordable health insurance coverage through the ACA, which goal is advanced by the affordability rule for related individuals in these final regulations. C. Legislative history of ACA One commenter also argued that the legislative history underlying the ACA shows that Congress intended that the rule for affordability of employer coverage for family members be the same as the affordability rule for employees and that both determinations are intended to be based on the cost of self-only coverage to the employee. The argument is that S. 1796, the America's Healthy Future Act of 2009 17 (one of the Senate bills that became the ACA through consolidation with another bill 18 and amendment), as introduced, based the determination of the affordability of employer-sponsored coverage on the employee's required contribution, as defined by (what was in that version of the bill) section 5000A(e)(2), which would have set affordability tests for both self-only and family coverage. 17 111 th Congress (2009). 18 H.R. 3590, 111 th Congress (2009). The commenter further argued that, when the bill that became the ACA was introduced on the Senate floor, it altered the language of S. 1796 to reflect the language currently in the statute, in which the required contribution is described as "within the meaning of section 5000A(e)(1)(B)." In the commenter's view, this change demonstrates that the required contribution rule in section 5000A(e)(1)(C) does not apply to the section 36B affordability test for related individuals. The commenter asserted that the proposed regulations fail to consider the changes to S. 1796 because the affordability test under the proposed regulations reflects exactly how the required contribution for related individuals would have been determined had these changes not been made. The Treasury Department and the IRS disagree that the change in legislative language on the Senate floor described by the commenter indicates that Congress intended that affordability for related individuals must be based on the cost of self-only coverage to the employee. At the same time that the legislative sponsors added the language to section 36B that cross-references section 5000A(e)(1)(B), they also added the introductory phrase to section 5000A(e)(1)(C) clarifying that that subparagraph applies "for purposes of" subparagraph (e)(1)(B). The fact that the legislative sponsors made both of these changes at the same time indicates that they understood that section 36B would incorporate both subparagraphs into its affordability rule. Moreover, as noted by a number of commenters supportive of the proposed regulations, had Congress intended an identical affordability rule for employees and related individuals, the flush language in section 36B(c)(2)(C)(i) would not have been necessary. For example, Congress could simply have stated that affordability for an employee (or any spouse or dependent of such employee) is based on the cost of self-only coverage of the employee. Indeed, as explained in section II.A. of this Summary of Comments and Explanation of Revisions, Congress did exactly that when it enacted the affordability rules for QSEHRAs in section 36B(c)(2)(4). That, however, is not the direction that Congress chose to take with its changes to S. 1796. Instead, Congress enacted two rules, one for employees and one for related individuals. Consequently, it is reasonable to conclude that Congress's use of separate rules for employees and related individuals indicates an intent to provide separate tests for an employee, based on the cost of self-only coverage to the employee, and for related individuals, based on the cost of the coverage for the employee and those related individuals. D. Legislative proposals to change affordability rule Several commenters also argued that a change to the affordability rule for related individuals should be accomplished by legislative action, rather than regulatory action. They argued that, despite requests to amend section 36B to provide that affordability of employer coverage for related individuals is based on the employee's cost for family coverage, Congress has not amended section 36B to specifically command this result. In addition, they noted that Congress has included language in various bills to amend the affordability rule, but the proposed legislation has not been enacted. The commenters asserted that this Congressional inaction means that the Treasury Department and the IRS are not empowered to issue regulations to address a matter that Congress acknowledges must be addressed in legislation. Although the commenters are correct that members of Congress have included language in various bills to address the section 36B affordability rule in section 36B(c)(2)(C)(i), the introduction of proposed legislation is not an acknowledgement by Congress that the section 36B affordability test for related individuals must be addressed in legislation and not by regulation. As the Supreme Court has emphasized, "failed legislative proposals are a particularly dangerous ground on which to rest an interpretation of a prior statute [internal quotations omitted]... Congressional inaction lacks persuasive significance because several equally tenable inferences may be drawn from that inaction, including the inference that the existing legislation already incorporated the offered change." Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 187 (1994) (quoting Pension Benefit Guaranty Corporation v. LTV Corp., 496 U.S. 633, 650 (1990)). Here, for instance, it is possible that legislative proposals were introduced not because of insufficient language in the ACA, but because members of Congress believed that the 2013 regulations had incorrectly interpreted the existing language of the ACA. Although Congress may not have enacted legislation specifically and unequivocally mandating the approach taken in these final regulations, the Treasury Department and the IRS have determined that existing section 36B(c)(2)(C)(i) is better interpreted to require separate affordability determinations for employees and for family members, as set forth in§1.36B-2(c)(3)(v)(A)(2) of these final regulations. E. Interpretation of Joint Committee on Taxation report In a footnote in the preamble to the proposed regulations, the Treasury Department and the IRS observed that in the Joint Committee on Taxation report, Technical Explanation of the Revenue Provisions of the "Reconciliation Act of 2010," as amended, in combination with the "Patient Protection and Affordable Care Act," (JCX-18-10), March 21, 2010 (JCT report), the staff of the Joint Committee on Taxation (Joint Committee staff) initially explained that "[u]naffordable is defined as coverage with a premium required to be paid by the employee that is 9.5 percent or more of the employee's household income, based on the type of coverage applicable (e.g., individual or family coverage)." The Joint Committee staff later revised the quoted language, after the enactment of the ACA, to state that "[u]naffordable is defined as coverage with a premium required to be paid by the employee that is 9.5 percent or more of the employee's household income, based on self-only coverage." ERRATA for JCX-18-10, (JCX-27-10), May 4, 2010 (May 2010 Errata). A few commenters expressed the view that the original JCT report was in error and should not be viewed as evidence that the statutory language in section 36B(c)(2)(C)(i)(II) supports a separate affordability rule based on the cost of family coverage; these commenters noted that the May 2010 Errata corrected the error. The Treasury Department and the IRS acknowledge that the Joint Committee staff characterized the May 2010 Errata as a correction of an error but disagree with the commenters as to the relevance of that observation. The May 2010 Errata was not before Congress at the time that the ACA was enacted in March 2010. In any event, neither the JCT report nor the May 2010 Errata is considered part of the legislative history, and neither is dispositive of any particular statutory interpretation. F. Relevance of section 18081 The preamble to the proposed regulations noted that the proposed regulations would promote consistency between the affordability rules in sections 36B and 5000A and the rule in 42 U.S.C. 18081(b)(4)(C) (section 18081(b)(4)(C)). Section 18081(b)(4)(C) relates to information that a QHP enrollee must provide as part of the enrollee's QHP application if the enrollee wants to be determined eligible for advance payments of the PTC (APTC) or cost-sharing reductions. Under section 18081(b)(4)(C), if an employer offers minimum essential coverage to an individual seeking to enroll in a QHP, and the individual asserts that the offer does not preclude the individual from qualifying for APTC or cost-sharing reductions because it is not affordable, the QHP applicant must provide to the Exchange information on "the lowest cost option for the enrollee's or [related] individual's enrollment status and the enrollee's or [related] individual's required contribution (within the meaning of section 5000A(e)(1)(B) of title 26) under the employer-sponsored plan." Certain commenters opined that they saw no inconsistency between the 2013 affordability rule under section 36B, the affordability rule under section 5000A, and the QHP applicant information rule in section 18081(b)(4)(C). One commenter stated that section 18081(b)(4)(C), by referencing section 5000A(e)(1)(B), merely instructs Exchanges to determine "the portion of the annual premium which would be paid by the individual for self-only coverage" under the employer-sponsored plan. Another commenter argued that section 18081(b)(4)(C), by using the term "or" and not "and," requires the submission of information on the required contribution solely for the employee who is offered employer coverage, meaning the individual who would pay the required contribution, but that the individual enrolling in the QHP could be the employee or someone related to the employee. This commenter further argued that in either case, the only information required by section 18081(b)(4)(C) is the lowest cost option for self-only coverage and the required contribution for the applicable employee. The Treasury Department and the IRS agree with the commenter who noted that section 18081(b)(4)(C) requires the submission of information on the required contribution solely for the employee who is offered employer coverage and that the individual enrolling in the QHP could be the employee or someone related to the employee. However, the Treasury Department and the IRS disagree with the conclusion of both commenters that section 18081(b)(4)(C) requires Exchanges to collect information on only the portion of the annual premium that would be paid by the employee for self-only coverage under the employer-sponsored plan. Section 18081 requires Exchanges to collect information from enrollees who are offered coverage under an employer plan on "the lowest cost option" that the employee, whether the enrollee or an individual related to the enrollee, must contribute for the employee's or individual's enrollment status. The language "lowest cost option for the... enrollment status" indicates that the amount may vary depending on whether the employee's enrollment status would be for self-only or family coverage. Otherwise, section 18081(b)(4)(C) would refer to "the lowest cost option for the enrollee for self-only coverage." Thus, the Treasury Department and the IRS are of the view that the amendment to§1.36B-2(c)(3)(v)(A)( 2 ) in these final regulations and the similar affordability rule in§1.5000A-3(e)(3)(ii)(B) are consistent with the QHP applicant information rule in section 18081(b)(4)(C). G. Coordination with section 4980H One commenter asserted that the framework of section 4980H supports the view that a separate affordability test under section 36B for related individuals is not warranted. Section 4980H provides that an applicable large employer (ALE) generally must offer coverage to full-time employees and their dependents or potentially be subject to an employer shared responsibility payment. As the commenter noted, although ALEs are required to offer coverage to full-time employees and dependents, only the coverage offered to the full-time employees is required to be affordable. There is no comparable affordability rule for the coverage offered to dependents. In addition, an employer's obligation to make a payment under section 4980H is triggered only when a full-time employee is allowed a PTC. The commenter stated that the affordability of self-only coverage is the key determinant in whether an employer of a full-time employee must make a section 4980H payment and in whether the full-time employee and his or her dependents are allowed a PTC. The commenter argued that this framework shows Congress's intent that section 36B and section 4980H have just one affordability test based on the cost of self-only coverage to the employee and that providing an affordability test for related individuals based on the cost of family coverage is not consistent with that framework. The Treasury Department and the IRS disagree. Section 36B and section 4980H apply to different types of taxpayers and have different purposes. Section 36B provides a PTC to taxpayers and their families who meet certain requirements, one of which is that they are not eligible for affordable, minimum value coverage from their employer. The amount of the PTC is determined based on family size and household income, among other factors, in recognition of the fact that affordability of coverage depends on the cost to the family. The PTC is integral to ensuring that individuals and their families can access affordable coverage through an Exchange. In contrast, section 4980H imposes a payment on ALEs if they fail to offer minimum essential coverage to their full-time employees and their dependents, and at least one full-time employee is allowed a PTC. Section 4980H does not require that employer coverage be offered to an employee's spouse, and it does not require that any coverage offered to spouses or dependents be affordable. Further, employers do not owe a payment under section 4980H if a PTC is allowed for an employee's spouse or dependent. The purpose of this provision is to ensure that large employers share responsibility under the ACA for providing affordable health coverage to employees, but this responsibility does not extend to affordable coverage for spouses or dependents. Given these differing purposes, there is nothing in this framework that suggests Congress intended for section 36B and section 4980H to have a single affordability test based on the cost of self-only coverage to the employee. In addition, the goal of the ACA is to provide affordable, quality health care for all Americans, 19 not just to full-time employees of ALEs, and these final regulations further that goal. In light of that goal, and contrary to the suggestion of the commenter, the lack of any requirement under section 4980H for ALEs to offer affordable coverage to family members of employees indicates that a PTC should be allowed for family members offered unaffordable coverage. 19 See H.R. Rep. No. 111-443 (2009). H. Minimum value rule As noted in the Background section of this preamble, an employee generally is not treated as eligible for coverage under an eligible employer-sponsored plan unless the coverage provides minimum value, as defined in section 36B(c)(2)(C)(ii). Under section 36B(c)(2)(C)(ii) and§1.36B-6(a)(1), an eligible employer-sponsored plan provides minimum value if the plan's share of the total allowed costs of benefits provided to an employee is at least 60 percent, regardless of the total allowed costs of benefits. The proposed regulations provided a minimum value rule for related individuals that is based on the plan's share of the total allowed cost of benefits provided to the related individuals. Under the proposed regulations, an eligible employer-sponsored plan satisfies the minimum value requirement for related individuals only if the plan's share of the total allowed costs of benefits provided to related individuals is at least 60 percent, similar to the existing rule in§1.36B-6(a)(1) for employees. The vast majority of commenters supported the separate minimum value rule for related individuals in the proposed regulations. However, two commenters stated that the minimum value requirement in section 36B applies only to employees and that the Treasury Department and the IRS have no authority to provide a minimum value rule for related individuals. In the view of these commenters, related individuals are eligible for employer coverage if the coverage is affordable, even if the plan's share of the total allowed costs of benefits provided to related individuals is below 60 percent. This approach, however, is contrary to the approach taken in current§1.36B-2(c)(3)(i)(A), which was promulgated in final regulations in 2012. See TD 9590 (77 FR 30377). Section 1.36B-2(c)(3)(i)(A) clarifies that there is a minimum value requirement for both employees and related individuals, stating that "an employee who may enroll in an eligible employer-sponsored plan... that is minimum essential coverage, and an individual who may enroll in the plan because of a relationship to the employee (a related individual), are eligible for minimum essential coverage under the plan for any month only if the plan is affordable and provides minimum value." Under this long-standing rule, a related individual who receives an offer of employer coverage that does not provide minimum value is deemed to be ineligible for the coverage, and a PTC may be allowed for the related individual provided that the related individual does not enroll in the coverage. The proposed regulations did not propose to revisit this long-standing rule. Further, as stated in the preamble to the proposed regulations, without a separate minimum value rule for related individuals based on the costs of benefits provided to related individuals, a PTC would not be allowed for a related individual offered coverage under a plan that was affordable but provided minimum value only to employees and not to related individuals. This outcome would diminish the benefit a related individual would derive from the amendment of the affordability rule for related individuals. That is, the affordability of employer coverage for related individuals would be based on the employee's cost of covering the related individuals, but there would be no assurance that the affordable coverage offered to the related individuals provided a minimum value of benefits to the related individuals. Moreover, as described by commenters supportive of the minimum value rule for related individuals, it is extremely rare for an employer plan to provide a different level of coverage for family members than the coverage level provided to the employee enrolled in the plan. This is because most employers that offer multiple benefits packages offer family coverage on the condition that the employee and the employee's family must enroll in the same benefits package, which will then have the same minimum value for the entire family. Thus, if an employer plan offered to employees provides minimum value, and that plan is also offered to related individuals, the plan generally will also provide minimum value to the family members. Nevertheless, because the lack of a separate minimum value rule for related individuals would be inconsistent with the goals of the ACA in providing comprehensive health coverage and improving access to quality and affordable health care, the final regulations provide that an eligible employer-sponsored plan provides minimum value for related individuals only if the plan's share of the total allowed costs of benefits provided to related individuals is at least 60 percent and the plan benefits include substantial coverage of inpatient hospital services and physician services. III. Rationale for change At the time that the Treasury Department and the IRS promulgated the 2013 regulations, limited information was available to model the effects of an affordability rule for related individuals based on the cost of family coverage. In the years since the 2013 regulations became effective in 2014, however, the Treasury Department and the IRS have learned more about how the ACA is affecting individuals, families, employers, group health plans, health insurance markets, and other stakeholders. For example, in 2017, the Congressional Budget Office (CBO) determined that 2010 reports by CBO and JCT on the budgetary effects of the ACA dramatically overstated the cost of the PTC. 20 In the 2017 report, the CBO noted that, to a great extent, the differences arose because actual results deviated from the agencies' expectations about how the economy would change and how people and employers would respond to the law, and that, to a lesser extent, the differences were caused by judicial decisions, statutory changes, and administrative actions that followed the ACA's enactment. 20 See https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/53094-acaprojections.pdf. Despite the initial uncertainty about the ACA's effects, there has been substantial progress over the past several years toward meeting the goal of the ACA to give all Americans the opportunity to enroll in comprehensive health insurance at an affordable price. For individuals who were previously uninsured, the ACA expanded eligibility for Medicaid and created new Exchanges for eligible individuals to purchase QHPs subsidized by the PTC. Research has shown that these policies increased access to affordable health insurance and helped reduce the share of the population that was uninsured. 21 21 https://onlinelibrary.wiley.com/doi/epdf/10.1002/pam.22158. Despite this progress, roughly 26 million people still lack health insurance coverage. About 8 percent of the population is still uninsured. 22 Because these people without health coverage face large, unpredictable bills when they seek medical care, many forgo necessary treatments. The key challenge for these families in obtaining coverage is the cost of coverage. According to the National Health Interview Survey, nearly 75 percent of uninsured adults reported the main reason they were uninsured was because the coverage options available to them were not affordable. 23 Additionally, millions of adults reported that in order to save money, they did not get needed medical care or take medication as prescribed. 24 22 https://aspe.hhs.gov/reports/2022-uninsurance-at-all-time-low. 23 https://www.cdc.gov/nchs/data/databriefs/db382-H.pdf. 24 https://www.cdc.gov/nchs/data/nhis/earlyrelease/earlyrelease202204.pdf. Premium costs are particularly challenging for families enrolling in employer coverage. Since the 2013 regulations were promulgated, the average annual employee contribution for family coverage has increased by over 30 percent -- a growth rate that is nearly double the rate at which the Consumer Price Index increased over the same period. 25 In 2021, the average annual employee contribution for a family plan offered by the employer was $5,969. Contributions were even higher for employees at small firms who faced an average cost of $7,710. Roughly 12 percent of workers offered health coverage would have had to pay over $10,000 to cover their entire family. 26 Under the 2013 regulations, these families are not eligible for the PTC if the self-only coverage offer is affordable, even if the cost of family coverage exceeds their annual income. Without access to affordable coverage from either their employer or the Exchange, some low- and middle-income families are unable to obtain coverage and must go uninsured. 25 https://www.bls.gov/cpi/data.htm. 26 https://www.kff.org/health-costs/report/2021-employer-health-benefits-survey/. For families that can afford employer coverage, the coverage is sometimes of limited value because of high levels of cost-sharing. In 2020, roughly 90 percent of employer plans had a deductible. 27 Among family plans offered by employers with a deductible, the average amount of the deductible was roughly $3,722. After families reach their deductible, they are usually liable for co-insurance or co-payments until they hit their out-of-pocket maximum. For 2020, the average out-of-pocket maximum for a family plan offered by employers was $8,867. There is also clear evidence that high levels of cost-sharing can restrict access to necessary medical care and lead to adverse health outcomes. 28 27 https://www.meps.ahrq.gov/data_files/publications/cb25/cb25.pdf. 28 https://academic.oup.com/qje/article-abstract/132/3/1261/3769421; https://www.nber.org/papers/w28439. Thus, although the ACA has succeeded in providing affordable health care to millions of Americans, some still cannot afford coverage. With increasingly higher premiums and out-of-pocket costs, the cost of family coverage offered by employers has become particularly unaffordable for some employees' family members. The self-only affordability rule for related individuals in the 2013 regulations exacerbates that problem. Although the Treasury Department and the IRS could speculate in 2010-2013 that the self-only affordability rule might adversely affect certain families, the data and subsequent analysis have now borne out those adverse effects. In addition to the data provided in the studies cited above, numerous health care advocates have written articles over the years describing the adverse effects of the 2013 affordability rule and recommending a rule change. 29 Most recently, the proposed regulations themselves generated over 3,800 comments in support of the proposed rule. As noted earlier in this preamble, many of these commenters recounted personal stories of family members being uninsured due to the unaffordability of family coverage offered by an employer and the unavailability of a PTC for Exchange coverage. Finally, individuals have shared stories in other forums regarding the negative impact of the 2013 affordability rule on their lives. For example, one married couple testified to a state legislature that they divorced solely to retain the husband's eligibility for the PTC after his wife got a new job with an offer of family coverage at a cost of $16,000, over half of the husband's annual earnings. 30 29 See, for example, Trapped by the Firewall: Policy Changes Are Needed to Improve Health Coverage for Low-Income Workers | Center on Budget and Policy Priorities (cbpp.org); https://www.healthaffairs.org/do/10.1377/forefront.20210520.564880/. 30 See https://legislature.maine.gov/legis/bills/getTestimonyDoc.asp?id=161949. Consistent with EO 14009, issued in January 2021, the Treasury Department and the IRS undertook a review of the affordability rule for family members in the 2013 regulations at§1.36B-2(c)(3)(v)(A)( 2 ). As part of this review, the Treasury Department and the IRS reconsidered the text of the relevant statutes and whether the 2013 affordability rule represents the best reading of that text. As explained above, the Treasury Department and the IRS now believe (in contrast to their view in 2013) that the 2013 affordability rule did not represent the best reading of the statutory text. The Treasury Department and the IRS also considered the evidence described above from the intervening years and evaluated whether the 2013 affordability rule is inconsistent with the overall goal of the ACA in providing comprehensive, affordable health coverage, as well as the goal of improving access to quality and affordable health care. 31 This evaluation was informed by the experience of the intervening years since Exchange coverage and the PTC first became available. The evaluation demonstrated adverse impacts of the 2013 regulations on families and prompted the Treasury Department and the IRS to issue the proposed regulations and solicit public comments. 31 See H.R. Rep. No. 111-443 (2009). In addition, the Treasury Department and the IRS now have a clearer idea of the potential cost and the coverage benefits of changing the affordability rule, in part because of the time that has elapsed since the issue was last considered and the experiences of different insurance markets during that time. For example, analysis has shown how adopting the policies in the final rule would increase access to affordable Exchange coverage. 32 Newly insured individuals will receive substantial benefits. Recent academic research suggests that enrollment in Exchange coverage provides financial protection and improves health outcomes. 33 Several commenters on the proposed regulations also cited publicly available studies that estimate the impact of the proposed affordability rule for related individuals on Federal outlays and revenues. 32 https://www.healthaffairs.org/do/10.1377/forefront.20220420.498595/. 33 https://academic.oup.com/qje/article/136/1/1/5911132; https://www.sciencedirect.com/science/article/abs/pii/S0047272718302408. In addition, several commenters cited publicly available studies that estimate how changing the affordability rule for related individuals could affect the number of people with health insurance coverage. 34 One commenter presented estimates based on their own simulation of health insurance coverage decisions. Another commenter cited a study that focused specifically on the state of California. 35 Since the comment period on the proposed regulations ended, analysts have continued to estimate the impact of changing the affordability rule. 36 34 See https://www.kff.org/health-reform/issue-brief/the-aca-family-glitch-and-affordability-of-employer-coverage/; https://www.kff.org/health-reform/issue-brief/many-workers-particularly-at-small-firms-face-high-premiums-to-enroll-in-family-coverage-leaving-many-in-the- family-glitch/; https://www.cbo.gov/system/files/2020-06/Patient_Protection_and_Affordable_Care_Enhancement_Act_0.pdf; https://www.urban.org/research/publication/changing-family-glitch-would-make-health-coverage-more-affordable-many-families; https://www.urban.org/research/publication/marketplace-subsidies-changing-family-glitch-reduces-family-health-spending-increases-government-costs; https://www.rand.org/pubs/research_reports/RR1296.html; https://www.healthaffairs.org/doi/10.1377/hlthaff.2015.1491. 35 https://laborcenter.berkeley.edu/wp-content/uploads/2022/06/Fact-Sheet-Family-Glitch.pdf. 36 https://www.cbo.gov/system/files?file=2022-07/58313-Crapo_letter.pdf. The studies cited by commenters found that implementing a policy similar to the affordability rule described in the proposed regulations would increase the number of individuals eligible for financial assistance by between 3 million and 5.1 million. Other studies project that, out of those newly eligible, between 600,000 and 2.3 million individuals would choose to enroll in Exchange coverage. 37 Estimates of the number of people who would be newly insured range from 80,000 to 700,000. These studies estimate that this change in eligibility and subsequent enrollment would increase the Federal deficit by between approximately $2.6 billion and $4.5 billion per year on average. 37 Some studies estimated any Exchange enrollment while other studies estimated only subsidized Exchange enrollment. The studies also discussed which types of families would be most likely to benefit from the proposed affordability rule for related individuals. Families with incomes below 250 percent of the Federal poverty level and families with employees who work for small employers were expected to benefit the most. One study found that workers in industries such as service, agriculture, mining, and construction were more likely to be eligible for a PTC. 38 Another study estimated that families switching from employer coverage to Exchange coverage would save an average of about $400 per person in premiums per year. 39 The studies also discussed how certain qualifying individuals would benefit from cost-sharing reductions that are available for certain qualified individuals enrolling in Exchange coverage. 38 https://www.kff.org/health-reform/issue-brief/many-workers-particularly-at-small-firms-face-high-premiums-to-enroll- in-family-coverage-leaving-many-in-the-family-glitch/. 39 https://www.urban.org/sites/default/files/publication/104223/changing-the-family-glitch-would-make-health-coverage- more-affordable-for-many-families_1.pdf. These studies provide a range of estimated impacts on health coverage status and the Federal deficit. Each study relies on different data sources, modeling techniques, behavioral assumptions, and budgetary baselines. Additionally, the policies they simulate are different than the exact set of policies being adopted in the final regulations. The Treasury Department and the IRS also note that there is a substantial amount of uncertainty in estimating the impact of the policy change. 40 40 None of the studies reviewed by the Treasury Department and the IRS provided a quantitative measure of the level of uncertainty associated with their estimates. For example, the studies did not report sensitivity checks describing how their results would change under different modeling assumptions. Additionally, none of the studies reported standard errors, a statistic that researchers use to quantify sampling error and the significance of any differences. In addition to these studies - those cited by commenters, as well as others reviewed by the Treasury Department and the IRS - the Treasury Department's Office of Tax Analysis has conducted its own analysis as to the effect of the policy change on health insurance coverage decisions and the Federal deficit. The policy change is projected to increase the number of individuals with PTC-subsidized Exchange coverage by about 1 million and increase the Federal deficit by an average of $3.8 billion per year over the next 10 years. The projections from this analysis are within the range of predictions reported in the cited studies. The evaluation focused on direct, predictable effects of the regulation. Although some studies predict the affordability rule may incidentally increase enrollment in Medicaid or CHIP, these effects are indirect and speculative. Taken as whole, the Treasury Department and the IRS conclude that these analyses provide compelling evidence that the new affordability rule for related individuals will increase the affordability and accessibility of health insurance. Although the range of numbers indicate there is uncertainty in the precise number of individuals who will be affected, the studies suggest that the final regulations will succeed in achieving two key policy goals of the ACA: increasing coverage and reducing costs for consumers. These studies, and the Treasury Department's own analysis, lead the Treasury Department and the IRS to believe that the proposed affordability rule, as finalized in these regulations, is consistent with the overall goals of the ACA and is based on sound reasons for a revision to the affordability rule. Further, as explained in section II of this Summary of Comments and Explanation of Revisions, the Treasury Department and the IRS are of the view that section 36B(c)(2)(C)(i) is better interpreted in a manner that requires consideration of the premium cost to the employee to cover not just the employee, but also other members of the employee's family who may enroll in the employer coverage. Thus, the Treasury Department and the IRS adopt in these final regulations the proposed affordability rule for related individuals that is based on the cost of family coverage because they have concluded that such a rule is the better reading of the statute. For the reasons stated in section II of this Summary of Comments and Explanation of Revisions, the Treasury Department and the IRS have also concluded that, to the extent there is ambiguity in the statute, the proposed affordability rule would be the better alternative to resolve that ambiguity and to implement the statute in a way consistent with Congress's purposes in enacting the ACA. IV. Recommended Amendments to Proposed Rules A. Cost of family coverage Under the proposed regulations, an eligible employer-sponsored plan would be treated as affordable for related individuals if the portion of the annual premium the employee must pay for family coverage, that is, the employee's required contribution, does not exceed 9.5 percent of household income. For this purpose,§1.36B-2(c)(3)(v)(A)( 2 ) of the proposed regulations provided that an employee's required contribution for family coverage is the portion of the annual premium the employee must pay for coverage of the employee and all other individuals included in the employee's family, as defined in§1.36B-1(d), who are offered coverage under the eligible employer-sponsored plan. Under§1.36B-1(d), an employee's family consists of the employee, the employee's spouse filing a joint return with the employee, and the employee's dependents. A few commenters requested a change to§1.36B-2(c)(3)(v)(A)( 2 ) of the proposed regulations. Under the rule suggested by the commenters, an employee's required contribution for family coverage under§1.36B-2(c)(3)(v)(A)( 2 ) would be the portion of the annual premium the employee must pay for coverage of the employee and all other individuals offered the employer coverage as a result of their relationship to the employee, including non-dependents of the employee who may enroll in the employer coverage (non-family members). As noted by the commenters, many employers offer coverage to employees' children up to age 26 without regard to whether a child is a dependent of the employee. 41 The commenters argued that including the cost to cover all individuals offered the coverage in an employee's required contribution will ensure that all of these individuals, including non-family members, have access to affordable coverage. 41 Under Public Health Service Act section 2714, which is incorporated into the Code through Code section 9815 and into the Employee Retirement Income Security Act (ERISA) through section 715 of ERISA, group health plans and health insurance issuers offering group or individual health insurance coverage that offer dependent coverage for children must make that coverage available to employees' children until they attain age 26. See 26 CFR 54.9815-2714, 29 CFR 2590.715-2714, and 45 CFR 147.120. The Treasury Department and the IRS do not adopt this comment. Under the final regulations, as in the proposed regulations, the cost of covering individuals who are offered the coverage but are non-family members is not considered in determining whether the employee's family members have an offer of affordable employer coverage. Under§1.36B-2(c)(4)(i), an individual who may enroll in employer coverage as a result of the individual's relationship to an employee, but who is a non-family member, is treated as eligible for the employer coverage only if he or she is enrolled in the coverage. Consequently, an individual who may enroll in employer coverage, but who is a non-family member, does not need a determination of unaffordable coverage to enroll in a QHP and be eligible for the PTC, if the individual otherwise qualifies. Unlike family members, a non-family member may enroll in a QHP and be eligible for the PTC, if the individual is otherwise eligible, by simply not enrolling in the offered employer coverage. Accordingly, the cost of covering non-family members should not be considered in determining whether other related individuals have an offer of affordable employer coverage. B. Determine affordability for employees based on the cost of family coverage Under§1.36B-2(c)(3)(v)(A)( 1 ), an eligible employer-sponsored plan is considered affordable for an employee offered coverage under the plan if the employee's required contribution for self-only coverage does not exceed 9.5 percent of household income. The proposed regulations do not change the affordability rule for employees. Several commenters requested that the final regulations amend the affordability rule for employees to provide that, if an offer of employer coverage is unaffordable for an employee's family members, the offer would also be considered unaffordable for the employee. The commenters noted that separate affordability rules for employees and family members will sometimes result in a spouse or dependent of an employee having an offer of employer coverage that is unaffordable even though the employee has an affordable offer of self-only coverage. This could cause families to enroll in multiple plans or policies, the employee in the employer plan and the family members in a QHP, which would be burdensome and costly for families who must navigate different provider networks and drug formularies and incur separate deductibles and caps on out-of-pocket spending. Although the Treasury Department and the IRS understand the concerns raised by the commenters, the affordability rule for employees is specifically provided in section 36B(c)(2)(C)(i) and cannot be changed by regulation. Under section 36B(c)(2)(C)(i), an employee is not eligible for minimum essential coverage under an employer plan if the employee's required contribution (within the meaning of section 5000A(e)(1)(B)) with respect to the plan exceeds 9.5 percent of household income. Section 5000A(e)(1)(B) provides that the term "required contribution" means, "in the case of an individual eligible to purchase minimum essential coverage consisting of coverage through an eligible employer-sponsored plan, the portion of the annual premium which would be paid by the individual (without regard to whether paid through salary reduction or otherwise) for self-only coverage." Further, the affordability rule in section 5000A(e)(1)(C) applies only to related individuals and not to employees. Consequently, the final regulations do not amend the affordability rule for employees. C. Multiple offers of coverage The proposed regulations provided that an individual who has offers of employer coverage from multiple employers has an offer of affordable coverage if at least one of the offers of coverage is affordable. For example, if X has an offer of employer coverage from X's employer and also from the employer of X's spouse, Y, for a year for which X and Y file a joint return, X has an offer of affordable coverage if either X's required contribution for self-only coverage under X's employer's plan does not exceed 9.5 percent of X's and Y's household income, or if Y's required contribution for family coverage under Y's employer's plan does not exceed 9.5 percent of X's and Y's household income. One commenter suggested that the Treasury Department and the IRS reconsider this multiple coverage rule as it may be confusing for individuals with multiple offers of coverage; however, the commenter did not include a recommendation for a specific change to the regulations. The final regulations do not change the rule provided in the proposed regulations regarding affordability for individuals with multiple offers of coverage. Although the current section 36B regulations do not explicitly address situations involving multiple offers of employer coverage, as noted in the Background section of this preamble, a month is a coverage month for an individual only if the individual is not eligible for MEC, other than individual market coverage, for the month. Therefore, under the current regulations, an individual with multiple employer coverage offers for a month is eligible for MEC for that month if at least one of the offers of coverage is affordable and provides minimum value. The rule in the proposed regulations relating to multiple offers of coverage simply states expressly how the affordability rule in the current regulations applies to an individual with multiple offers of employer coverage. Furthermore, an individual with multiple offers of employer coverage seeking to enroll in a QHP with APTC would provide information to the applicable Exchange concerning the required contribution for each coverage offer. The Exchange will determine if at least one of the offers is affordable, in which case APTC would not be allowed for the individual's Exchange coverage. This process should minimize any burden or confusion relating to whether an individual with multiple offers of coverage has an affordable offer that would deny the individual APTC and PTC for his or her Exchange coverage. In addition, for taxpayers for whom APTC is not paid for their or their family's QHP coverage, the IRS will update the instructions for Form 8962, Premium Tax Credit (PTC), and Publication 974, Premium Tax Credit (PTC ), to address multiple offers of employer coverage. D. Comments requiring legislative changes One commenter suggested that the final regulations include a rule under which an employee and the employee's family members are not considered to have an offer of affordable coverage if the cost of coverage for the entire family is more than 15 percent of household income. One commenter asked that the rule in section 36B(c)(2)(B) be amended and that all individuals offered coverage under an employer plan be permitted to choose between the employer coverage and Exchange coverage with a PTC. Another commenter requested that the Treasury Department and the IRS make permanent the rule in section 36B(c)(1)(E) under which taxpayers with household income above 400 percent of the applicable Federal poverty line may qualify for a PTC for taxable years beginning in 2021 and 2022. 42 One commenter requested that the rules of section 36B be amended so that a PTC for a child may be claimed by the taxpayer who pays for the health insurance coverage of the child, not to the taxpayer claiming the child as a dependent. Finally, one commenter suggested that the final regulations include a rule under which excess APTC repayments would be waived for taxable year 2023 while the Exchanges adjust and reeducate consumers on the affordability calculation for family members. 42 Section 12001 of Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA), extended through 2025 the rule in section 36B(c)(1)(E) under which taxpayers with household income above 400 percent of the applicable Federal poverty line may qualify for a PTC. The Treasury Department and the IRS appreciate these comments but note that these changes would require legislative action and cannot be made by regulation. Thus, the final regulations do not include these recommended rules. E. ICHRA and QSEHRA comments In general,§1.36B-2(c)(3)(i)(B) provides affordability rules related to employees who are offered a health reimbursement arrangement (HRA) or other account-based group health plan that would be integrated with individual health insurance coverage if the employee enrolls in individual health insurance coverage (an individual coverage health reimbursement arrangement or ICHRA). Those rules provide that an individual who is offered an ICHRA because of a relationship to the employee (a related HRA individual) is eligible for minimum essential coverage under an eligible employer-sponsored plan for any month for which the ICHRA is offered if (1) the ICHRA is affordable, or (2) the employee does not opt out of and waive future reimbursements from the ICHRA, regardless of whether the ICHRA is affordable. Under§1.36B-2(c)(5), an ICHRA is affordable for a month if the employee's required HRA contribution does not exceed 9.5 percent of the employee's household income for the taxable year, divided by 12. An employee's required HRA contribution is the excess of the monthly premium for the lowest cost silver plan for self-only coverage of the employee offered in the Exchange for the rating area in which the employee resides, over the monthly self-only ICHRA amount (or the monthly maximum amount available to the employee under the ICHRA if the ICHRA provides for reimbursements up to a single dollar amount regardless of whether an employee has self-only or other-than-self-only coverage). One commenter stated it was unclear whether the affordability rule for related individuals in the proposed regulations applies to ICHRAs. The commenter also suggested that the final regulations include a rule under which family coverage amounts, not self-only coverage amounts, are used to determine whether an ICHRA offer to a related HRA individual is affordable. The proposed regulations do not address the affordability rules relating to an ICHRA offer, and, consequently, the final regulations also do not address ICHRAs. Therefore, the rules for determining affordability of an ICHRA remain unchanged. However, the Treasury Department and the IRS, in coordination with HHS and the U.S. Department of Labor (DOL), will consider whether future guidance should be issued to change the ICHRA affordability rules for related HRA individuals in the manner suggested by the commenter. Other commenters suggested that a PTC be allowed for family members in situations in which an employee is offered an affordable HRA, whether an ICHRA or a QSEHRA, and does not opt-out of the HRA. The commenters recommended that, in these situations, the employee and the family members would enroll in an Exchange family plan and the employee would not be allowed a PTC because of the affordable HRA, but the family members would be allowed a PTC. The rules relating to QSEHRAs are specifically provided by statute in section 36B(c)(4). Because the Treasury Department and the IRS cannot amend those rules by regulation, QSEHRAs are not addressed in these final regulations. Under the rules for ICHRAs, if the terms of the ICHRA provide that reimbursements are allowed only for the medical expenses of the employee and not for the expenses of related individuals, a PTC may be allowed for the Exchange coverage of the related individuals, irrespective of whether the ICHRA is considered affordable under§1.36B-2(c)(5), or whether the employee opts out of the ICHRA. However, if the ICHRA offer includes reimbursements of the medical expenses of related HRA individuals, a PTC is generally not allowed for the Exchange coverage of the employee or the related HRA individuals if the ICHRA offer is affordable or if the employee does not opt out of the ICHRA. This is because an ICHRA is an eligible employer-sponsored plan under section 5000A(f)(2) and, therefore, under section 36B(c)(2)(C), if the coverage is affordable and provides minimum value, a PTC is generally not allowed for the Exchange coverage of an individual to whom the ICHRA offer extends or who does not opt out of the ICHRA. Consequently, this rule relating to offers of employer coverage in section 36B(c)(2)(C) cannot be amended by regulation. However, as noted in connection with the prior comment concerning ICHRAs, the Treasury Department and the IRS, in coordination with HHS and DOL, will consider whether future guidance should be issued to provide an ICHRA affordability rule for related individuals that is separate from the affordability rule for employees. F. Minimum value 1. Minimum value rule for related individuals The proposed regulations provided that an employer plan meets the minimum value requirement for related individuals if the plan's share of the total allowed costs of benefits provided to related individuals is at least 60 percent, similar to the minimum value requirement for employees. One commenter requested that the final regulations include a minimum value safe harbor rule under which an employer plan is considered to provide minimum value to related individuals if the coverage provided to employees under the plan meets minimum value requirements and the same benefits are provided to employees and family members. Other commenters recommended that the final regulations allow for the calculation of minimum value using a standard population that includes both employees and dependents to calculate a single, composite, minimum value for an employee and dependents, and that separate populations not be required for coverage provided to employees and coverage provided to related individuals. As in the proposed regulations, the final regulations provide a minimum value rule for related individuals that is separate from the minimum value rule for employees, and that requires a plan's share of the total allowed costs of benefits provided to related individuals to be at least 60 percent. This minimum value rule for related individuals is not intended to require the use of a standard population for family members that is separate from the standard population for employees. Rather, the intent of the rule is to ensure that employers continue to provide a plan that has the same benefit design for employees and related individuals, and not to burden employers with having to offer different benefit packages for employees and related individuals. Consequently, the final regulations include a rule providing that an employer plan that provides minimum value to an employee also provides minimum value to related individuals if the scope of benefits and cost sharing (including deductibles, co-payments, coinsurance, and out-of-pocket maximums) under the plan are the same for employees and family members. If cost sharing varies based on whether related individuals are enrolled and/or the number of related individuals enrolled (that is, the tier of coverage), minimum value for related individuals is based on the tier of coverage that would, if elected, cover the employee and all related individuals (disregarding any differences in deductibles or out-of-pocket maximums that are attributable to a different tier of coverage, such as self plus one versus family coverage.) In addition, the final regulations do not require a departure from the practice of computing minimum value for employees and related individuals based on the provision of benefits to a standard population that includes both employees and related individuals. 2. Require coverage of all essential health benefits The proposed regulations provided that, to be considered to provide minimum value, an eligible employer-sponsored plan must include substantial coverage of inpatient hospital services and physician services. One commenter asked that final regulations provide that an employer plan does not meet the minimum value requirements unless it provides coverage of all 10 essential health benefits that, under the ACA, certain plans must cover, not just inpatient hospital services and physician services. This comment requesting an expansion of the minimum value rule is outside the scope of these final regulations. Thus, as in the proposed regulations, the final regulations provide that an eligible employer-sponsored plan does not meet minimum value requirements unless it includes substantial coverage of inpatient hospital services and physician services. 3. Minimum value calculator Under 45 CFR 156.145(a)(1), a minimum value calculator is to be made available by HHS and the IRS that an employer plan may use to determine whether the percentage of total allowed costs under the plan is at least 60 percent. Several commenters requested that the minimum value calculator be updated to reflect more current large group data and to incorporate appropriate model changes that have been made to the actuarial value calculator. 43 Although the commenters' request concerning the minimum value calculator is outside the scope of the final regulations, the Treasury Department and the IRS have shared these comments with HHS to determine the best way to address these comments relating to the calculator. 43 Under 45 CFR 156.135, HHS is responsible for developing and updating an actuarial value calculator that issuers may use to determine the actuarial value of a health plan. G. Applicability date of final regulations The proposed regulations provided that the changes to§§1.36B-2, 1.36B-3, and 1.36B-6(a)(2) in the proposed regulations, if finalized, were expected to apply for taxable years beginning after December 31, 2022. Several commenters requested instead that the final regulations apply for taxable years beginning after December 31, 2023. These commenters expressed concern that taxpayers will be faced with a number of health care-related changes in 2022, including the end of the temporary applicable percentages for 2021 and 2022 in section 36B(b)(3)(A)(iii) that increased PTC amounts. 44 Commenters also noted that at the end of the COVID-19 public health emergency, states will no longer be required to comply with a Medicaid continuous enrollment requirement in order to receive a temporary increase in Federal Medicaid matching funds under the Families First Coronavirus Response Act. The commenters stated that these changes, along with the changes in the proposed regulations, will result in much uncertainty for QHP enrollees for the open enrollment period that begins on November 1, 2022, and will lead to substantial confusion for QHP enrollees and likely inaccurate APTC determinations by Exchanges. 44 Under section 12001 of the IRA, the temporary applicable percentages for 2021 and 2022 in section 36B(b)(3)(A)(iii) were extended through 2025 so taxpayers will not see a change in their PTC amount due to the potential policy change described by commenters. Although the commenters' concerns are appreciated, the Treasury Department and the IRS are of the view that those concerns are outweighed by the goal of allowing spouses and dependents, some of whom have been negatively affected by the 2013 affordability rule, to be able to access affordable Exchange coverage beginning in the 2023 plan year. For this reason, many commenters urged the Treasury Department and the IRS to implement the changes to the affordability rule for related individuals in time for QHP open enrollment for the 2023 plan year. Although 2023 QHP enrollment may present some new challenges, as discussed more fully in section IV of this Summary of Comments and Explanation of Revisions, HHS has informed the Treasury Department and the IRS that HHS will engage in thorough implementation efforts, including revising the Exchange application and providing resources and technical assistance education for State Exchanges, Navigators, agents, brokers, and other assisters to help enrollees understand their options for 2023. In addition, the IRS will be making changes to its forms, instructions, publications, and website, in an effort to educate taxpayers about any changes for the 2023 plan year. Therefore, the Treasury Department and the IRS do not adopt the commenters' request that the applicability date of the final regulations be delayed until taxable years beginning after December 31, 2023. Instead, the final regulations apply for taxable years beginning after December 31, 2022. Another commenter urged that the Treasury Department and the IRS consider the effective date implications of this rule for the State Innovation Waiver program under section 1332 of the ACA (section 1332 waivers). The commenter requested that the Administration consider the implications of the final regulations on states with approved section 1332 waivers and, if necessary, identify a plan to mitigate potential harm to accessing affordable coverage for individuals. For example, the commenter expressed concern that states would need to develop and update actuarial analyses for section 1332 waivers and that there would be an impact on states leveraging Federal pass-through funding under section 1332 waivers, mostly through reinsurance programs, given that the proposed regulations would modify who is eligible for the PTC and APTC. The commenter also was concerned that there may be implications for states exploring other innovative opportunities, such as public health insurance options that enhance affordable options by leveraging section 1332 Federal pass-through funding. The section 1332 waiver program permits states to apply to waive certain provisions of the ACA, including section 36B of the Code, to undertake their own state-specific reforms to provide residents with access to high quality, affordable health insurance while retaining the basic protections of the ACA. A state applying for a section 1332 waiver must include in its application actuarial and economic analyses that demonstrate that the waiver proposal meets the statutory requirements for section 1332 waivers. 45, 46 If a waiver yields Federal savings on certain forms of Federal financial assistance under the ACA (such as the PTC), those savings are passed through to the state to help implement the state's approved waiver plan. Federal pass-through funding amounts are calculated annually by the Treasury Department and HHS. Pass-through amounts reflect current law and policy at the time of the calculation but can be updated, as necessary, to reflect applicable changes in Federal or state law. 47 The Treasury Department plans to work with HHS to communicate any implications of these final regulations, including any associated requirements for states, to affected stakeholders and to states that have approved section 1332 waivers or that are considering section 1332 waivers. The Treasury Department and the IRS recognize that the final regulations may affect states in different ways but believe that any negative effects related to the effective date are outweighed by the goal, supported by numerous commenters, of allowing more spouses and dependents to be able to access affordable Exchange coverage beginning in 2023. The Treasury Department and the IRS also note that further innovation under section 1332 of the ACA is speculative, and that, in any event, section 1332 waiver policies are outside the scope of these regulations. 45 See 31 CFR 33.108(f)(4)(i) and (ii); 45 CFR 155.1308(f)(4)(i) and (ii). 46 Section 1332(b)(1)(A)-(D) of the ACA. 47 31 CFR 33.122 and 45 CFR 155.1322. V. Comments regarding outreach Several commenters requested that HHS, the Treasury Department, and the IRS provide clear resources aimed at helping various individuals and employers. Many of the commenters who requested that HHS, the Treasury Department, and the IRS provide outreach about the new rules were concerned about families understanding the trade-offs if they are considering "split coverage," meaning that the employee would enroll in employer coverage and the family members would enroll in Exchange coverage. Some commenters noted that split coverage could lead to lower premiums for the family or could lead to uninsured individuals gaining coverage. Those commenters also noted, however, that some families with split coverage will need to contend with different provider networks, deductibles, out-of-pocket limits, open enrollment periods, appeals and grievance procedures, and other parameters unique to their different health plans. Another commenter added that for some families, moving family members from employer coverage to Exchange coverage could mean lower HRA or health savings account contributions from employers. One commenter stated that confusion about split coverage could present particular difficulties for those with limited English proficiency or lower rates of health literacy. The commenters who raised these concerns all supported the affordability rule for related individuals provided in the proposed regulations, but requested that the Treasury Department and the IRS work with HHS to help ensure that families who choose to enroll in split coverage will benefit from doing so. One commenter stated that families considering whether to enroll in Exchange coverage with a PTC in lieu of enrolling in employer coverage would greatly benefit from resources and guidance that help them make an informed purchasing decision. That commenter urged the Treasury Department and the IRS to work with HHS on how to best communicate that information in an accessible fashion to consumers both generally and as part of the Exchange application. Finally, one commenter noted that numerous studies show there is a correlation between advertising about the ACA and an increase in individuals shopping for, and enrolling in, Exchange coverage. Thus, that commenter suggested that the IRS and HHS should reinvigorate efforts to educate the American public about Exchange open enrollment (Open Enrollment), specifically focusing on this change to the affordability rule for related individuals. The Treasury Department and the IRS understand that the new affordability rule in these final regulations will present families with additional coverage options they will need to understand, evaluate, and compare to determine the type of coverage that is best for them. The Treasury Department and the IRS have been working with HHS, and will continue to work with HHS, to ensure that the agencies communicate information about the new rules in an accessible fashion to individuals both generally and as part of the Exchange application. Specifically, HHS has informed the Treasury Department and the IRS that HHS will work to revise the Exchange application on HealthCare.gov in advance of Open Enrollment for the 2023 plan year to include new information that will assist consumers in filling out their applications. Those revisions will include (1) new questions on the application about employer coverage offers for family members, and (2) revised materials for consumers to gather information from their employer about the coverage being offered. To assist those with limited English proficiency, HealthCare.gov offers language services upon request through the Marketplace Call Center, and the HealthCare.gov application is available in both English and Spanish. The Treasury Department and the IRS also understand that HHS will provide resources and technical assistance to State Exchanges that will need to make similar changes on their websites and Exchange application experiences. More generally, HHS is working regularly with State Exchanges to provide technical assistance on implementation of the new rules. HHS continues to track State Exchange planning and take all necessary steps to support efforts by State Exchanges to implement the new rules, with necessary outreach and education efforts, for Open Enrollment for the 2023 plan year. In addition, the Treasury Department and the IRS understand that HHS will provide training on the new rules to agents, brokers, and other assisters (for example, Navigators) so applicants will better understand their options before enrolling, including the trade-offs if applicants are considering split coverage. This training is particularly important because over half of the applicants who apply for Exchange coverage through HealthCare.gov are assisted by an agent, broker, or other assister. HHS also will share available resources with State Exchanges to leverage for use in training customer support personnel in their states. Finally, HHS has informed the Treasury Department and the IRS that HHS is considering outreach to specific consumers. HHS has data from prior years on applicants who applied through a Federally-facilitated Exchange, were denied APTC at enrollment, and might benefit from the new rules. HHS is evaluating opportunities for direct outreach to these individuals. The IRS also will need to implement the new rules for the 2023 taxable year. In particular, the IRS will update relevant forms, instructions, and publications prior to the tax filing season for 2023, to include the instructions for Form 8962 and Publication 974. In addition, the IRS will update relevant materials on IRS.gov to provide taxpayers with additional information about the new rules. In addition to the commenters requesting that HHS, the Treasury Department, and the IRS provide outreach to individuals, a few commenters provided specific recommendations related to employers. One commenter stated that employers are thinking about ways to educate employees affected by this new change but suggested that resources be made available from HHS, the Treasury Department, and the IRS that could be shared with employees. One commenter suggested that the Treasury Department, in coordination with HHS and the U.S. Department of Labor, issue tri-agency guidance and consumer-friendly resources to help employees navigate challenges that arise from split coverage. One commenter stated that the Treasury Department and the IRS should require employers to provide notification to their employees about the new affordability test, including information about Exchange coverage, the availability of financial assistance, and how an individual may enroll in coverage. The commenter also recommended that the Treasury Department and the IRS invite stakeholder feedback on a draft of a model notice that employers could share with employees. Finally, one commenter stated that the new rules will create new requirements for plan sponsors and administrators to ensure compliance with the rules and recommended that the Treasury Department and the IRS issue a Request for Information to better understand the recordkeeping and compliance needs of stakeholders who will be affected by the final rule. The Treasury Department and the IRS appreciate that employers are interested in providing information to their employees about the new rules and encourage employers to provide employees with resources published by DOL, HHS, the Treasury Department, and the IRS relating to the new rules. Regarding the suggestion to impose a notification requirement on employers, such a requirement is outside the scope of section 36B and these final regulations. Thus, the Treasury Department and the IRS cannot impose a notification requirement on employers through these final regulations. In addition, the Treasury Department does not intend to issue formal tri-agency guidance with HHS and DOL or publish a model notice. However, the agencies understand the need to provide clear, consumer-friendly resources that can be accessed by individuals in various ways, including through employers who want to provide those resources directly to employees. Therefore, the Treasury Department and the IRS, in coordination with HHS and DOL, will work to ensure that outreach materials about these final regulations can be accessed by individuals or by employers who choose to share the materials with their employees. In addition, the agencies plan to coordinate in conducting open door forums with employers, employer associations, and employee benefits managers to educate them about the new rules. As noted earlier, one commenter stated that the new rules will create new recordkeeping and compliance requirements for plan sponsors and administrators. However, nothing in the proposed rules specifically imposed any new requirements on plan sponsors or administrators and any such requirements would be outside the scope of section 36B. In addition, as discussed later, the new rules in these final regulations do not create, even indirectly, any new recordkeeping or compliance requirements for plan sponsors or administrators. VI. Issues for employers A. Information reporting Multiple commenters pointed out that the proposed regulations did not address whether the regulations would impose new information reporting obligations on employers and other providers of minimum essential coverage under sections 6055 and 6056. Section 6055 requires providers of minimum essential coverage to report coverage information by filing information returns with the IRS and furnishing statements to individuals. Section 6056 requires ALEs to file information returns with the IRS and furnish statements to full-time employees relating to health coverage offered by an ALE to its full-time employees and their dependents. Some commenters noted that the composition of an employee's tax family is not readily ascertainable by an employer, no employer collects the type of information that would allow them to make determinations about the employment status and health coverage of family members, and this data would be costly and burdensome to collect and report. The Treasury Department and the IRS clarify that nothing in these final regulations affects any information reporting requirements for employers, including the reporting required under sections 6055 and 6056, which is done on Form 1095-B, Health Coverage, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, respectively. Further, these final regulations do not amend the regulations under section 6055 or 6056, and the IRS does not intend to revise Form 1095-B or Form 1095-C to require any additional data elements related to the new rules. Additionally, the safe harbors that an employer may use to determine affordability for purposes of the employer shared responsibility provisions under section 4980H continue to be available for employers. B. Non-calendar year plans One commenter expressed concern about how the affordability rule for related individuals would affect family members enrolled in non-calendar year employer plans, especially individuals enrolled in employer coverage through section 125 cafeteria plans (cafeteria plans). The commenter noted that under current rules, spouses and dependents of employees cannot, without a qualifying event, discontinue their employer coverage during a plan year if the employee has elected under the cafeteria plan to cover the spouse or dependent under the employer plan 48. Thus, under current rules, if as of January 1, 2023, a spouse or dependent enrolled in a non-calendar year employer plan through a cafeteria plan wants to enroll in a QHP as of that date, no PTC would be allowed for the period from January 1, 2023, until the close of the employer plan year in 2023 because the spouse and dependents would have to continue their enrollment in the employer plan. The commenter opined that, because of this issue, the Treasury Department and the IRS should consider making the final regulations effective beginning in 2024 rather than 2023. 48 Although current cafeteria plan rules generally prohibit employees, spouses, and dependents from discontinuing their employer coverage during a plan year, Notice 2014-55, 2014-41 I.R.B. 672, permits a cafeteria plan to allow an employee to revoke his or her election under the cafeteria plan for coverage under the employer plan if certain conditions are met. The notice does not allow an employee to revoke an election solely for coverage of the employee's spouse or dependents under the employer plan. Spouses and dependents enrolled in non-calendar year employer plans not associated with cafeteria plans may, subject to the plan rules, disenroll from the employer plan effective on January 1, 2023, and enroll in a QHP with coverage beginning on January 1, 2023. In that situation, a PTC would be allowed for the Exchange coverage of the spouse and dependents if the requirements for a PTC are met, including that the employer plan is not affordable for the spouse and dependents under the rules in§1.36B-2(c)(3)(v)(A). The rules in§1.36B-2(c)(3)(v)(B) apply in determining whether the employer plan is affordable for the spouse and dependents for the period from January 1, 2023, until the end of the plan year. For employer plans associated with cafeteria plans, the Treasury Department and the IRS agree with the commenter that, as with employees, spouses and dependents should be able to discontinue their employer coverage during a plan year and enroll in a QHP, and that a PTC should be allowed for their Exchange coverage if the other requirements of section 36B are met. Consequently, simultaneous with the issuance of these final regulations, Notice 2022-41 is being issued to allow employees to revoke coverage in an employer plan associated with a cafeteria plan for family members to allow them to enroll in a QHP. 49 The notice is effective for elections that are effective on or after January 1, 2023. Thus, because employees will be permitted under the notice to revoke coverage in an employer plan associated with a cafeteria plan beginning in 2023, the issuance of the notice addresses the commenter's concern about the effective date of the final regulations. 49 Employees who revoke coverage in an employer plan associated with a cafeteria plan for themselves or for family members will be eligible for a Special Enrollment Period to enroll in a QHP if a family member becomes newly eligible for APTC. See 45 CFR 155.420(d)(6)(iii). C. Section 4980H liability One commenter that supported the proposed regulations noted in a footnote that the proposed regulations would not have a direct effect on an ALE's liability for an employer shared responsibility payment with respect to the employees of that ALE. The Treasury Department and the IRS agree with that comment; the employer shared responsibility payment is triggered by the allowance of a PTC with respect to a full-time employee of the ALE. These final regulations may affect a related individual's eligibility for a PTC, but they do not affect an employee's eligibility for a PTC, and thus these final regulations do not affect the liability of the ALE of the employee. The commenter also noted that the proposed regulations could have an indirect impact on an ALE's liability for an employer shared responsibility payment. That is, an ALE that does not offer affordable, minimum value coverage to some of its full-time employees could have an increase in its payment under section 4980H for full-time employees who were previously ineligible for a PTC based on an offer of coverage from their spouse's employer. The commenter did not request any change in the proposed regulations, but merely noted this scenario. Certainly, an ALE that has chosen not to offer affordable, minimum value coverage to the requisite number of its full-time employees may have a potential liability for a payment under section 4980H - a risk that the ALE knowingly accepts. Whenever more employees of such an ALE are allowed a PTC, for any reason, the ALE's liability may grow. The Treasury Department and the IRS have considered the interests such an employer might have in retaining the affordability rule in the 2013 regulations, but do not believe that any such ALE would have a meaningful reliance interest in the 2013 affordability rule. Such an ALE is already risking liability under section 4980H due to its failure to offer affordable self-only coverage to its employees, and has avoided or limited that liability solely through the happenstance that one or more of its employees has received an offer of coverage through a family member that the 2013 affordability rule deemed to be affordable. After careful consideration of this potential interest and broader policy considerations, the Treasury Department and the IRS are adopting these final rules to give full effect to the statutory language and to promote the ACA's goal of providing affordable, quality health care for all Americans. VII. Procedural Requirements for Regulations and Cost of New Rules A few commenters argued that the proposed affordability rule for related individuals would be too costly, producing an inefficient use of Federal resources. These commenters all cited a report from the CBO estimating the costs of H.R. 1425, introduced during the 116 th Congress, which included provisions that would have amended section 36B to provide an affordability rule for related individuals similar to the one in the proposed regulations. See section 103 of H.R. 1425. According to the CBO analysis, that provision would have increased Federal deficits by $45 billion over ten years. 50 50 https://www.cbo.gov/system/files/2020-06/Combined%20Tables.pdf. The Treasury Department and the IRS acknowledge that multiple analyses have been undertaken since 2013 that analyze the impact of the 2013 interpretation and estimate any impact of changing the policy of the affordability rule. These analyses consider several aspects of the policy change, including the estimated impact on the Federal deficit, the change in individuals' health coverage status, and the estimated increase in PTC. The Treasury Department and the IRS reviewed the CBO analysis of H.R. 1425, more recent CBO analyses, and other studies that were cited by commenters. In addition to the CBO analysis referred to by commenters, CBO has released an updated analysis estimating that the proposed affordability rule for related individuals, if finalized, would increase the deficit by approximately $3.4 billion annually on average. 51 Further, the Treasury Department analysis indicates a potential increase in the Federal deficit by an average of $3.8 billion per year over the next 10 years. These analyses are discussed in section III of this Summary of Comments and Explanation of Revisions. However, the Treasury Department and the IRS disagree that the benefits of the policy change are insufficient to justify the impact on the Federal deficit. As discussed in section III, these studies consistently project an increase in coverage and affordability for a substantial number of individuals. The Treasury Department and the IRS have determined that adding to the Federal deficit to this extent is a worthwhile tradeoff to achieve these policy goals. 51 https://www.cbo.gov/system/files?file=2022-07/58313-Crapo_letter.pdf. Some of those commenters also criticized the Treasury Department and the IRS for not including specific cost estimates in the preamble to the proposed regulations. One commenter argued that the failure to include a cost-benefit analysis in the proposed affordability rule for related individuals violates the Administrative Procedure Act 52 because it deprives the public of an opportunity for meaningful notice and comment and demonstrates the lack of a reasoned explanation for the rule change. 52 5 U.S.C. 551-559. The Treasury Department and the IRS have provided analysis in accord with the 2018 Memorandum of Agreement between the Treasury Department and the Office of Management and Budget (OMB) (2018 MOA), 53 which specifies that the Treasury Department and the IRS will provide qualitative analysis of the potential costs and benefits of tax regulatory actions determined to raise novel legal or policy issues, as described in section 6(a)(3)(B) of EO 12866. 53 The Department of the Treasury and the Office of Management and Budget, Memorandum of Agreement, Review of Tax Regulations under Executive Order 12866, April 11, 2018, https://home.treasury.gov/sites/default/files/2018-04/04-11%20Signed%20Treasury%20OIRA%20MOA.pdf. Another commenter asserted that the Treasury Department and the IRS did not provide the analyses required by EO 12866, EO 13563, and the Regulatory Flexibility Act when it issued the proposed regulations. EOs 12866 and 13563 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits to the American public. The Regulatory Flexibility Act requires the assessment of the numbers of small businesses potentially impacted by the proposed rule. The commenter argued that the analysis contained in the proposed rule lacks quantifiable data and thus is inadequate to satisfy the procedural requirements in EO 12866, EO 13563, and the Regulatory Flexibility Act. The commenter first argued that the Treasury Department and the IRS failed to satisfy the requirements of EOs 12866 and 13563 because they did not provide a reasoned explanation of the need for regulatory action or an assessment of the costs and benefits of all alternatives. The commenter stated that studies or surveys should have been conducted to assess a more precise number of persons impacted and that the Treasury Department and the IRS failed to quantify the costs of the proposed rule. The commenter asserted that the Treasury Department and the IRS are required to conduct research and assess the costs of all the regulatory alternatives, including the alternative of no action. The Treasury Department and the IRS disagree. The preamble to the proposed regulations provided a detailed qualitative analysis of the proposed rule's benefits, costs, and transfers. In addition, the Treasury Department and the IRS requested comments regarding data, other evidence, or models. In response to comments, the Special Analyses section of this preamble includes further explanation of the qualitative analysis used by the Treasury Department and the IRS. This analysis meets the requirements of EOs 12866 and 13563 applicable to tax regulatory actions and was issued after coordination with and review by OMB under the 2018 MOA. As noted by the commenter, the Regulatory Flexibility Act generally requires the assessment of the numbers of small businesses potentially impacted by a proposed rule. However, section 605 of the Regulatory Flexibility Act provides an exception under which an assessment is not required if the agency certifies that the rule will not, if promulgated, have a significant economic impact on a substantial number of small entities. If the exception applies, the agency must publish the certification in the Federal Register at the time of publication of the proposed rule, along with a statement providing the factual basis for such certification. The agency also must provide the certification and statement to the Chief Counsel for Advocacy of the Small Business Administration. In the preamble to the proposed regulations, the Treasury Department and the IRS certified that the proposed regulations would not have a significant economic effect on a substantial number of small entities. The preamble stated that the certification is based on the fact that the majority of the effect of the proposed regulations falls on individual taxpayers, and that entities will experience only small changes. The preamble further noted that the proposed regulations have been submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on their impact on small business. Thus, the Treasury Department and the IRS fully complied with the Regulatory Flexibility Act in promulgating the proposed regulations. Further, the Treasury Department and the IRS did not receive any comments from the Small Business Administration regarding the proposed rule's impact on small business. Accordingly, as stated in the Special Analyses section of this preamble, the Treasury Department and the IRS certify that, as with the proposed regulations, these final regulations will not have a significant economic impact on a substantial number of small entities. VIII. Effect of New Rules on Other Stakeholders A. Effect of new rules on insurance markets Several commenters opined that the affordability rule for related individuals provided in the proposed regulations will have an adverse effect on the employer insurance market. In the view of the commenters, one result of changing the affordability rule for related individuals will be that a substantial number of dependents of employees, who are generally younger and healthier than the employees, will shift from employer plans to Exchange coverage. The commenters stated that this shifting of younger, healthier individuals from employer plans to Exchange coverage will result in increased premiums for employer plans. One commenter, however, opined that it is unlikely that the magnitude of the impact on premiums for employer plans would be large. Some commenters pointed out that the shift also will result in decreased premiums for Exchange coverage, but one commenter asserted that the potential impact on the individual market is likely to be minor. Finally, a few commenters expressed concern that the affordability rule for related individuals will cause employers to discontinue or reduce insurance contributions for the coverage of related individuals. One commenter also mentioned this concern but opined that relatively few employers would take this approach. The Treasury Department and the IRS do not expect the affordability rule will have a meaningful effect on average premiums for employer plans. Overall, the aggregate amount that employers spend on family coverage is expected to decrease by a small amount because some individuals who would otherwise enroll in employer coverage will prefer to enroll in Exchange coverage with a PTC. Commenters are correct that individuals enrolled in Exchange coverage and individuals enrolled in employer coverage have, on average, different levels of morbidity. However, the Treasury Department and the IRS do not expect that the morbidity of the marginal individual - rather than average individual - is significantly different such that there would be large effects on premiums. In some cases, individuals who would have otherwise enrolled in employer plans may have higher than average costs while in other cases those individuals will have lower than average costs. Furthermore, the number of individuals who are expected to switch plans based on this affordability rule will be modest relative to the over 170 million individuals enrolled in employer health plans. As a result, the net effect on employer premiums - if any - is likely to be negligible. Because the rule is not expected to have a meaningful impact on premiums for employer coverage, the Treasury Department and the IRS disagree that changes in morbidity would result in employers discontinuing coverage or reducing their contributions to that coverage. Additionally, there are several reasons the Treasury Department and the IRS expect that employers will continue to have strong incentives to offer family coverage. The exclusion of employer coverage from taxable income encourages employers to compensate employees with (and increases employees' demand for) generous health coverage in lieu of taxable wages. In addition, employers face competitive pressure to offer generous family coverage to their employees at a relatively low cost. Employers who reduce their contributions for family coverage may find it difficult to recruit or retain employees. Thus, competitive forces in the labor market will discourage employers from reducing contributions. B. Effect of new rules on individuals Some commenters asserted that the proposed affordability rule for related individuals would harm individuals and families in various ways. In particular, commenters argued that individuals and families would face increased complexity as they navigate multiple plan choices, including the choice to enroll in "split coverage" in which the employee with an affordable offer enrolls in self-only employer coverage and the employee's family members separately enroll in Exchange coverage. Some commenters asserted that the shift to Exchange coverage caused by the proposed rule would be a poor trade-off for individuals and would harm individuals because Exchange coverage in general provides coverage that is inferior to and less generous than employer plans. These commenters asserted, for example, that Exchange coverage may be less expensive than an available employer plan but provide significantly higher deductibles, narrower networks, or lower actuarial value than the available employer plan. The Treasury Department and the IRS are of the view that providing individuals and families with more choices for health coverage is a positive aspect of the new affordability rule, especially if those additional choices include options for more affordable coverage. The new affordability rule for related individuals does not change the availability of any current coverage options for individuals, nor does it change any aspect of those coverage options. Specifically, family members of employees for whom a PTC may now be allowed as a result of the new affordability rule are free to retain their current coverage, or continue to go without coverage, based on their particular circumstances. Because the coverage decision is voluntary, families who would have enrolled in employer coverage will likely enroll in the Exchange if they expect the benefit of split coverage exceeds the monetary or other cost. As detailed in the Special Analyses section of this preamble, the Treasury Department and the IRS expect that only a limited number of families - relative to the population enrolled in employer coverage and relative to those newly eligible for the PTC - will choose to shift their coverage. Only family members for whom it is advantageous, based on their personal and family circumstances, will choose to shift their coverage. Further, the Treasury Department and the IRS disagree with commenters who suggest that Exchange coverage is necessarily inferior to employer plans. The cost and quality of employer coverage compared to Exchange coverage will depend on what plans are available to the family and the family's particular circumstances. The Treasury Department and the IRS agree, however, that individuals and families could face new, more complex choices under the new rules as they navigate multiple plan choices, including the choice to enroll in split coverage. Individuals and families will need to assess their current situation and determine whether they want to enroll family members in Exchange coverage with a PTC or in an available employer plan. In comparing their options, these families will need to consider the factors noted by the commenters, including the cost of premiums, the amount of deductibles, the available networks, and the actuarial value of the plans, as well as the various trade-offs if the family is considering split coverage. The Treasury Department and the IRS understand these concerns and are working closely with HHS to ensure that individuals and families have clear and accurate information about the new rules so they can make informed decisions about their health coverage and choose their optimal health coverage. Accordingly, as further explained in section V of this Summary of Comments and Explanation of Revisions, the Treasury Department and the IRS have been working with HHS, and will continue to work with HHS, to ensure that information about the new rules is provided in an accessible fashion to individuals both generally and as part of the Exchange application. In addition, HHS, the Treasury Department, and the IRS encourage individuals to work with agents, brokers, and other assisters when applying for Exchange coverage, whether applying through an Exchange using the Federal eligibility and enrollment platform or a State Exchange using its own platform. Those agents, brokers, and other assisters can help families understand their health coverage options and help them determine which option will best meet their particular needs. The Treasury Department and the IRS also encourage employers to provide employees with resources published by HHS, the Treasury Department, and the IRS relating to the new rules. C. Effect of new rules on states A few commenters asserted that states will face adverse consequences because family members who seek Exchange coverage under the new affordability rule for related individuals may find instead that they qualify for Medicaid or the Children's Health Insurance Program (CHIP). The commenters asserted that people may switch from employer coverage, where states bear no cost, to public programs, the most significant items on state budgets, which will impose new burdens on states. Some of these commenters stated that the new affordability rule will increase costs on state Medicaid programs by increasing the number of people who apply for coverage through the Exchange and then enroll in Medicaid. These commenters cited an analysis by the Urban Institute estimating that 90,000 family members--mainly children--would newly enroll in Medicaid or CHIP owing to their parents seeking Exchange coverage. 54 The Treasury Department and the IRS did not receive comments from any states expressing concern about potential adverse consequences. 54 See Changing the "Family Glitch" Would Make Health Coverage More Affordable for Many Families | Urban Institute. As an initial matter, the Treasury Department and the IRS note that Congressional legislation established the Medicaid and CHIP programs prior to, and independent of, the ACA and these final regulations. States have knowingly and consistently elected to participate in the Medicaid and CHIP programs since these programs were adopted. These final regulations have no effect on the Federal standards for those programs, nor do they affect how states determine eligibility for enrollment in their Medicaid or CHIP programs. 55 The Federal government provides the majority of the funding for State Medicaid and CHIP programs. (The exact share varies based on factors such as the state's economic characteristics and the types of beneficiaries who enroll.) In general, states pay no more than half of the costs of additional children who enroll in these programs. Additionally, per capita costs to insure children in these programs are substantially lower than costs for adults. 55 Although the Federal government imposes certain mandatory coverage requirements, states primarily determine eligibility standards for these programs. See https://crsreports.congress.gov/product/pdf/R/R43357/16 and https://crsreports.congress.gov/product/pdf/R/R43949/19. In addition, despite the commenters' assertions that the final regulations will increase costs to states by increasing enrollment in state programs, the Treasury Department and the IRS view these effects as highly uncertain. Any changes in Medicaid or CHIP enrollment would be second-order effects that would not stem from changes in Medicaid or CHIP eligibility. Although it is possible the rule may indirectly lead to higher state Medicaid or CHIP spending, there are other factors that will reduce costs for state and local governments. In particular, the analysis cited by the commenters finds that over 75 percent of states' higher Medicaid and CHIP costs will be offset by less spending on uncompensated care for the uninsured. The study projects the potential "tiny" increase in state spending would also be at least partially offset by additional tax revenue. 56 Because employers are assumed to hold total compensation constant, the Federal government is projected to receive more tax revenue as employers shift compensation from health coverage towards taxable wages; states may receive more tax revenue for the same reason. The combined effect of increased state tax revenue and decreased spending on uncompensated care may completely offset any increase in Medicaid spending. Research has shown that Medicaid expansions under the ACA increased hospital revenue and reduced spending on locally-funded safety net programs, and it is likely that any increase in enrollment in Medicaid and CHIP enrollment that indirectly arises from the rule would have similar effects. 57 Over the long-term, Medicaid and CHIP beneficiaries may also have higher earnings and pay more in taxes. 58 Although it is difficult to quantify the combined effect of these factors on state and local budgets, the Treasury Department and the IRS expect any net impact (whether positive or negative) to be small relative to states' total Medicaid spending. 59 56 See https://www.urban.org/sites/default/files/publication/104223/changing-the-family-glitch-would-make-health-coverage-more-affordable-for-many-families_1.pdf at pg. 12 57 https://www.aeaweb.org/articles?id=10.1257/pol.20190279. 58 https://academic.oup.com/restud/article/87/2/792/5538992?login=false. 59 For context, as of May 2022, there were nearly 89 million individuals enrolled in Medicaid or CHIP. The change of 90,000 people predicted by the Urban Institute analysis is a change of 0.1 percent. See https://www.medicaid.gov/medicaid/national-medicaid-chip-program-information/downloads/may-2022-medicaid-chip-enrollment-trend-snapshot.pdf. One commenter asserted that Medicaid and CHIP are associated with narrow networks of medical providers, making it harder for families to find pediatricians and other primary care physicians, dentists, and medical specialists. The Treasury Department and the IRS again note that the final regulations do not require individuals to enroll in any particular type of coverage. Family members who currently are enrolled in an employer plan and are determined eligible for Medicaid or CHIP when they apply for Exchange coverage are not required to leave the employer plan and enroll in Medicaid or CHIP. These family members always have a choice to stay in the employer plan if they prefer the network of medical providers or other aspects of the employer plan to what is provided under Medicaid or CHIP. IX. Comments Exceeding Scope of Final Regulations A number of commenters submitted comments on matters not within the purview of the Treasury Department and the IRS. For example, several commenters suggested that the U.S. adopt a Medicare-for-all style of health coverage or offer universal health coverage in a manner similar to the health coverage provided by other countries. Other commenters requested that coverage rules be changed so that children over age 25 could remain enrolled on a parent's health insurance policies, while others recommended that health care providers be required to accept Medicare and Medicaid insurance. These comments are outside the scope of matters handled by the Treasury Department and the IRS and thus are not addressed in the final regulations. X. Severability If any provision in this rulemaking is held to be invalid or unenforceable facially, or as applied to any person or circumstance, it shall be severable from the remainder of this rulemaking, and shall not affect the remainder thereof, or the application of the provision to other persons not similarly situated or to other dissimilar circumstances. Special Analyses I. Regulatory Planning and Review - Economic Analysis EOs 12866 and 13563 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). EO 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. These final regulations have been designated as subject to review under EO 12866 pursuant to the 2018 MOA between the Treasury Department and OMB regarding review of tax regulations. A. Background 1. Affordability of employer coverage for family members of an employee As noted earlier in this preamble, section 36B provides a PTC for applicable taxpayers who meet certain eligibility requirements, including that the taxpayer or one or more family members is enrolled in a QHP for one or more months in which they are not eligible for other MEC. However, an individual who is eligible to enroll in employer coverage, but chooses not to, is not considered eligible for the employer coverage if it is "unaffordable." Section 36B defines employer coverage as unaffordable for an employee if the employee's share of the self-only premium is more than 9.5 percent of the employee's household income. Section 1.36B-2(c)(3)(v)(A)( 2 ) provides that affordability of employer coverage for each related individual of the employee is determined by the cost of self-only coverage. Thus, the employee and any related individuals included in the employee's family, within the meaning of§1.36B-1(d), are eligible for MEC and are ineligible for the PTC if (1) the plan provides minimum value and (2) the employee's share of the self-only coverage is not more than 9.5 percent of household income (that is, the self-only coverage for the employee is "affordable"). 2. Description of the final regulations The final regulations revise§1.36B-2(c)(3)(v)(A)( 2 ) to provide a separate affordability test for related individuals based on the cost to the employee of family coverage. The final regulations do not change the affordability test for the employee. When a family applies for Exchange coverage, the Exchange will ask for information concerning which of the family members are offered coverage by their own employer, and the family members to whom the employer's coverage offer extends. When an applicant for whom APTC is otherwise allowed indicates that their employer offers them coverage, the Exchange will ask for the premium for self-only coverage for the applicant and make an affordability determination for the applicant on that basis. When an applicant for whom APTC is otherwise allowed indicates an offer of coverage through an employer of another family member, the Exchange will ask for the premium for family coverage and make an affordability determination for the applicant on that basis. It is therefore possible that family members would be eligible for APTC but the employee would not. In this case, if the entire family chooses to enroll in Exchange coverage with APTC, the APTC would be paid only for coverage of the employee's family members but would not be paid for coverage of the employee. B. Baseline The Treasury Department and the IRS have assessed the benefits and costs of the final regulations relative to a no-action baseline reflecting anticipated Federal income tax-related behavior in the absence of these regulations. C. Affected entities Some families with an offer of employer coverage to the employee and at least one other family member would be newly eligible for the PTC for the Exchange coverage of the non-employee family members. The final regulations will have no effect on families for whom self-only employer coverage costs more than 9.5 percent of household income - as family coverage is more expensive than self-only coverage - because the affordability status of their employer coverage is unchanged. Similarly, the final regulations will not affect families for whom the cost of family employer coverage does not exceed 9.5 percent of household income because their coverage is determined to be affordable either way. In contrast, the final regulations will affect only family members - other than the employee - for whom the employee's cost for the available employer coverage does not exceed 9.5 percent of household income for a self-only plan but does exceed 9.5 percent of household income for a family plan or for whom the offer of the family plan is affordable but does not provide minimum value. Employers may see some of their employees shift from family coverage to self-only coverage when family members newly qualify for the PTC. The cost per enrollee could increase or decrease depending on the characteristics of those that remain covered. However, this shift will likely lead to a small decrease in the total amount employers are spending on health coverage - due to covering fewer total people - as the Federal government increases spending on PTC for the non-employee family members who move from employer coverage to Exchange coverage. D. Economic analysis of the final regulations 1. Overview For some families, the final regulations will lower the premium contributions required to purchase coverage for all family members by allowing family members other than the employee to receive a PTC. For some families with offers of employer coverage who will be newly eligible for the PTC, the combined cost of split coverage (self-only employer coverage for the employee plus PTC-subsidized Exchange coverage for related individuals) will be lower than what they pay for family coverage through the employer. Some low-income families with uninsured individuals where the employee is offered low-cost, self-only employer coverage and relatively high-cost family employer coverage will gain access to a lower-cost option through eligibility for the PTC on behalf of one or more related individuals. However, the cost for families to purchase Exchange coverage with PTC is determined in part by the applicable percentage and household income, which are the same regardless of the number of individuals actually covered. Therefore, if the number of individuals needing Exchange coverage is small - such as when some family members have access to other MEC - the cost of Exchange coverage per enrollee is relatively high when added to the cost of the employee share of self-only employer coverage. Furthermore, split coverage also means multiple deductibles and maximum out-of-pocket limits for the family, which potentially increases out-of-pocket costs for families. As a result of these features, many families with offers of employer coverage who will be newly eligible for the PTC under the final regulations - including families with some uninsured individuals - would not see any savings in the combined cost of out-of-pocket premiums and cost sharing. Lastly, many families may prefer the benefits and provider networks of employer coverage, compared to Exchange coverage. Taking all these factors into account, the Treasury Department and the IRS expect new take-up of Exchange coverage may be modest relative to the size of the newly eligible population and relative to the total number of individuals who are either uninsured or covered by employer coverage because many will either still prefer employer coverage or prefer to purchase other goods and services, or save or invest, rather than insure all family members. The Office of Tax Analysis has evaluated the effect of the policy change on health insurance coverage decisions and the Federal deficit. The policy change is predicted to increase the number of individuals with PTC-subsidized Exchange coverage by approximately 1 million and increase the Federal deficit by an average of $3.8 billion per year over the next 10 years. The deficit increases as enrollment in PTC-subsidized Exchange coverage increases, offset by a modest decrease in the tax exclusion for employer coverage. 60 These changes to the revenue effect associated with the PTC as well as the tax exclusion for employer coverage are transfer payments. Transfer payments are neither a cost nor a benefit. The analysis relied on tax data as well as the Medical Expenditure Panel Survey. The Medical Expenditure Panel Survey dataset includes several variables that are not observed in the tax data such as employee contribution amounts for family coverage as well as health care utilization. 60 The predictions rely on various assumptions including, but not limited to, the economic and technical assumptions from the 2023 Mid-Session Review. The assumptions are based on the current law baseline as of August 31, 2022. The baseline includes the PTC changes enacted under the IRA. 2. Benefits Gain of health insurance coverage. For those individuals who are uninsured because the premiums for family coverage through a family member's employer are unaffordable, gaining access to the PTC for the purchase of Exchange coverage may make coverage more affordable and may prompt some of them to take up coverage. Additional health insurance option. For those individuals who are covered by family coverage through a family member's employer that costs more than 9.5 percent of their household income, the final regulations will, by providing access to a PTC, give them an additional option that could provide coverage at a lower cost or with more comprehensive benefits. 3. Costs Administrative costs. Adding this new option for eligibility for PTC increases the cost to the IRS to evaluate PTC claims. The IRS's PTC infrastructure will require one-time changes to certain processes, forms, and instructions to be implemented in time for the 2023 taxable year, and the cost of these changes is expected to be negligible. The Centers for Medicare & Medicaid Services (CMS), as the administrator of the Federally-facilitated Exchanges and the Federal Exchange eligibility and enrollment platform, and the State Exchanges that operate their own Exchange eligibility and enrollment platforms will also incur administrative costs as the Exchanges will have primary responsibility for implementing the rule as part of the eligibility and enrollment process when families are applying for Exchange coverage with APTC. Exchanges will incur one-time costs to update Exchange eligibility systems to account for the new treatment of family contribution amounts for employer coverage for purposes of determining eligibility for APTC. In addition, CMS, State Exchanges, State Medicaid Agencies, and CMS-approved Enhanced Direct Enrollment partners will incur administrative costs to make conforming updates to their respective consumer applications and consumer-facing affordability tools. The Treasury Department and the IRS anticipate total administrative costs to CMS, the Exchanges, State Medicaid Agencies, and Enhanced Direct Enrollment partners associated with the final regulation to be modest. The Treasury Department and the IRS do not expect any new administrative costs for employers because the final regulations do not impose new reporting requirements. Under current regulations, ALEs must report the cost of self-only coverage on Form 1095-C. The primary purpose of this reporting is to collect information relevant for the administration of the employer shared responsibility provisions in section 4980H. Because the cost of family coverage is not relevant for computing the employer shared responsibility payment, the final regulations do not require ALEs to report the cost of family coverage on Form 1095-C. Further, as noted earlier in this preamble, these final regulations do not amend the regulations under section 6055 or 6056, and the IRS does not intend to revise Form 1095-B or Form 1095-C to require any additional data elements related to the new rules. 4. Transfer payments Increased PTC costs for new Exchange enrollees. Because some individuals may be newly eligible for the PTC, some individuals may move from employer coverage or uninsured status to Exchange coverage. Thus, the final regulations may increase the amount of PTC being paid by the government and reduce employer contributions. Decreased employer exclusion for people who drop employer coverage. If individuals drop their employer coverage, or do not enroll when they otherwise would have, to take up Exchange coverage, the amount of money that was going toward their employer coverage, which provides tax-preferred health benefits, will go into the employee's wages, other employees' wages, and/or employer profits and will no longer be tax exempt. Thus, the final regulations may increase the amount of tax revenue received from income and payroll taxes. II. Paperwork Reduction Act This final rule does not include information collections under the Paperwork Reduction Act (5 U.S.C. chapter 35). III. Regulatory Flexibility Act It is hereby certified that these final regulations will not have a significant economic impact on a substantial number of small entities within the meaning of section 601(6) of the Regulatory Flexibility Act (5 U.S.C. chapter 6). As mentioned in the response to commenters, the Treasury Department and the IRS hereby certify that these final regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that the majority of the effect of the final regulations falls on individual taxpayers, and entities will experience only small changes. Pursuant to section 7805(f) of the Code, these final regulations were submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on their impact on small business, and no comments were received. IV. Unfunded Mandates Reform Act Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a state, local, or tribal government, in the aggregate, or by the private sector, of $100 million (updated annually for inflation). This rule does not include any Federal mandate that may result in expenditures by state, local, or tribal governments, or by the private sector in excess of that threshold. V. Executive Order 13132: Federalism EO 13132 (Federalism) prohibits an agency from publishing any rule that has Federalism implications if the rule either imposes substantial, direct compliance costs on state and local governments, and is not required by statute, or preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the EO. This rule does not have Federalism implications and does not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the EO. VI. Congressional Review Act Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), the Office of Information and Regulatory Affairs designated this rule as a major rule as defined by 5 U.S.C. 804(2). Statement of Availability of IRS Documents Guidance cited in this preamble is published in the Internal Revenue Bulletin and is available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov. Drafting Information The principal author of these regulations is Clara L. Raymond of the Office of Associate Chief Counsel (Income Tax and Accounting). However, other personnel from the Treasury Department and the IRS participated in the development of these regulations. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Adoption of Amendments to the Regulations Accordingly, the Treasury Department and the IRS amend 26 CFR part 1 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 1.36B-0 is amended by: a. Adding an entry for§1.36B-2(c)(3)(v)(A)( 8 ); b. Adding entries for§1.36B-6(a)(1) and (2) and (a)(2)(i) and (ii); and c. Revising the entry for§1.36B-6(g)(2). The additions and revisions read as follows:§ 1.36B-0 Table of contents.§1.36B-2 Eligibility for premium tax credit. (c) * * * (3) * * * (v) * * * (A) * * * ( 8 ) Multiple offers of coverage.§1.36B-6 Premium tax credit definitions. (a) * * * (1) Employees. (2) Related individuals (i) In general. (ii) Plans providing MV to employees. (g) * * * (2) Exceptions. Par. 3. Section 1.36B-2 is amended by: a. Revising the first sentence and adding a new second sentence in paragraph (c)(3)(v)(A)( 2 ). b. Adding paragraph (c)(3)(v)(A)( 8 ). c. Revising the second sentence of paragraph (c)(3)(v)(B). d. In paragraph (c)(3)(v)(D), Examples 1 through 9 are designated as paragraphs (c)(3)(v)(D)( 1 ) through ( 9 ), respectively. e. In newly designated paragraphs (c)(3)(v)(D)( 3 ), ( 5 ), ( 6 ), ( 7 ), and ( 9 ), redesignating the paragraphs in the first column as the paragraphs in the second column: f. Revising newly redesignated paragraphs (c)(3)(v)(D)( 1 ) and ( 2 ). g. Redesignating paragraphs (c)(3)(v)(D)( 3 ) through ( 9 ) as paragraphs (c)(3)(v)(D)( 7 ) through ( 13 ), respectively. h. Adding new paragraphs (c)(3)(v)(D)( 3 ) through ( 6 ). i. Revising the heading for newly redesignated paragraph (c)(3)(v)(D)( 7 ), the heading and first sentence of newly redesignated paragraph (c)(3)(v)(D)( 8 ), the heading of newly redesignated paragraph (c)(3)(v)(D)( 9 ), and the first sentence of newly redesignated paragraph (c)(3)(v)(D)( 9 )( i ). j. In the headings for newly redesignated paragraphs (c)(3)(v)(D)( 10 ) through ( 13 ), removing the first period and adding a colon in its place. k. Revising paragraph (e)(1). l. Adding paragraph (e)(5). The revisions and additions read as follows:§ 1.36B-2 Eligibility for premium tax credit. (c) * * * (3) * * * (v) * * * (A) * * * ( 2 ) * * * Except as provided in paragraph (c)(3)(v)(A)( 3 ) of this section, an eligible employer-sponsored plan is affordable for a related individual if the employee's required contribution for family coverage under the plan does not exceed the required contribution percentage, as defined in paragraph (c)(3)(v)(C) of this section, of the applicable taxpayer's household income for the taxable year. For purposes of this paragraph (c)(3)(v)(A)( 2 ), an employee's required contribution for family coverage is the portion of the annual premium the employee must pay for coverage of the employee and all other individuals included in the employee's family, as defined in§1.36B-1(d), who are offered coverage under the eligible employer-sponsored plan. * * * ( 8 ) Multiple offers of coverage. An individual who has offers of coverage under eligible employer-sponsored plans from multiple employers, either as an employee or a related individual, has an offer of affordable coverage if at least one of the offers of coverage is affordable under paragraph (c)(3)(v)(A)( 1 ) or ( 2 ) of this section. (B) * * * Coverage under an eligible employer-sponsored plan is affordable for a part-year period if the annualized required contribution for self-only coverage, in the case of an employee, or family coverage, in the case of a related individual, under the plan for the part-year period does not exceed the required contribution percentage of the applicable taxpayer's household income for the taxable year. * * * (D) * * * ( 1 ) Example 1: Basic determination of affordability. For all of 2023, taxpayer C works for an employer, X, that offers its employees and their spouses a health insurance plan under which, to enroll in self-only coverage, C must contribute an amount for 2023 that does not exceed the required contribution percentage of C's 2023 household income. Because C's required contribution for self-only coverage does not exceed the required contribution percentage of C's household income, under paragraph (c)(3)(v)(A)( 1 ) of this section, X's plan is affordable for C, and C is eligible for minimum essential coverage for all months in 2023. ( 2 ) Example 2: Basic determination of affordability for a related individual. ( i ) The facts are the same as in paragraph (c)(3)(v)(D)( 1 ) of this section (Example 1), except that C is married to J, they file a joint return, and to enroll C and J, X's plan requires C to contribute an amount for coverage for C and J for 2023 that exceeds the required contribution percentage of C's and J's household income. J does not work for an employer that offers employer-sponsored coverage. ( ii ) J is a member of C's family as defined in§1.36B-1(d). Because C's required contribution for coverage of C and J exceeds the required contribution percentage of C's and J's household income, under paragraph (c)(3)(v)(A)( 2 ) of this section, X's plan is unaffordable for J. Accordingly, J is not eligible for minimum essential coverage for 2023. However, under paragraph (c)(3)(v)(A)( 1 ) of this section, X's plan is affordable for C, and C is eligible for minimum essential coverage for all months in 2023. ( 3 ) Example 3: Multiple offers of coverage. The facts are the same as in paragraph (c)(3)(v)(D)( 2 ) of this section (Example 2), except that J works all year for an employer that offers employer-sponsored coverage to employees. J's required contribution for the cost of self-only coverage from J's employer does not exceed the required contribution percentage of C's and J's household income. Although the coverage offered by C's employer for C and J is unaffordable for J, the coverage offered by J's employer is affordable for J. Consequently, under paragraphs (c)(3)(v)(A)( 1 ) and ( 8 ) of this section, J is eligible for minimum essential coverage for all months in 2023. ( 4 ) Example 4: Cost of covering individuals not part of taxpayer's family. ( i ) D and E are married, file a joint return, and have two children, F and G, under age 26. F is a dependent of D and E, but G is not. D works all year for an employer that offers employer-sponsored coverage to employees, their spouses, and their children under age 26. E, F, and G do not work for employers offering coverage. D's required contribution for self-only coverage under D's employer's coverage does not exceed the required contribution percentage of D's and E's household income. D's required contribution for coverage of D, E, F, and G exceeds the required contribution percentage of D's and E's household income, but D's required contribution for coverage of D, E, and F does not exceed the required contribution percentage of the household income. ( ii ) E and F are members of D's family as defined in§1.36B-1(d). G is not a member of D's family under§1.36B-1(d), because G is not D's dependent. Under paragraph (c)(3)(v)(A)( 1 ) of this section, D's employer's coverage is affordable for D because D's required contribution for self-only coverage does not exceed the required contribution percentage of D's and E's household income. D's employer's coverage also is affordable for E and F, because, under paragraph (c)(3)(v)(A)( 2 ) of this section, D's required contribution for coverage of D, E, and F does not exceed the required contribution percentage of D's and E's household income. Although D's cost to cover D, E, F, and G exceeds the required contribution percentage of D's and E's household income, under paragraph (c)(3)(v)(A)( 2 ) of this section, the cost to cover G is not considered in determining whether D's employer's coverage is affordable for E and F, regardless of whether G actually enrolls in the plan, because G is not in D's family. D, E, and F are eligible for minimum essential coverage for all months in 2023. Under paragraph (c)(4)(i) of this section, G is considered eligible for the coverage offered by D's employer only if G enrolls in the coverage. ( 5 ) Example 5: More than one family member with an employer offering coverage. ( i ) K and L are married, file a joint return, and have one dependent child, M. K works all year for an employer that offers coverage to employees, spouses, and children under age 26. L works all year for an employer that offers coverage to employees only. K's required contribution for self-only coverage under K's employer's coverage does not exceed the required contribution percentage of K's and L's household income. Likewise, L's required contribution for self-only coverage under L's employer's coverage does not exceed the required contribution percentage of K's and L's household income. However, K's required contribution for coverage of K, L, and M exceeds the required contribution percentage of K's and L's household income. ( ii ) L and M are members of K's family as defined in§1.36B-1(d). Under paragraph (c)(3)(v)(A)( 1 ) of this section, K's employer's coverage is affordable for K because K's required contribution for self-only coverage does not exceed the required contribution percentage of K's and L's household income. Similarly, L's employer's coverage is affordable for L, because L's required contribution for self-only coverage does not exceed the required contribution percentage of K's and L's household income. Thus, K and L are eligible for minimum essential coverage for all months in 2023. However, under paragraph (c)(3)(v)(A)( 2 ) of this section, K's employer's coverage is unaffordable for M, because K's required contribution for coverage of K, L, and M exceeds the required contribution percentage of K's and L's household income. Accordingly, M is not eligible for minimum essential coverage for 2023. ( 6 ) Example 6: Multiple offers of coverage for a related individual. ( i ) The facts are the same as in paragraph (c)(3)(v)(D)( 5 ) of this section (Example 5), except that L works all year for an employer that offers coverage to employees, spouses, and children under age 26. L's required contribution for coverage of K, L, and M does not exceed the required contribution percentage of K's and L's household income. ( ii ) Although M is not eligible for affordable employer coverage under K's employer's coverage, paragraph (c)(3)(v)(A)( 8 ) of this section dictates that L's employer coverage must be evaluated to determine whether L's employer coverage is affordable for M. Under paragraph (c)(3)(v)(A)( 2 ) of this section, L's employer's coverage is affordable for M, because L's required contribution for K, L, and M does not exceed the required contribution percentage of K's and L's household income. Accordingly, M is eligible for minimum essential coverage for all months in 2023. ( 7 ) Example 7: Determination of unaffordability at enrollment. * * * ( 8 ) Example 8: Determination of unaffordability for plan year. The facts are the same as in paragraph (c)(3)(v)(D)( 7 ) of this section (Example 7), except that X's employee health insurance plan year is September 1 to August 31. * * * ( 9 ) Example 9: No affordability information affirmatively provided for annual redetermination. ( i ) The facts are the same as in paragraph (c)(3)(v)(D)( 7 ) of this section (Example 7), except the Exchange redetermines D's eligibility for advance credit payments for 2015. * * * (e) * * * (1) Except as provided in paragraphs (e)(2) through (5) of this section, this section applies to taxable years ending after December 31, 2013. (5) The first two sentences of paragraph (c)(3)(v)(A)( 2 ), paragraph (c)(3)(v)(A)( 8 ), the second sentence of paragraph (c)(3)(v)(B), paragraphs (c)(3)(v)(D)( 1 ) through ( 6 ), and the first sentences of paragraphs (c)(3)(v)(D)( 8 ) and ( 9 ) of this section apply to taxable years beginning after December 31, 2022. Par. 4. Section 1.36B-3 is amended by revising paragraphs (d)(1)(i) and (n)(1) and adding paragraph (n)(3) to read as follows:§ 1.36B-3 Computing the premium assistance credit amount. (d) * * * (1) * * * (i) The premiums for the month, reduced by any amounts that were refunded in the same taxable year as the premium liability is incurred, for one or more qualified health plans in which a taxpayer or a member of the taxpayer's family enrolls (enrollment premiums); or (n) * * * (1) Except as provided in paragraphs (n)(2) and (3) of this section, this section applies to taxable years ending after December 31, 2013. (3) Paragraph (d)(1)(i) of this section applies to taxable years beginning after December 31, 2022. Par. 5. Section 1.36B-6 is amended by revising paragraphs (a) and (g)(2) to read as follows:§ 1.36B-6 Minimum value. (a) In general --(1) Employees. An eligible employer-sponsored plan provides minimum value (MV) for an employee of the employer offering the coverage only if-- (i) The plan's MV percentage, as defined in paragraph (c) of this section, is at least 60 percent based on the plan's share of the total allowed costs of benefits provided to the employee; and (ii) The plan provides substantial coverage of inpatient hospital services and physician services. (2) Related individuals --(i) In general. An eligible employer-sponsored plan provides MV for an individual who may enroll in the plan because of a relationship to an employee of the employer offering the coverage (a related individual) only if-- (A) The plan's MV percentage, as defined in paragraph (c) of this section, is at least 60 percent based on the plan's share of the total allowed costs of benefits provided to the related individual; and (B) The plan provides substantial coverage of inpatient hospital services and physician services. (ii) Plans providing MV to employees. If an eligible employer-sponsored plan provides MV to an employee under paragraph (a)(1) of this section, the plan also provides MV for related individuals if-- (A) The scope of benefits is the same for the employee and related individuals; and (B) Cost sharing (including deductibles, co-payments, coinsurance, and out-of-pocket maximums) under the plan is the same for the employee and related individuals under the tier of coverage that would, if elected, include the employee and all related individuals (disregarding any differences in deductibles or out-of-pocket maximums that are attributable to a different tier of coverage, such as self plus one versus family coverage). * * * * * (g) * * * (2) Exceptions. (i) Paragraph (a)(1)(ii) of this section applies for plan years beginning after November 3, 2014; and (ii) Paragraph (a)(2) of this section applies to taxable years beginning after December 31, 2022. Douglas W. O'Donnell, Deputy Commissioner for Services and Enforcement. Approved: October 1, 2022. Lily Batchelder, Assistant Secretary of the Treasury (Tax Policy). (Filed by the Office of the Federal Register on October 11, 2022, 8:45 a.m., and published in the issue of the Federal Register for October 13, 2022, 87 F.R. 61979)

Revenue Ruling 2022-3 Internal Revenue Service 2022-6 I.R.B. 467 Section 1274.--Determination of Issue Price in the Case of Certain Debt Instruments Issued for Property (Also Sections 42, 280G, 382, 467, 468, 482, 483, 1288, 7520, 7872.) Rev. Rul. 2022-3 This revenue ruling provides various prescribed rates for federal income tax purposes for February 2022 (the current month). Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long - term rate and the long - term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(1) for buildings placed in service during the current month. However, under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July 30, 2008, shall not be less than 9%. Finally, Table 5 contains the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520.

Internal Revenue Service - Information Release IR-2024-133 IRS final reminder: Time to claim $1 billion in tax refunds from 2020 expires May 17 May 6, 2024 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 IRS final reminder: Time to claim $1 billion in tax refunds from 2020 expires May 17 IR-2024-133, May 6, 2024 WASHINGTON The Internal Revenue Service today reminded the 1 million people who didn't file their tax year 2020 returns they may be eligible for a refund if they file by the May 17 deadline. The IRS estimates more than $1 billion in refunds remain unclaimed because people haven't filed their 2020 tax returns yet. The state-by-state table below shows how many people are potentially eligible for these refunds, and the average median refund in each state. There's no penalty for failure to file if a refund is due. However, a return claiming a refund must be filed within three years of its due date for a refund to be allowed. After the expiration of the three-year period, the refund statute generally prevents the issuance of a refund check and the application of any credits, including overpayments of estimated taxes or withholding amounts, to other tax years that are underpaid. For 2020 tax returns, people have a little more time than usual to file their claim for refunds. Typically, the filing deadline to claim old refunds falls around the tax deadline of April 15. However, the 2020 filing deadline was pushed to May 17, due to COVID-19, making the three-year window deadline for 2020 unfiled returns May 17, 2024. The IRS issued Notice 2023-21 on Feb. 27, 2023, providing legal guidance on claims required by the postponed deadline. Many people who didn't file may be eligible for more By missing out on filing a tax return, people stand to lose more than just their refund of taxes withheld or paid during 2020. The estimate does not include credits that non-filers may be eligible to receive. Credits include the Earned Income Tax Credit (EITC), the Recovery Rebate Credit or other credits that may be applicable. Many low- and moderate-income workers may be eligible for the Earned Income Tax Credit (EITC). For 2020, the EITC was worth as much as $6,660 for taxpayers with qualifying children. The EITC helps individuals and families whose incomes are below certain thresholds. The IRS has previously reminded those who may be entitled to the COVID-era Recovery Rebate Credit in 2020 that time is running out to file a tax return and claim their money. The Recovery Rebate Credit is a refundable credit for individuals who did not receive one or more Economic Impact Payments, also known as stimulus payments, distributed in 2020 and 2021. Plan to file? IRS offers options to get key documents Gathering all the necessary documents and forms to file a return for 2020 may take some time. People should start as soon as possible to make sure they have enough time to file before the May 17 deadline for 2020 refunds. Here are some options: - Request copies of key documents. Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for the years 2020, 2021 or 2022 can request copies from their employer, bank or other payers. - Use Get Transcript Online at IRS.gov. Taxpayers who have lost contact with their employer or other payers can order a free wage and income transcript at IRS.gov using the Get Transcript Online tool. For many taxpayers, this is by far the quickest and easiest option. - Request a transcript. Another option is for people to file Form 4506-T, Request for Transcript of Tax Return, with the IRS to request a "wage and income transcript." A wage and income transcript shows data from information returns received by the IRS, such as Forms W-2, 1099, 1098, Form 5498 and IRA contribution information. Taxpayers can use the information from the transcript to file their tax return. But plan ahead - these written requests can take several weeks; people are strongly urged to try the other options first. - Current and prior years' tax forms. Tax year 2020 Forms 1040 and 1040-SR and instructions are available on the IRS.gov Forms, instructions & publications page or by calling toll-free 800-TAX-FORM (800-829-3676). Taxpayers who are unsure if they are required to file a return can visit Do I need to file a tax return? or refer to Publication 17, Your Federal Income Tax (For Individuals). Free help is available For individuals who have not filed a federal income a tax return for 2020, the IRS offers tools and resources on IRS.gov. Free support includes the Interactive Tax Assistant (ITA), information on What to do if you haven't filed your return, and Frequently asked questions and answers (FAQs). Qualified taxpayers can also access free tax preparation assistance through the Volunteer Income Tax Assistance and the Tax Counseling for the Elderly programs. Use the VITA Locator Tool or call 800-906-9887 to locate the nearest VITA site. The IRS also reassures taxpayers there is no penalty for claiming a refund on a late-filed tax return. Direct deposit is recommended as the quickest and simplest way to receive a tax refund. State-by-state estimates of individuals who may be due 2020 income tax refunds The IRS estimated the number of individuals in each state and the median potential refund a filer may be entitled to receive. The actual refund amount will vary based on a household's tax situation. State or district Estimated number of individuals Median potential refund Total potential refunds * Alabama 15,200 $926 $16,839,800 Alaska 3,700 $931 $4,335,300 Arizona 25,400 $871 $26,939,600 Arkansas 8,700 $923 $9,392,600 California 88,200 $835 $94,226,300 Colorado 18,500 $894 $20,109,900 Connecticut 9,800 $978 $11,343,600 Delaware 3,600 $945 $4,156,500 District of Columbia 2,900 $968 $3,503,800 Florida 53,200 $891 $58,210,500 Georgia 36,400 $900 $39,175,600 Hawaii 5,200 $979 $5,972,600 Idaho 4,500 $761 $4,369,600 Illinois 36,200 $956 $40,608,000 Indiana 19,200 $922 $20,893,000 Iowa 9,600 $953 $10,601,700 Kansas 8,700 $900 $9,285,600 Kentucky 10,600 $920 $11,236,300 Louisiana 15,100 $957 $17,357,300 Maine 3,800 $923 $4,030,200 Maryland 22,200 $991 $26,365,400 Massachusetts 21,800 $975 $25,071,800 Michigan 34,900 $976 $38,274,800 Minnesota 13,500 $818 $14,043,900 Mississippi 8,100 $861 $8,685,000 Missouri 19,500 $893 $20,803,400 Montana 3,400 $851 $3,632,100 Nebraska 4,700 $901 $5,007,300 Nevada 10,200 $890 $11,143,900 New Hampshire 4,200 $982 $4,923,100 New Jersey 24,400 $920 $27,408,300 New Mexico 6,500 $868 $7,032,700 New York 51,400 $1,029 $60,837,400 North Carolina 27,500 $895 $29,304,100 North Dakota 2,200 $953 $2,482,600 Ohio 31,400 $909 $32,939,900 Oklahoma 14,300 $902 $15,566,900 Oregon 15,300 $847 $15,857,800 Pennsylvania 38,600 $1,031 $43,412,900 Rhode Island 2,600 $986 $2,980,500 South Carolina 11,900 $840 $12,564,900 South Dakota 2,200 $892 $2,346,300 Tennessee 16,800 $909 $18,007,000 Texas 93,400 $960 $107,130,200 Utah 7,800 $836 $8,191,700 Vermont 1,700 $911 $1,818,600 Virginia 25,900 $914 $28,944,600 Washington 26,200 $976 $31,110,300 West Virginia 3,800 $950 $4,130,400 Wisconsin 11,800 $837 $12,139,400 Wyoming 2,100 $961 $2,416,300 Totals 938,800 $932 $1,037,161,300 * Excluding credits.

Private Letter Ruling Number: 202203008 Internal Revenue Service October 28, 2021 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202203008 Release Date: 1/21/2022 Index Number: 9100.35-00, 2010.04-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:B04 PLR-111057-21 Date: October 28, 2021 Dear *******: This letter responds to a letter dated April 19, 2021, submitted on behalf of Decedent's estate, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make an election. Decedent's estate is requesting to make an election under § 2010(c)(5)(A) of the Internal Revenue Code (a "portability" election)) to allow a decedent's surviving spouse to take into account that decedent's deceased spousal unused exclusion (DSUE) amount. The information submitted for consideration is summarized below. Decedent died on Date, survived by Spouse. It is represented that based on the value of Decedent's gross estate and taking into account any taxable gifts, Decedent's estate is not required under § 6018(a) to file an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return). It is further represented that there is an unused portion of Decedent's applicable exclusion amount and that a portability election is required to allow Spouse to take into account that amount (the "DSUE" amount)). A portability election is made upon the timely filing of a complete and properly prepared estate tax return, unless the requirements for opting out are satisfied. See § 20.2010-2(a)(2) of the Estate Tax Regulations. For various reasons, an estate tax return was not timely filed and a portability election was not made. After discovery of this, Decedent's estate submitted this request for an extension of time under § 301.9100-3 to make a portability election. LAW AND ANALYSIS Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. Section 2010(a) provides that a credit of the applicable credit amount shall be allowed to the estate of every decedent against the tax imposed by § 2001. Section 2010(c)(1) provides that the applicable credit amount is the amount of the tentative tax that would be determined under § 2001(c) if the amount with respect to which such tentative tax is to be computed were equal to the applicable exclusion amount. On December 17, 2010, Congress amended § 2010(c), effective for estates of decedents dying and gifts made after December 31, 2010, to allow portability of a decedent's unused applicable exclusion amount between spouses. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111-312, § 303, 124 Stat. 3296, 3302 (2010). Section 2010(c)(2) provides that the applicable exclusion amount is the sum of the basic exclusion amount, and, in the case of a surviving spouse, the DSUE amount. Section 2010(c)(3) provides the basic exclusion amount available to the estate of every decedent, an amount to be adjusted for inflation annually after calendar year 2011. Section 2010(c)(4) defines the DSUE amount to mean the lesser of (A) the basic exclusion amount, or (B) the excess of -- (i) the applicable exclusion amount of the last deceased spouse of the surviving spouse, over (ii) the amount with respect to which the tentative tax is determined under § 2001(b)(1) on the estate of such deceased spouse. Section 2010(c)(5)(A) provides that a DSUE amount may not be taken into account by a surviving spouse under § 2010(c)(2) unless the executor of the estate of the deceased spouse files an estate tax return on which such amount is computed and makes an election on such return that such amount may be so taken into account. The election, once made, shall be irrevocable. No election may be made if such return is filed after the time prescribed by law (including extensions) for filing such return. Section 20.2010-2(a)(1) provides that the due date of an estate tax return required to elect portability is nine months after the decedent's date of death or the last day of the period covered by an extension (if an extension of time for filing has been obtained). Under § 20.2010-2(a)(1), an extension of time under § 301.9100-3 to make a portability election may be granted in the case of an estate that is not required to file an estate tax return under § 6018(a), as determined solely based on the value of the gross estate and any adjusted taxable gifts (and without regard to § 20.2010-2(a)). Under § 301.9100-1(c), the Commissioner has discretion to grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time to make an election whose due date is prescribed by a regulation (and not expressly provided by statute). Requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. In this case, based on the representation as to the value of the gross estate and any adjusted taxable gifts, the time for filing the portability election is fixed by the regulations. Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Decedent's estate to elect portability, provided Decedent's estate establishes it acted reasonably and in good faith, the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government. Information, affidavits, and representations submitted on behalf of Decedent's estate explain the circumstances that resulted in the failure to timely file a valid election. Based solely on the information submitted and the representations made, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Therefore, we grant an extension of time of 120 days from the date of this letter in which to make the portability election. The election should be made by filing a complete and properly prepared Form 706 and a copy of this letter, within 120 days from the date of this letter, with the Kansas City Service Center, at the following address: Department of the Treasury, Internal Revenue Service Center, Kansas City, MO 64999. For purposes of electing portability, a Form 706 filed by Decedent's estate within 120 days from the date of this letter will be considered to be timely filed. If it is later determined that, based on the value of the gross estate and taking into account any taxable gifts, Decedent's estate is required to file an estate tax return pursuant to § 6018(a), the Commissioner is without authority under § 301.9100-3 to grant an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void. See § 20.2010-2(a)(1). We neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In particular, we express no opinion as to the DSUE amount to be potentially taken into account by Spouse. Any claimed DSUE amount will be included in the applicable exclusion amount of Spouse only to the extent that Spouse can substantiate such amount and will be subject to determination by the Director's office upon audit of relevant Federal gift or estate tax returns. See § 20.2010-3(c)(1) and (d). The rulings contained in this letter are based upon information and representations submitted by the Taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. This ruling is directed only to the Taxpayer requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, we have sent a copy of this letter to your authorized representatives. Sincerely, Associate Chief Counsel Passthroughs and Special Industries Leslie H. Finlow By: Leslie H. Finlow Senior Technician Reviewer, Branch 4 Office of the Associate Chief Counsel (Passthroughs and Special Industries) Enclosure: Copy for § 6110 purposes cc:

Private Letter Ruling Number: 202239011 Internal Revenue Service July 6, 2022 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202239011 Release Date: 9/30/2022 Index Number: 9100.00-00, 9100.22-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:CORP:3 PLR-104386-22 Date: July 06, 2022 Dear *******: This letter responds to a letter dated February 23, 2022, submitted on behalf of Parent, requesting an extension of time under §301.9100-3 of the Procedure and Administration Regulations to make an election. The extension is being requested for Parent to make an election under §1.1502-21(b)(3)(i) to relinquish the entire carryback period for the Parent consolidated group's consolidated net operating loss ("CNOL") for the tax year ending Date 1 (the "Election"). The material information submitted for consideration is summarized below. Parent is the common parent of a consolidated group ("Parent Group"). Parent Group sustained a CNOL in the tax year ending on Date 1. Parent intended to relinquish the carryback period for its consolidated group's CNOL on its tax return for the tax year ending Date 1, but for various reasons, a valid election was not filed. After the due date of the Election, it was discovered that a valid election was not filed. Subsequently, this request was submitted for an extension of time to file a valid election. Parent has represented that Parent Group has not, and will not, carry any portion of the CNOL for the tax year ending Date 1 to a prior consolidated return year of Parent Group. Parent has also represented that no member of the consolidated group of which Parent was the common parent for the tax year ending Date 1, other than two members, had a separate return year within the meaning of §1.1502-1(e) at any time during the carryback period, and that none of the CNOL was attributable to those two members. Parent has further represented that Parent is not seeking to alter a return position for which an accuracy-related penalty has been or could have been imposed under section 6662 at the time Parent requested relief and the new position requires or permits a regulatory election for which relief is requested. Section 1.1502-21(b)(3)(i) provides that a consolidated group may make an irrevocable election under section 172(b)(3) to relinquish the entire carryback period with respect to a CNOL for any consolidated return year. The election is made in a separate statement entitled "THIS IS AN ELECTION UNDER §1.1502-21(b)(3)(i) TO WAIVE THE ENTIRE CARRYBACK PERIOD PURSUANT TO SECTION 172(b)(3) FOR THE [insert consolidated return year] CNOLs OF THE CONSOLIDATED GROUP OF WHICH [insert name and employer identification number of common parent] IS THE COMMON PARENT." Section 1.1502-21(b)(3)(i) also provides that the statement must be filed with the group's income tax return for the consolidated return year in which the loss arises. Under §301.9100-1(c), the Commissioner has discretion to grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I. Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make a regulatory election. Section 301.9100-1(a). Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of §301.9100-2. Requests for relief under §301.9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. Section 301.9100-3(a). In this case, the time for filing the Election is fixed by the regulations ( i.e., §1.1502-21(b)(3)(i)). Therefore, the Commissioner has discretionary authority under §301.9100-3 to grant an extension of time for Parent to file the Election, provided Parent establishes it acted reasonably and in good faith, the requirements of §§301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government. Information, affidavits, and representations submitted by Parent, Company Official, and Tax Professional explain the circumstances that resulted in the failure to timely file a valid Election. The information establishes that the request for relief was filed before the failure to timely make the Election was discovered by the Internal Revenue Service. See §301.9100-3(b)(1)(i). Based on the facts and information submitted, including the representations made, we conclude that Parent has shown it acted reasonably and in good faith, the requirements of §§301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government. Accordingly, an extension of time is granted under §301.9100-1, until 75 days from the date on this letter, for Parent to file the Election. The above extension of time is conditioned on Parent Group's tax liability (if any) being not lower, in the aggregate, for all years to which the Election applies, than it would have been if the Election had been timely made (taking into account the time value of money). No opinion is expressed as to Parent Group's tax liability for the years involved. A determination thereof will be made by the Director's office upon audit of the federal income tax returns involved. Parent Group's return for the tax year ending Date 1 must be amended to attach the election statement required by §1.1502-21(b)(3)(i). A copy of this letter must be attached to the election statement. Alternatively, if the Parent Group files its returns electronically, Parent may satisfy this requirement by attaching a statement to its return that provides the date on, and control number (PLR-104386-22) of, this letter ruling. Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In addition, we express no opinion as to the tax effects or any other tax consequences of filing the Election late under the provisions of any other section of the Code and regulations, or as to the tax treatment of any conditions existing at the time of, or effects resulting from, filing the Election late that are not specifically set forth in the above ruling. For purposes of granting relief under §301.9100-3, we relied on certain statements and representations made by Parent, Company Official, and Tax Professional. However, the Director should verify all essential facts. In addition, notwithstanding that an extension is granted under §301.9100-3 to file the Election, penalties and interest that would otherwise be applicable, if any, continue to apply. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, copies of this letter are being sent to your authorized representatives. Sincerely, Thomas I. Russell Thomas I. Russell Chief, Branch 1 Office of Associate Chief Counsel (Corporate) cc:

Private Letter Ruling Number: 202228007 Internal Revenue Service April 12, 2022 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202228007 Release Date: 7/15/2022 Index Number: 2601.00-00, 2518.00-00, 2501.00-00, 2041.00-00, 2038.00-00, 2037.00-00, 2036.00-00, 1001.00-00, 61.00-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:B04 PLR-121266-21 Date: April 12, 2022 Dear ********: This letter responds to your authorized representative's letter dated September 28, 2021, and subsequent correspondence, requesting federal tax rulings on certain proposed transactions involving Trust. The facts and representations submitted are summarized as follows: On Date 1, Settlor and Settlor's Spouse (collectively, the "Settlors") created an irrevocable trust, Trust, for the benefit of Son (generally referred to in the trust instrument as the "Beneficiary"). Date 1 is a date prior to October 21, 1942. Trust is governed by the laws of State. Article III, Section 1 of Trust provides that the Beneficiary has no right to the corpus of Trust and does not have a right to partition, divide, or dissolve Trust. The Beneficiary has no right with respect to Trust other than to receive distributions of net earnings awarded him by the trustee with the consent of Trust's Advisory Board and the right to distribution of the trust estate made by the trustee at the termination of Trust. Article III, Section 2 provides that the death, insolvency or bankruptcy of the Beneficiary hereunder, or the transfer of his interest in any manner, or by descent or otherwise, during the continuance of Trust, shall not operate as a dissolution of, nor terminate Trust, nor shall it have any effect whatever upon the trust estate, its operation or mode of business, nor shall it entitle his heirs or assigns or representatives to take any action in the courts of law or equity against the estate, its trustees or property or its business operations of any kind, all of which shall remain intact and undistributed thereby; but shall succeed only to the rights of the original Beneficiary. Article III, Section 3 provides that at the time of the death of the Beneficiary, his equitable interest in the trust estate, unless disposed of otherwise by said Beneficiary, shall pass to and vest in his heirs in accordance with the laws of descent and distribution then in force, applicable to the equitable interest of such Beneficiary in the trust estate. Section 3 further provides that the term "Beneficiary" applies not only to Son but to all of his successors to beneficial interests under Trust. Article IV, Section 3 provides that Trust will continue until the death of Son, and for twenty-one years after Son's death. At the expiration of that period, the trustee is to distribute the trust corpus among the then existing beneficiaries. Article IV, Section 4 provides that the Beneficiary may receive from time to time a portion of the net profits accruing from time to time to the trust estate, as the trustee, acting with the advice and consent of the Advisory Board, may see fit to pay over and deliver to the Beneficiary. No duty is imposed upon the trustee to make distributions of net profits, but the power is conferred upon the trustee, acting with the advice and consent of the Advisory Board. In exercising this discretion, the trustee and Advisory Board will give full consideration to the interest of both the Beneficiary and the trust estate. By order dated Date 2 (Date 2 Order), Court modified the terms of Trust and approved a completely restated trust agreement. In the Date 2 Order, Court made several significant findings and holdings with respect to Trust. Specifically, Court found that Trust expressly provides that the term "Beneficiary" applies not only to Son but to all his successors to beneficial interests under Trust. The Court further found that the heirs of Son who succeed to his equitable interest in Trust will be referred to as "Successor Beneficiaries." In addition, Court found that, (i) upon Son's death, Son's equitable interest in Trust will pass to and vest in Son's heirs in accordance with the laws of descent and distribution of State then in force, applicable to his equitable interest in Trust; (ii) upon Son's death, Trust will be divided into separate shares for each of his heirs; if Son's Spouse survives him, one-third of Trust will be allocated to a share for Son's Spouse and the other two-thirds will be divided into shares for the children and descendants of Son, in accordance with the laws of descent and distribution of State then in force; and (iii) each such share for Son's heirs will be separate, and the Successor Beneficiaries of Trust will not become common beneficiaries of an undivided trust. Consequently, the interests and powers of a Successor Beneficiary with respect to his or her share extend only to that Successor Beneficiary's respective share and not to any share held for any other Successor Beneficiary. Trust is administered by Trustee and a three-person Advisory Board. An individual serving as a trustee is also a member of the Advisory Board. In the event Trustee should fail or cease to serve, the remaining members of the Advisory Board will appoint a new member to fill the vacancy on the board. Then the Advisory Board will appoint one of its members or a Qualified Family Trust Company to serve as trustee. The Beneficiary and individuals related and subordinate to the Beneficiary within the meaning of § 672(c) of the Internal Revenue Code (Code) may serve on the Advisory Board but may not serve as a trustee. Currently, Son is married to Son's Spouse and they have five children (Grandchildren 1 through 5), sixteen Grandchildren (Great Grandchildren 1 through 16), and thirty-two Great Grandchildren (Great-Great Grandchildren 1 through 32). Under Article III, Section 3, as construed by Court (discussed below), Son is determined to possess a testamentary general power of appointment over Trust. Son intends to allow his power of appointment over Trust to lapse at his death. Further, one or more of the Successor Beneficiaries plans to irrevocably and unqualifiedly disclaim, in accordance with State Statute 1 and § 2518 of the Code, in a writing delivered to Trustee, all or an undivided portion of his or her beneficial interest in Trust no later than nine months after Son's death. A Successor Beneficiary disclaiming his or her interest in Trust will not (i) accept an interest in or any benefits from the property subject to the disclaimer; or (ii) voluntarily assign, convey, encumber, pledge or transfer the interest in property subject to the disclaimer or contract to do any of the foregoing. As a result of the disclaimer, the disclaimed interest will pass without any direction from the Successor Beneficiary disclaiming his or her interest in Trust, and the interest will pass to someone other than the Successor Beneficiary disclaiming his or her interest in Trust. Finally, a Successor Beneficiary disclaiming his or her interest in Trust will not serve on the Advisory Board or as a trustee of Trust. On Date 3, Trustee filed in Court a petition for construction and modification of terms of Trust. Trustee proposes to make certain modifications to Trust in order to facilitate the administration of Trust after the death of Son. Trust currently provides that Trust will terminate twenty-one years after Son's death and will then be distributed outright to the Successor Beneficiaries. It is represented that the amounts distributed upon termination of Trust will be substantial, and that if a Successor Beneficiary is under the age of x, it would not be in his or her best interest to receive his or her share outright. Son and the Successor Beneficiaries have consented to the proposed modifications. State Statute 1 provides that if an interest in property passes because of the death of a decedent, a disclaimer of the interest takes effect as of the time of the decedent's death, and relates back for all purposes to the time of the decedent's death. State Statute 2 provides that on the petition of a trustee or a beneficiary, a court may order that the terms of the trust be modified if, because of circumstances not known to or anticipated by the settlor, the order will further the purposes of the trust. State Statute 3 provides that the court may not take the action permitted by State Statute 2 unless all beneficiaries of the trust have consented to the order or are deemed to have consented to the order. Further, a minor, incapacitated, unborn, or unascertained beneficiary is deemed to have consented if a person representing the beneficiary's interest has consented or if a guardian ad litem appointed to represent the beneficiary's interest consents on the beneficiary's behalf. State Statute 4 provides that when distributing trust property or dividing or terminating a trust, a trustee may make distributions in divided or undivided interests, and allocate particular assets in proportionate or disproportionate shares. On Date 4, Court issued an order ("Court Order") approving the following construction and modification of Trust ("Trust Construction and Modification"), subject to a favorable private letter ruling from the Internal Revenue Service. Trust Construction In Court Order, Court ruled as follows: (1) Upon Son's death, Trust shall be divided into separate trusts (hereinafter, "Successor Trusts") for each Successor Beneficiary, and that upon the subsequent death of a Successor Beneficiary during the twenty-one year term following Son's death, the Successor Trusts of which the deceased Successor Beneficiary was an income beneficiary shall be similarly divided into separate Successor Trusts. (2) Trust grants Son a general power of appointment with respect to Trust and Successor Beneficiaries hold the same general power of appointment with respect to his or her Successor Trust. (3) After Son's death, each Successor Beneficiary will have three separate beneficial interests in his or her Successor Trust: (i) a discretionary income interest for twenty-one years after Son's death; (ii) a remainder interest which vests in possession twenty-one years after Son's death; and (iii) a general power of appointment. Each of the beneficial interests may be disclaimed independently of the others. (4) The class of a disclaiming Successor Beneficiary's descendants who are heirs of Son shall remain open to new members born to such disclaiming Successor Beneficiary during the twenty-one years after the death of Son, including descendants born to a disclaiming Successor Beneficiary who has no children or other descendants living on the death of Son. (5) Upon a Successor Beneficiary's disclaimer of a beneficial interest in his or her Successor Trust, the following will apply: (i) If a Successor Beneficiary disclaims an interest in Trust and survives Son, the disclaimed interest will pass, at Son's death, to Son's heirs (which would exclude a Successor Beneficiary's spouse) determined as though the disclaiming beneficiary did not survive Son ( i.e., to the beneficiary's descendants who survive Son). (ii) If a Successor Beneficiary disclaims an interest in Trust, survives Son but dies within twenty-one years after Son's death, the disclaimed interest will not be affected by the Successor Beneficiary's death. (iii) If a Successor Beneficiary survives Son but dies within twenty-one years after Son's death, the Successor Beneficiary's retained interest in Trust will pass to Successor Beneficiary's heirs at law, which include Successor Beneficiary's spouse. (6) Successor Trust shall be divided and funded in the following manner: (i) Where no disclaimers are made, the separate trusts created for Successor Beneficiaries will hold equal percentages of income and remainder interests and the undistributed income produced by a particular portion will be added to principal of that particular portion. (ii) Where a Successor Beneficiary disclaims an equal portion of his or her income and remainder interests, the retained and disclaimed interests would be administered similarly, and the undistributed income produced by a particular portion will be added to principal of that particular portion. (iii) Where a Successor Beneficiary disclaims a greater percentage of the remainder interest than an income interest, at least two trusts will be created for the disclaimant. Under one trust, the disclaimant will be both the income and remainder beneficiary of the trust. Under the second trust, the disclaimant will have an income interest in the trust but no remainder interest. The remainder interest in the second trust will belong to the heirs of the beneficiary immediately preceding the disclaimant in interest (that is, the "prior beneficiary") who are descendants of the disclaiming beneficiary, determined as if the disclaiming beneficiary predeceased the prior beneficiary. (7) When Trustee divides Trust into separate trusts after Son's death, or after the death of one of the Successor Beneficiaries, Trustee shall create the least number of trusts under each family branch of a particular child of Son (Grandchild 1 through 5) that can be established with only one income beneficiary of each trust. (8) If an income beneficiary of a separate trust dies within twenty-one years after Son's death with an heir at law who is already an income beneficiary of a separate trust, then such heir's share of the deceased income beneficiary's trust shall be added to his or her existing trust of which he or she is the income beneficiary in conformance with the general rule in Construction #7. (9) If, during the twenty-one year term after Son's death, a new beneficiary is born into the class of beneficiaries who are lineal descendants of the disclaimant (the "Disclaimant Class") and a trust or trusts are in existence with members of the Disclaimant Class as income beneficiaries, a new trust is created for the new beneficiary. (10) The terms "net earnings" and "net profits" as they appear in Trust are construed to mean trust "income" under State Trust Code and State law. Trust Modification In Court Order, Court modified Trust as follows: (1) A new Section 6 of Article IV of Trust is added to provide that when Trust terminates twenty-one years after the death of Son, any share distributable to a beneficiary who is then under the age of x (a "Continuing Beneficiary") shall be held in a trust (a "Continuing Trust") until such Continuing Beneficiary attains the age of x. If the Continuing Beneficiary survives Son but dies before reaching the age of x, he or she shall have a general testamentary power of appointment over his or her Continuing Trust. Any Continuing Trust shall terminate when the Continuing Beneficiary attains x years of age or dies, whichever event occurs first. At that time, the trustee shall deliver all remaining property in Continuing Trust to the Continuing Beneficiary, or if not living, as the Continuing Beneficiary may appoint by will (including to the Continuing Beneficiary's estate or the creditors of the Continuing Beneficiary or the creditors of the Continuing Beneficiary's estate). If the Continuing Beneficiary dies before reaching age x and does not exercise his or her general testamentary power of appointment, the Continuing Trust is distributed to the Continuing Beneficiary's estate. Equitable title to the property held in the Continuing Beneficiary's Continuing Trust shall be vested in the Continuing Beneficiary and shall be alienable. No power shall be exercised so as to violate any rule against perpetuities or rule against restraint against alienation. (Modification #1) (2) A new Section 7 of Article IV of Trust is added governing the succession of trustees with respect to each Continuing Trust as described under new Section 6. A Continuing Beneficiary will have the power to remove the trustee of his or her Continuing Trust and replace the trustee with a trustee of his or her choosing, other than the Continuing Beneficiary. Until a Continuing Beneficiary attains the age of eighteen, the Continuing Beneficiary's parent or legal guardian will hold this power. (Modification #2) (3) Section 10 of Article I of Trust provides that as near as possible after the close of each calendar year, Trust must have the books and records of Trust audited by a certified public accountant (the "Audit Requirement"). After Son's death, the trust estate will be divided into several Successor Trusts and the Audit Requirement will be burdensome and costly given the number of separate trusts subject to the Audit Requirement. Accordingly, Section 10 of Article I of Trust is modified to eliminate the Audit Requirement for separate trusts with assets under $A and make the Audit Requirement optional for trusts whose beneficiaries were not an adult party to the petition filed on Date 3 and with assets under $A. (Modification #3) It is represented that no actual or constructive additions within the meaning of § 26.2601-1(b) of the Generation-Skipping Transfer Tax Regulations have been made to Trust after September 25, 1985. You have requested the following rulings: 1. Trust is exempt from chapter 13 pursuant to § 2601. 2. Trust grants Son and each Successor Beneficiary of Trust a power of appointment that is a general power of appointment created before October 21, 1942, under §§ 2041(a)(1) and 2514(a), so that the lapse or complete release of the power of appointment will not subject any portion of Trust to federal estate, gift, or generation-skipping transfer (GST) tax. 3. The proposed disclaimer by any one or more of the Successor Beneficiaries of Trust will (a) be a qualified disclaimer under § 2518; (b) not result in a taxable gift by any of Successor Beneficiaries disclaiming his or her interest in Trust, and will not subject any portion of Trust to federal estate tax in the gross estate of a Successor Beneficiary disclaiming his or her interest; and (c) not result in a loss of GST exempt status with respect to any portion of Trust. 4. The assets of a Continuing Trust created pursuant to Modification #1 after Son's death will be includible in the gross estate of any Continuing Beneficiary of such Continuing Trust under § 2041(a)(2) if the Continuing Beneficiary dies before the Continuing Trust terminates. 5. Trust Construction and Modification will not cause Trust or any Successor Trust to be subject to GST tax pursuant to chapter 13. 6. Trust Construction and Modification will not result in any Successor Beneficiary of Trust making a taxable gift. 7. Trust Construction and Modification will not result in inclusion of any asset of, or interest in Trust or any Successor Trusts in the gross estate of any Successor Beneficiary whose death occurs prior to the termination of Trust under § 2036, 2037 or 2038. 8. The non-pro rata distribution of assets from Trust to one or more Successor Trusts created for the benefit of any Successor Beneficiaries will not be treated as a pro rata distribution of assets followed by a taxable sale and exchange of assets between the Successor Trusts. LAW AND ANALYSIS Ruling #1 Section 2601 imposes a tax on every generation-skipping transfer (GST) which is defined under § 2611 as a taxable distribution, taxable termination, and a direct skip. Section 1433(b)(2)(A) of the Tax Reform Act of 1986 (Act) and § 26.2601-1(b)(1) of the Generation-Skipping Transfer Tax Regulations provide that the GST tax shall not apply to any GST under a trust that was irrevocable on September 25, 1985, but shall apply to the extent that the transfer is not made out of corpus added to the trust after September 25, 1985 (or out of income attributable to corpus so added). Section 26.2601-1(b)(1)(i) provides that a trust qualifies for transitional rule relief from the provisions of chapter 13 if the trust was irrevocable on September 25, 1985, and no addition (actual or constructive) was made to the trust after that date. Section 26.2601-1(b)(1)(iv) provides that an addition made after September 25, 1985, to an irrevocable trust will subject to the provisions of chapter 13 a proportionate amount of distributions from, and terminations of interest in, property held in the trust. In this case, Trust was in existence and irrevocable prior to September 25, 1985. Additionally, it is represented that no actual or constructive additions within the meaning of § 26.2601-1(b) have been made to Trust after September 25, 1985. Therefore, based upon the facts submitted and representations made, we conclude that Trust is exempt from the application of chapter 13 pursuant to § 2601. Ruling #2 Section 2041(a)(1) provides, in part, that the value of the gross estate includes the value of all property to the extent of any property with respect to which a general power of appointment created on or before October 21, 1942, is exercised by the decedent by will; but the failure to exercise such a power or the complete release of such a power is not deemed an exercise thereof. See § 20.2041-2(d) of the Estate Tax Regulations. Section 2041(b)(1) provides that, for purposes of § 2041(a), the term "gener al power of appointment" means a power which is exercisable in favor of the decedent, his estate, his creditors, or the creditors of his estate. Section 20.2041-1(b) provides that a power of appointment includes all powers that are in substance and effect powers of appointment, regardless of the nomenclature used in creating the power. Section 20.2041-1(e) provides that a power of appointment created by an inter vivos instrument is considered created on the date the instrument takes effect. The power is not treated as created at a future date merely because the power is not exercisable on the date the instrument takes effect or because the identity of the powerholder is not ascertainable until a later date. Example 3 of § 20.2041-1(e) provides an illustration of the above rule. In the example, F creates an irrevocable inter vivos trust created before October 21, 1942, providing for payment of income to G for life with the remainder as G appoints by will, but in default of G's appointment, the trust will pass with income to H for life and the remainder as H shall appoint by will. If G dies after October 2, 1942, without exercising the power of appointment, H's power is considered a power created on or before October 21, 1942, even though H's power of appointment was only a contingent interest until G's death. Section 20.2041-2(d) provides that a failure to exercise a general power of appointment created on or before October 21, 1942, or a complete release of the power is not an exercise of the power. The phrase "a complete release" means a release of all powers over all or a portion of the property subject to the power of appointment, as distinguished from a reduction of a power of appointment to a lesser power. Thus, if the decedent completely relinquished all powers over one-half of the property subject to a power of appointment, the power is completely released as to that one-half. Section 2514(a) provides that an exercise of a general power of appointment created on or before October 21, 1942, is deemed a transfer of the property by the individual possessing such power for gift tax purposes, but the failure to exercise such power or the complete release of such power is not deemed an exercise thereof. Section 25.2514-2(c) of the Gift Tax Regulations provides that a failure to exercise a general power of appointment created on or before October 21, 1942, or a complete release of such power is not considered to be an exercise of a general power of appointment. The phrase "complete release" means a release of all powers over all or a portion of the property subject to the power of appointment, as distinguished from the reduction of a power of appointment to a lesser power. Thus, if the possessor completely relinquished all powers over one-half of the property subject to a power of appointment, the power is completely released as to that one-half. Section 26.2601-1(b)(1)(v)(A) provides that where any portion of a trust remains in trust after the post-September 25, 1985, release, exercise, or lapse of a power of appointment over that portion of the trust, and the release, exercise, or lapse is treated to any extent as a taxable transfer under chapter 11 or chapter 12, the value of the entire portion of the trust subject to the power that was released, exercised, or lapsed will be treated as if that portion had been withdrawn and immediately retransferred to the trust at the time of the release, exercise, or lapse. In this case, Trust was executed on a date prior to October 21, 1942. Article III, Section 3 of Trust provides that at the time of the death of the Beneficiary, his equitable interest in Trust, unless disposed of otherwise by such Beneficiary, shall pass to and vest in his heirs in accordance with the laws of descent and distribution then in force, applicable to the equitable interest of such Beneficiary in the trust estate. The language of Trust indicates that Settlors intended for Son to have the power to dispose of his equitable interest, without limitation. Further, Trust indicates that the Settlors intended each Successor Beneficiary to have the same rights with respect to his or her share of Trust as Son, including a general power of appointment over such Successor Beneficiary's interest in his or her Successor Trust. In the Court order, Court construed Trust as granting Son and Successor Beneficiaries a testamentary power of appointment to appoint such beneficiary's interest in Trust to any appointee. Trust was executed prior to October 21, 1942, hence Son's power of appointment is a power created before October 21, 1942. Successor Beneficiaries of Trust possess a general power of appointment that is contingent on surviving Son's death. As in the case of Example 3 of § 20.2041-1(e), the power of appointment held by Successor Beneficiaries is considered a power created before October 21, 1942. Accordingly, based upon the facts submitted and representations made, we conclude that Son and each Successor Beneficiary possess a general power of appointment created before October 21, 194 2. Son proposes to allow his testamentary general power of appointment to lapse. Under §§ 2041(a)(1) and 2514(a), the lapse or complete release of Son's general power of appointment will not cause Son to be treated as making a taxable gift or cause any portion of Trust to be included in Son's gross estate for federal estate tax purposes. Therefore, based upon the facts submitted and representations made, we conclude that the lapse (or complete release) of Son's general power of appointment will not subject any portion of Trust to federal estate or gift tax under §§ 2041(a)(1) and 2514(a). If one or more Successor Beneficiaries allow his or her power to lapse or completely releases his or her power of appointment, under §§ 2041(a)(1) and 2514(a), the lapse or complete release of a Successor Beneficiary's general power of appointment will not cause a Successor Beneficiary to be treated as making a taxable gift or cause any portion of Trust to be included in a Successor Beneficiary's gross estate for federal estate tax purposes. Therefore, based upon the facts submitted and representations made, we conclude that the lapse (or complete release) of a Successor Beneficiary's general power of appointment will not subject any portion of Trust to federal estate or gift tax under §§ 2041(a)(1) and 2514(a). Finally, in this case, Trust was irrevocable prior to September 25, 1985. It is represented that there have been no additions (actual or constructive) to Trust after September 25, 1985. The lapse or complete release of a general power of appointment by Son or a Successor Beneficiary will not be a taxable lapse or release of a general power of appointment because the power of appointment was created prior to October 21, 1942. Therefore, based upon the facts submitted and the representations made, we conclude that the lapse or complete release of a general power of appointment by Son or a Successor Beneficiary will not be treated as a constructive addition to Trust and will not result in a loss of GST exempt status with respect to any portion of the trust over which such powers lapsed or were released. Ruling #3 Section 2046 provides that for estate tax purposes, disclaimers of property interests passing upon death are treated as provided in § 2518. Section 2518(a) provides that if a person makes a qualified disclaimer with respect to any interest in property, subtitle B shall apply with respect to such interest as if the interest had never been transferred to such person. Section 2518(b) provides that the term "qualified disclaimer" means an irrevocable and unqualified refusal by a person to accept an interest in property but only if (1) the refusal is in writing; (2) the writing is received by the transferor of the interest, his legal representative, or the holder of the legal title to the property to which the interest relates not later than the date that is nine months after the later of (A) the date on which the transfer creating the interest in the person is made, or (B) the day on which the person attains age 21; (3) the person has not accepted the interest or any of its benefits; and (4) as a result of such refusal, the interest passes without any direction on the part of the person making the disclaimer and passes either (A) to the spouse of the decedent, or (B) to a person other than the person making the disclaimer. Section 2518(c)(1) provides that a disclaimer with respect to an undivided portion of an interest which meets the requirements of § 2518(b) shall be treated as a qualified disclaimer of such portion of the interest. Section 2518(c)(2) provides that a power over property is to be treated as an interest in that property. Section 25.2518-1(b) provides, in relevant part, that if a person makes a qualified disclaimer as described in § 2518(b) and § 25.2518-2, for purposes of the federal estate, gift, and GST provisions, the disclaimed interest in property is treated as if it had never been transferred to the person making the qualified disclaimer. Instead, it is considered as passing directly from the transferor of the property to the person entitled to receive the property as a result of the disclaimer. Accordingly, a person making a qualified disclaimer is not treated as making a gift. Similarly, the value of a decedent's gross estate for purposes of the federal estate tax does not include the value of property with respect to which the decedent, or the decedent's executor or administrator on behalf of the decedent, has made a qualified disclaimer. Section 25.2518-2(c)(3) provides, in relevant part, that the nine-month period for making a disclaimer generally is to be determined with reference to the transfer creating the interests in the disclaimant. With respect to inter vivos transfers, a transfer creating an interest occurs when there is a completed gift for federal gift tax purposes regardless of whether a gift tax is imposed on the completed gift. With respect to transfers made by a decedent at death or transfers that become irrevocable at death, the transfer creating the interest occurs on the date of the decedent's death, even if an estate tax is not imposed on the transfer. Section 25.2518-2(c)(3) further provides that if a person to whom an interest in property passes by reason of the exercise, release, or lapse of a general power of appointment desires to make a qualified disclaimer, the disclaimer must be made within a nine-month period after the exercise, release, or lapse regardless of whether the exercise, release, or lapse is subject to estate or gift tax. A person who receives an interest in property as the result of a qualified disclaimer of the interest must disclaim the previously disclaimed interest no later than nine months after the date of the transfer creating the interest in the preceding disclaimant. Thus, if A were to make a qualified disclaimer of a specific bequest and as a result of the qualified disclaimer the property passed as part of the residue, the beneficiary of the residue could make a qualified disclaimer no later than nine months after the date of the testator's death. Section 25.2518-3(a)(1)(i) provides that if the requirements of the section are satisfied, the disclaimer of all or an undivided portion of any separate interest in property may be a qualified disclaimer, even if the disclaimant has another interest in the same property. Under 25.2518-3(a)(1)(iii), a power of appointment with respect to property is treated as a separate interest in such property and such power of appointment with respect to all or an undivided portion of such property may be disclaimed independently from any other interests separately created by the transferor in the property. Further, a disclaimer of a power of appointment with respect to property is a qualified disclaimer only if any right to direct the beneficial enjoyment of the property which is retained by the disclaimant is limited by an ascertainable standard. Section 25.2518-3(a)(2) provides that a disclaimer of an undivided portion of an interest in a trust may be a qualified disclaimer. Under § 25.2518-3(b), the disclaimer of an undivided portion of a disclaimant's separate interest in property will be a qualified disclaimer if the undivided portion consists of a fraction or percentage of each and every substantial interest or right owned by the disclaimant in the property and extends over the entire term of the disclaimant's interest in the property. A disclaimer of some specific rights while retaining other rights with respect to an interest in property is not a qualified disclaimer of an undivided portion of the disclaimant's interest in the property. In this case, as construed by Court, Son's power of appointment under Trust was created before October 21, 1942, and is a general power of appointment as described in §§ 2041(a)(1) and 2514(a). Under the terms of Trust, Son's heirs cannot succeed to any interests in Trust until Son's death. If Son lets his power lapse at his death, as proposed, the lapse will create various interests, including a testamentary general power of appointment, in Trust for Successor Beneficiaries. See § 2518(c)(2). For purposes of § 2518, these powers will be considered as created on the date of Son's death, the date when Son's general power of appointment lapses. One or more of the Successor Beneficiaries propose to disclaim an undivided portion of or all of the interest in Trust to which he or she may be entitled to at Son's death. A disclaiming Successor Beneficiary will not accept an interest in or any benefit from the property subject to the disclaimer or voluntarily assign, convey, encumber, pledge, or transfer the interest or property subject to the disclaimer. Further, each disclaimer will be irrevocable and in writing delivered to the trustee. As a result, the proposed disclaimer will pass without any direction from the disclaiming Successor Beneficiary and the interest will pass to someone other than the disclaiming Successor Beneficiary. Finally, a disclaiming Successor Beneficiary will be prohibited from serving on the Advisory Board of Trust or as a trustee of Trust. Accordingly, based on the facts submitted and representations made, we conclude that the proposed disclaimer by any one or more Successor Beneficiary will not result in a taxable gift by the disclaimant and will not subject any portion of Trust to estate tax in the gross estate of the disclaimant. Under § 25.2518-1(b), the disclaimed interest in property is treated as if it had never been transferred to the person making the qualified disclaimer. Instead, it is considered as passing directly from the transferor of the property to the person entitled to receive the property as a result of the disclaimer. Therefore, the disclaimant is not a transferor, as defined in § 2652 and is not treated as making a constructive addition to Trust. Accordingly, we conclude that a proposed disclaimer by any one or more Successor Beneficiary will not result in Trust losing GST exempt status. Ruling #4 Section 2041(a)(2) provides that to the extent of any property with respect to which the decedent has at the time of his death a general power of appointment created after October 21, 1942, or with respect to which the decedent has at any time exercised or released such a power of appointment by a disposition which is of such nature that if it were a transfer of property owned by the decedent, such property would be includible in the decedent's gross estate under §§ 2035 to 2038, inclusive. Trust currently provides for outright distribution to the Successor Beneficiaries on Trust's termination. Under Modification #1, any share upon Trust's termination distributable to a Successor Beneficiary under the age of x is to be held in a Continuing Trust until that Continuing Beneficiary reaches the age of x. If the Continuing Beneficiary survives Son but dies before reaching age x, Continuing Trust grants the Continuing Beneficiary a general power of appointment to appoint the assets of his or her Continuing Trust to any appointee, including the Continuing Beneficiary's estate or the creditors of the Continuing Beneficiary or the creditors of the Continuing Beneficiary's estate. Thus, if the Continuing Beneficiary survives the twenty-one year term following Son's death but dies before the termination of Continuing Trust, the remaining assets in the Continuing Trust are includible in the gross estate of the Continuing Beneficiary under § 2041(a)(2). Based upon the facts submitted and representations made, we conclude that the assets of a Continuing Trust created pursuant to Modification #1 after Son's death will be includible in the gross estate for federal estate tax purposes of any Continuing Beneficiary of such Continuing Trust under § 2041(a)(2) if the Continuing Beneficiary dies before the Continuing Trust terminates. Ruling #5 Section 26.2601-1(b)(4) provides rules for determining when a modification, judicial construction, settlement agreement, or trustee action with respect to a trust that is exempt from GST tax under § 26.2601-1(b)(1), (2), or (3) will not cause the trust to lose its exempt status. The rules in § 26.2601-1(b)(4) are applicable only for purposes of determining whether an exempt trust retains its exempt status for GST purposes. The rules do not apply, for example, in determining whether the transaction results in a gift subject to gift tax, or may cause the trust to be included in the gross estate of a beneficiary, or may result in the realization of gain for purposes of § 1001. Section 26.2601-1(b)(4)(i)(C) provides that judicial construction of a governing instrument to resolve an ambiguity in the terms of the instrument will not cause an exempt trust to be subject to the provisions of chapter 13 if the judicial action involves a bona fide issue and the construction is consistent with applicable state law that would be applied by the highest court of the state. Section 26.2601-1(b)(4)(i)(D)(1) provides that a modification of the governing instrument of an exempt trust by judicial reformation, or nonjudicial reformation that is valid under applicable state law, will not cause an exempt trust to be subject to the provisions of chapter 13, if the modification does not shift a beneficial interest in the trust to any beneficiary who occupies a lower generation (as defined in § 2651) than the person or persons who held the beneficial interest prior to the modification, and the modification does not extent the time for vesting of any beneficial interest in the trust beyond the period provided for in the original trust. Section 26.2601-1(b)(4)(i)(D)(2) provides that a modification of an exempt trust will result in a shift in a beneficial interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a GST transfer or the creation of a new GST transfer. To determine whether a modification of an irrevocable trust will shift a beneficial interest in a trust to a beneficiary who occupies a lower generation, the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification. If the effect of the modification cannot be immediately determined, it is deemed to shift a beneficial interest in the trust to a beneficiary who occupies a lower generation (as defined in § 2651) than the person or persons who held the beneficial interest prior to the modification. A modification that is administrative in nature that only indirectly increases the amount transferred (for example, by lowering administrative costs or income taxes) will not be considered to shift a beneficial interest in the trust. Section 26.2601-1(b)(4)(i)(E), Example 10 considers the following situation. In 1980, Grantor established an irrevocable trust for the benefit of Grantor's issue, naming a bank and five other individuals as trustees. In 2002, the appropriate local court approves a modification of the trust that decreases the number of trustees which results in lower administrative costs. The modification pertains to the administration of the trust and does not shift a beneficial interest in the trust to any beneficiary who occupies a lower generation (as defined in § 2651) than the person or persons who held the beneficial interest prior to the modification. In addition, the modification does not extend the time for vesting of any beneficial interest in the trust beyond the period provided for in the original trust. Therefore, the trust will not be subject to the provisions of chapter 13. In this case, Trust Construction by Court resolves ambiguities in the terms of the trust instrument. The judicial action involved bona fide issues regarding whether Son and the Successor Beneficiaries possess general powers of appointment and whether such powers were created before October 21, 1942. Trust Construction is consistent with applicable state law that would be applied by the highest court of the state. Further, Modification #1 grants each beneficiary of a Continuing Trust a general power of appointment which will cause the assets of a Continuing Trust to be includible in the gross estate of such beneficiary under § 2041(a)(2). Therefore, Modification #1 does not shift a beneficial interest in the trust to any beneficiary who occupies a lower generation (as defined in § 2651) than the person or persons who held the beneficial interest prior to the modification, and the modification does not extend the time for vesting of any beneficial interest in the trust beyond the period provided for in the original trust. Modification #2 and #3 relate to the appointment and replacement of successor trustees in Continuing Trust and the application of the Audit Requirement after Trust is divided into separate trusts. Modifications #2 and #3 are administrative in nature and under § 26.2601-1(b)(4)(i)(D)(2), will not be considered to shift a beneficial interest to a lower generation in the trust or extend the time for vesting of any beneficial interest in the trust beyond the period provided for in Trust. See Example 10 of § 26.2601-1(b)(4)(i)(E). Therefore, based upon the facts submitted and representations made, we conclude that Trust Construction and Modification by Court will not cause Trust or any Successor Trusts to be subject to GST tax pursuant to chapter 13. Ruling #6 Section 2501 provides that a tax is imposed for each calendar year on the transfer of property by gift during such calendar year by any individual, resident or nonresident. Section 2511(a) provides that the tax imposed by § 2501 will apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible on intangible. Section 25.2511-1(c) provides that any transaction in which an interest in property is gratuitously passed or conferred upon another, regardless of the means or device employed, constitutes a gift subject to tax. Section 2512(a) provides that if the gift is made in property, the value thereof at the date of the gift is considered the amount of the gift. Section 2512(b) provides that where property is transferred for less than adequate and full consideration in money or money's worth, then the amount by which the value of the property exceeded the value of the consideration is deemed to be a gift and is included in computing the amount of gifts made during the calendar year. In this case, Trust Construction and Modification by Court do not change the beneficial interests in Trust. Accordingly, based upon the facts submitted and representations made, we conclude that the Trust Construction and Modification will not cause Son or any of the Successor Beneficiaries to have made a taxable gift for purposes of § 2501. Ruling #7 Section 2036(a) provides that the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death: (1) the possession or enjoyment of, or the right to the income from, the property, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom. Section 2037(a) provides that the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, if: (1) possession or enjoyment of the property can, through ownership of such interest, be obtained only by surviving the decedent, and (2) the decedent has retained a reversionary interest in the property, and the value of such reversionary interest immediately before the death of the decedent exceeds five percent of the value of such property. Section 2038(a)(1) provides that the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (without regard to when or from what source the decedent acquired such power), to alter, amend, revoke, or terminate, or where any such power is relinquished during the 3-year period ending on the date of the decedent's death. In order for §§ 2036, 2037 and 2038 to apply, a decedent must have made a transfer of property of any interest therein (except in case of a bona fide sale for adequate and full consideration in money or money's worth) under which the decedent retained an interest in, or power over, the income or corpus of the transferred property. In this case, Trust Construction and Modification do not constitute transfers within the meaning of §§ 2036, 2037 and 2038. Accordingly, based upon the facts submitted and representations made, we conclude that Trust Construction and Modification by Court will not result in inclusion of any asset of, or interest in Trust or any Successor Trusts in the gross estate of any beneficiary whose death occurs prior to the termination of Trust under § 2036, 2037 or 2038. Ruling #8 Section 61(a) defines gross income as "all income from whatever source derived." Under section 61(a)(3), gross income includes "[g]ains derived from dealings in property." Section 1001(a) provides that the gain from the sale or other disposition of property is the excess of the amount realized over the adjusted basis provided in § 1011 for determining gain, and the loss is the excess of the adjusted basis provided in § 1011 for determining loss over the amount realized. Under § 1001(c), the entire amount of gain or loss must be recognized, except as otherwise provided. Section 1.1001-1(a) of the Income Tax Regulations provides that, except as otherwise provided in subtitle A of the Code, the gain or loss realized from the exchange of property for other property differing materially either in kind or in extent is treated as income or as loss sustained. Under § 1.1001-1(h), the severance of a trust, occurring on or after August 2, 2007, is not an exchange of property for other property differing materially either in kind or in extent, if (i) an applicable state statute or the governing instrument authorizes or directs the trustee to sever the trust; and (ii) any non-pro rata funding of the separate trusts resulting from the severance, whether mandatory or in the discretion of the trustee, is authorized by an applicable state statute or the governing instrument. In the present case, the Trust will be severed into multiple trusts, Successor Trusts, on a non-pro rata basis. Trustees represent that the contemplated trust severance is authorized by the agreement governing Trust. Trustee further represents that the nonpro rata funding of Successor Trusts is authorized under State Statute 4 which allows a trustee to make distributions in divided or undivided interest and to allocate assets in proportionate or disproportionate shares. The proposed transaction is consistent with the criteria set forth in § 1.1001-1(h)(1). Accordingly, based upon the facts submitted and representations made, we conclude that the severance of the Trust and non-pro rata funding of the Successor Trusts should not be treated as pro rata distributions followed by a taxable sale and exchange of assets between the Successor Trusts and, therefore, will not be subject to recognition of gain or loss from a sale or other disposition of property under § 1001. In accordance with the Powers of Attorney on file with this office, we have sent copies of this letter to your representatives. Except as expressly provided herein, we neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. The rulings contained in this letter are based upon information and representations submitted by the taxpayers accompanied by penalty of perjury statements executed by the appropriate parties. While this office has not verified the material submitted in support of the request for rulings, it is subject to verification on examination. This ruling is directed only to the taxpayer requesting it. Section 6100(k)(3) provides that it may not be used as precedent. Sincerely, Leslie H. Finlow ______________________ Leslie H. Finlow Senior Technician Reviewer, Branch 4 Office of Associate Chief Counsel (Passthroughs & Special Industries) Enclosure Copy for § 6110 purposes cc:

Treasury Decision 9990 Internal Revenue Service 2024-19 I.R.B. 966 26 CFR 54.9801-2: Definitions; 26 CFR 54.9831-1: Special rules relating to group health plans; 26 CFR 54.9833-1: Applicability dates T.D. 9990 DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 54 DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Part 2590 DEPARTMENT OF HEALTH AND HUMAN SERVICES 45 CFR Parts 144, 146, and 148 Short-Term, Limited-Duration Insurance and Independent, Noncoordinated Excepted Benefits Coverage AGENCY: Internal Revenue Service, Department of the Treasury; Employee Benefits Security Administration, Department of Labor; Centers for Medicare & Medicaid Services, Department of Health and Human Services. ACTION: Final rules. SUMMARY: This document sets forth final rules that amend the definition of short-term, limited-duration insurance, which is excluded from the definition of individual health insurance coverage under the Public Health Service Act. This document also sets forth final rules that amend the regulations regarding the requirements for hospital indemnity or other fixed indemnity insurance to be considered an excepted benefit in the group and individual health insurance markets. DATES: These regulations are effective on June 17, 2024. FOR FURTHER INFORMATION CONTACT: Shannon Hysjulien or Rebecca Miller, Employee Benefits Security Administration, Department of Labor at (202) 693-8335; Jason Sandoval, Internal Revenue Service, Department of the Treasury at (202) 317-5500; Cam Clemmons, Centers for Medicare & Medicaid Services, Department of Health and Human Services at (206) 615-2338; Lisa Cuozzo, Centers for Medicare & Medicaid Services, Department of Health and Human Services at (667) 290-8537. SUPPLEMENTARY INFORMATION: I. Background These final rules set forth revisions to the definition of "short-term, limited - duration insurance" (STLDI) for purposes of its exclusion from the definition of "individual health insurance coverage" in 26 CFR part 54, 29 CFR part 2590, and 45 CFR part 144. The definition of STLDI is also relevant for purposes of the disclosure and reporting requirements in section 2746 of the Public Health Service Act (the PHS Act), which require health insurance issuers offering individual health insurance coverage or STLDI to disclose to enrollees with individual health insurance or STLDI coverage, and to report annually to the Department of Health and Human Services (HHS), any direct or indirect compensation provided by the issuer to an agent or broker associated with enrolling individuals in such coverage. These final rules also set forth amendments to the regulations regarding the requirements for hospital indemnity and other fixed indemnity insurance to be treated as an excepted benefit in the group and individual health insurance markets (fixed indemnity excepted benefits coverage). 1 As explained in greater detail later in this section of the preamble, the Department of the Treasury (Treasury Department), the Department of Labor, and HHS (collectively, the Departments) are not finalizing certain aspects of the proposed rules regarding fixed indemnity excepted benefits coverage and the Treasury Department and the Internal Revenue Service (IRS) are not finalizing the proposed amendments to Treasury Reg.§ 1.105-2 at this time. 1 For simplicity and readability, this preamble refers to hospital indemnity or other fixed indemnity insurance that meets all requirements to be considered an excepted benefit under the Federal framework as "fixed indemnity excepted benefits coverage" to distinguish it from hospital indemnity or other fixed indemnity insurance that does not meet all such requirements. In proposed rules published on July 12, 2023, in the Federal Register titled "Short-Term, Limited-Duration Insurance; Independent, Noncoordinated Excepted Benefits Coverage; Level-Funded Plan Arrangements; and Tax Treatment of Certain Accident and Health Insurance" (2023 proposed rules), 2 the Departments proposed revisions to define and more clearly distinguish STLDI and fixed indemnity excepted benefits coverage from comprehensive coverage. Comprehensive coverage is coverage that is subject to the Federal consumer protections and requirements established under chapter 100 of the Internal Revenue Code (Code), part 7 of the Employee Retirement Income Security Act of 1974 (ERISA), and title XXVII of the PHS Act (hereinafter referred to as the Federal consumer protections and requirements for comprehensive coverage), 3 such as the prohibition on exclusions for preexisting conditions, the prohibition on health status discrimination, and the requirement to cover certain preventive services without cost sharing. The Departments proposed these revisions to promote equitable access to high-quality, affordable, comprehensive coverage by increasing consumers' understanding of their health coverage options and reducing misinformation about STLDI and fixed indemnity excepted benefits coverage, consistent with Executive Orders 14009 and 14070 as described in section I.B of this preamble. The Treasury Department and the IRS also proposed amendments to Treasury Reg.§ 1.105-2 to clarify the tax treatment of benefit payments in fixed amounts under hospital indemnity or other fixed indemnity coverage purchased on a pre-tax basis. 2 88 FR 44596 (July 12, 2023). 3 While STLDI is generally not subject to the Federal consumer protections and requirements for comprehensive coverage that apply to individual health insurance coverage, the agent and broker compensation disclosure and reporting requirements in section 2746 of the PHS Act apply to health insurance issuers offering individual health insurance coverage or STLDI. The Departments also solicited comments regarding coverage only for a specified disease or illness that qualifies as excepted benefits (specified disease excepted benefits coverage), 4 and regarding level-funded plan arrangements 5 to better understand the key features and characteristics of these arrangements and whether additional guidance or rulemaking is needed to clarify plan sponsors' and issuers' obligations with respect to coverage provided through these arrangements. While specified disease excepted benefits coverage and level-funded plan arrangements are not addressed in these final rules, the Departments appreciate the comments received on these topics and will take them into consideration as they determine whether additional guidance or rulemaking is warranted in the future. 4 88 FR 44596 at 44632 (July 12, 2023). 5 Id. at 44632-34. A. General Statutory Background The Health Insurance Portability and Accountability Act of 1996 (HIPAA) (Pub. L. 104-191, August 21, 1996) added chapter 100 to the Code, part 7 to ERISA, and title XXVII to the PHS Act, which set forth portability and nondiscrimination rules with respect to health coverage. These provisions of the Code, ERISA, and the PHS Act were later augmented by other laws, including the Mental Health Parity Act of 1996 (Pub. L. 104-204, September 26, 1996), the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) (Pub. L. 110-343, October 3, 2008), the Newborns' and Mothers' Health Protection Act (Pub. L. 104-204, September 26, 1996), the Women's Health and Cancer Rights Act (Pub. L. 105-277, October 21, 1998), the Genetic Information Nondiscrimination Act of 2008 (Pub. L. 110-233, May 21, 2008), the Children's Health Insurance Program Reauthorization Act of 2009 (Pub. L. 111-3, February 4, 2009), Michelle's Law (Pub. L. 110-381, October 9, 2008), the Patient Protection and Affordable Care Act (Pub. L. 111-148, March 23, 2010) (as amended by the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152, March 30, 2010) (collectively known as the Affordable Care Act (ACA)), and Division BB of the Consolidated Appropriations Act, 2021 (CAA, 2021) (Pub. L. 116-260, December 27, 2020), which includes the No Surprises Act. The ACA reorganized, amended, and added to the provisions of part A of title XXVII of the PHS Act relating to group health plans and health insurance issuers in the group and individual markets. The ACA added section 9815 of the Code and section 715 of ERISA to incorporate the provisions of part A of title XXVII of the PHS Act, as amended or added by the ACA, into the Code and ERISA, making them applicable to group health plans and health insurance issuers providing health insurance coverage in connection with group health plans. The provisions of the PHS Act incorporated into the Code and ERISA, as amended or added by the ACA, are sections 2701 through 2728. In addition to market-wide provisions applicable to group health plans and health insurance issuers in the group and individual markets, the ACA established Health Benefit Exchanges (Exchanges) aimed at promoting access to high-quality, affordable, comprehensive coverage. Section 1401(a) of the ACA added section 36B to the Code, providing a premium tax credit (PTC) for certain individuals with annual household income that is at least 100 percent but not more than 400 percent of the Federal poverty level (FPL) who enroll in, or who have a member of their tax household enrolled in, an individual market qualified health plan (QHP) through an Exchange who are not otherwise eligible for minimum essential coverage (MEC). Section 1402 of the ACA provides for, among other things, reductions in cost sharing for essential health benefits for qualified low- and moderate-income enrollees in silver-level QHPs purchased through the individual market Exchanges. Section 1402 also provides for reductions in cost sharing for American Indians enrolled in QHPs purchased through the individual market Exchanges at any metal level. Section 5000A of the Code, added by section 1501(b) of the ACA, provides that individuals must maintain MEC, or make a payment known as the individual shared responsibility payment with their Federal tax return for the year in which they did not maintain MEC, if they are not otherwise exempt. 6 On December 22, 2017, the Tax Cuts and Jobs Act (Pub. L. 115-97) was enacted, which included a provision under which the individual shared responsibility payment under section 5000A of the Code was reduced to $0, effective for months beginning after December 31, 2018. 6 Section 5000A of the Code and Treasury regulations at 26 CFR 1.5000A-3 provide exemptions from the requirement to maintain MEC for the following individuals: (1) members of recognized religious sects; (2) members of health care sharing ministries; (3) exempt noncitizens; (4) incarcerated individuals; (5) individuals with no affordable coverage; (6) individuals with household income below the income tax filing threshold; (7) members of Federally recognized Indian tribes; (8) individuals who qualify for a hardship exemption certification; and (9) individuals with a short coverage gap of a continuous period of less than 3 months in which the individual is not covered under MEC. The eligibility standards for exemptions can be found at 45 CFR 155.605. The American Rescue Plan Act of 2021 (ARP) (Pub. L. 117-2) was enacted on March 11, 2021. Among other policies intended to address the health care and economic needs of the country during the coronavirus disease 2019 (COVID-19) pandemic, the ARP increased the PTC amount for individuals with annual household income at or below 400 percent of the FPL and extended PTC eligibility for the first time to individuals with annual household incomes above 400 percent of the FPL. Although the expanded PTC subsidies under the ARP were applicable only for 2021 and 2022, the Inflation Reduction Act of 2022 (IRA) (Pub. L. 117-169, August 16, 2022) extended the subsidies for an additional 3 years, through December 31, 2025. The No Surprises Act was enacted on December 27, 2020, as title I of Division BB of the CAA, 2021. The No Surprises Act added new provisions in Subchapter B of chapter 100 of the Code, part 7 of ERISA, and part D of title XXVII of the PHS Act, applicable to group health plans and health insurance issuers offering group or individual health insurance coverage. These provisions provide protections against surprise medical bills for certain out-of-network services and generally require plans, issuers, providers, and facilities to make certain disclosures regarding balance billing protections to the public and to individual participants, beneficiaries, and enrollees. In addition to the new provisions applicable to group health plans and issuers of group or individual health insurance coverage, the No Surprises Act added a new part E to title XXVII of the PHS Act, establishing corresponding requirements applicable to health care providers, facilities, and providers of air ambulance services. The CAA, 2021 also amended title XXVII of the PHS Act to, among other things, add section 2746, which requires health insurance issuers offering individual health insurance coverage or STLDI to disclose the direct or indirect compensation provided by the issuer to an agent or broker associated with enrolling individuals in individual health insurance coverage or STLDI to the enrollees in such coverage as well as to report such compensation annually to HHS. The Secretaries of the Treasury, Labor, and HHS have authority to issue such regulations as may be necessary or appropriate to carry out the parallel provisions under the Code, ERISA, and the PHS Act, including the definitions in section 9832 of the Code, section 733 of ERISA, and section 2791 of the PHS Act. 7, 8 7 Section 9833 of the Code, section 734 of ERISA, and section 2792 of the PHS Act. 8 See also 64 FR 70164 (December 15, 1999). B. Recent Executive Orders On January 28, 2021, President Biden issued Executive Order 14009, "Strengthening Medicaid and the Affordable Care Act," which directed the Departments to review policies to ensure their consistency with the Administration's goal of protecting and strengthening the ACA and making high-quality health care accessible and affordable for every American. 9 Executive Order 14009 also directed Federal agencies to examine policies or practices that may undermine protections for people with preexisting conditions and that may reduce the affordability of coverage or financial assistance for coverage. Executive Order 14009 also revoked the previous Administration's Executive Order 13813, "Promoting Healthcare Choice and Competition Across the United States," which directed agencies to expand the availability of STLDI. 10 On April 5, 2022, President Biden issued Executive Order 14070, "Continuing to Strengthen Americans' Access to Affordable, Quality Health Coverage," which directed the heads of Federal agencies with responsibilities related to Americans' access to health coverage to examine polices or practices that make it easier for all consumers to enroll in and retain coverage, understand their coverage options, and select appropriate coverage; that strengthen benefits and improve access to health care providers; that improve the comprehensiveness of coverage and protect consumers from low-quality coverage; and that help reduce the burden of medical debt on households. 11 9 Executive Order 14009 of January 28, 2021, 86 FR 7793 (February 2, 2021). 10 Executive Order 13813 of October 12, 2017, 82 FR 48385 (October 17, 2017). 11 Executive Order 14070 of April 5, 2022, 87 FR 20689 (April 5, 2022). In addition, on January 21, 2021, President Biden issued Executive Order 13995, "Ensuring an Equitable Pandemic Response and Recovery," which directed the Secretaries of Labor and HHS, and the heads of all other agencies with authorities or responsibilities relating to the COVID-19 pandemic response and recovery, to consider any barriers that have restricted access to preventive measures, treatment, and other health services for populations at high risk for COVID-19 infection, and modify policies to advance equity. 12 12 Executive Order 13995 of January 21, 2021, 86 FR 7193 (January 26, 2021). Consistent with these executive orders, the Departments reviewed the regulatory provisions related to STLDI and fixed indemnity excepted benefits coverage and, after carefully considering public comments received, are finalizing amendments to those provisions in these final rules. C. Short-Term, Limited-Duration Insurance (STLDI) STLDI is a type of health insurance coverage sold by health insurance issuers that typically fills temporary gaps in coverage that may occur when an individual is transitioning from one plan or coverage to another, such as transitioning between health coverage offered by one employer to health coverage offered by another employer. Section 2791(b)(5) of the PHS Act provides that "[t]he term 'individual health insurance coverage' means health insurance coverage offered to individuals in the individual market, but does not include short-term, limited duration insurance." 13 The PHS Act does not, however, define the phrase "short-term, limited duration insurance." Sections 733(b)(4) of ERISA and 2791(b)(4) of the PHS Act provide that group health insurance coverage means, "in connection with a group health plan, health insurance coverage offered in connection with such plan." Sections 733(a)(1) of ERISA and 2791(a)(1) of the PHS Act provide that a group health plan is generally any plan, fund, or program established or maintained by an employer (or employee organization or both) for the purpose of providing medical care to employees or their dependents (as defined under the terms of the plan) directly, or through insurance, reimbursement, or otherwise. There is no corresponding provision excluding STLDI from the definition of group health insurance coverage. Thus, any health insurance that is sold in the group market and purports to be STLDI must nonetheless comply with applicable Federal group market consumer protections and requirements for comprehensive coverage, unless the coverage satisfies the requirements of one or more types of group market excepted benefits. 13 The definition of individual health insurance coverage (and its exclusion of STLDI) has some limited relevance with respect to certain provisions that apply to group health plans and group health insurance issuers. For example, an individual who loses coverage due to moving out of a health maintenance organization (HMO) service area in the individual market is eligible for a special enrollment period to enroll in a group health plan. See 26 CFR 54.9801-6(a)(3)(i)(B), 29 CFR 2590.701-6(a)(3)(i)(B), and 45 CFR 146.117(a)(3)(i)(B). Because STLDI is not individual health insurance coverage, it is generally exempt from the Federal individual market consumer protections and requirements for comprehensive coverage. STLDI is not subject to PHS Act provisions that apply to individual health insurance coverage under the ACA including, for example, the prohibition of preexisting condition exclusions or other discrimination based on health status (section 2704 of the PHS Act), the prohibition on discrimination against individual participants and beneficiaries based on health status (section 2705 of the PHS Act), nondiscrimination in health care (section 2706 of the PHS Act), and the prohibition on lifetime and annual dollar limits on essential health benefits (section 2711 of the PHS Act). In addition, STLDI is not subject to the Federal consumer protections and requirements added to the PHS Act by other laws that apply to individual health insurance coverage, including MHPAEA (Pub. L. 110-343, October 3, 2008) (section 2726 of the PHS Act), and the No Surprises Act, as added by the CAA, 2021. Thus, individuals who enroll in STLDI are not guaranteed these key consumer protections under Federal law. 14 The lack of these key Federal consumer protections is especially problematic when the differences between STLDI and comprehensive individual health insurance coverage are not readily apparent to consumers. 14 Some State laws apply some consumer protections and requirements that parallel those in the ACA to STLDI. In 1997, the Departments issued interim final rules implementing the portability and renewability requirements of HIPAA (1997 HIPAA interim final rules). 15 Those interim final rules included definitions of individual health insurance coverage, as well as STLDI. That definition of STLDI, which was finalized in rules issued in 2004 and applied through 2016, defined "short-term, limited-duration insurance" as "health insurance coverage provided pursuant to a contract with an issuer that has an expiration date specified in the contract (taking into account any extensions that may be elected by the policyholder without the issuer's consent) that is less than 12 months after the original effective date of the contract." 16 15 62 FR 16894 (April 8, 1997). 16 62 FR 16894 at 16928, 16942, 16958 (April 8, 1997); see also 69 FR 78720 (December 30, 2004). To address the issue of STLDI being sold as a type of primary coverage, as well as concerns regarding possible adverse selection impacts on the individual market risk pools that were created under the ACA, 17 the Departments published proposed rules on June 10, 2016, in the Federal Register titled "Expatriate Health Plans, Expatriate Health Plan Issuers, and Qualified Expatriates; Excepted Benefits; Lifetime and Annual Limits; and Short-Term, Limited-Duration Insurance" (2016 proposed rules). Those rules proposed to revise the Federal definition of STLDI by shortening the permitted duration of such coverage, and adopting a consumer notice provision. 18 On October 31, 2016, the Departments published final rules in the Federal Register titled "Excepted Benefits; Lifetime and Annual Limits; and Short-Term, Limited-Duration Insurance" (2016 final rules). 19 The 2016 final rules amended the definition of STLDI to specify that the maximum coverage period must be less than 3 months, taking into account any extensions that may be elected by the policyholder with or without the issuer's consent. 20 In addition, the 2016 final rules stated that the following notice must be prominently displayed in the contract and in any application materials provided in connection with enrollment in STLDI, in at least 14 point type: 17 See Pub. L. 111-148, March 23, 2010, section 1312(c)(1) and 45 CFR 156.80. 18 81 FR 38019 (June 10, 2016). 19 81 FR 75316 (October 31, 2016). 20 Id. at 75317 - 75318. THIS IS NOT QUALIFYING HEALTH COVERAGE ("MINIMUM ESSENTIAL COVERAGE") THAT SATISFIES THE HEALTH COVERAGE REQUIREMENT OF THE AFFORDABLE CARE ACT. IF YOU DON'T HAVE MINIMUM ESSENTIAL COVERAGE, YOU MAY OWE AN ADDITIONAL PAYMENT WITH YOUR TAXES. 21 21 Id. On June 12, 2017, HHS published a request for information (RFI) in the Federal Register titled "Reducing Regulatory Burdens Imposed by the Patient Protection and Affordable Care Act & Improving Healthcare Choices to Empower Patients," 22 which solicited comments about potential changes to existing regulations and guidance that could promote consumer choice, enhance affordability of coverage for individual consumers, and affirm the traditional regulatory authority of the States in regulating the business of health insurance, among other goals. 23 In response to this RFI, HHS received comments that recommended maintaining the definition of STLDI adopted in the 2016 final rules, and comments that recommended expanding the definition to allow for a longer period of coverage. Commenters in support of maintaining the definition adopted in the 2016 final rules expressed concern that expanding the definition could leave enrollees in STLDI at risk for significant out-of-pocket costs and cautioned that expanding the definition of STLDI could facilitate its sale to individuals as their primary form of health coverage, even though such insurance lacks key Federal consumer protections that apply to individual health insurance coverage. Commenters in favor of maintaining the definition in the 2016 final rules also suggested that amending the 2016 final rules to include coverage lasting 3 months or more could have the effect of pulling healthier people out of the individual market risk pools, thereby increasing overall premium costs for enrollees in individual health insurance coverage and destabilizing the individual market. 22 82 FR 26885 (June 12, 2017). 23 See also Executive Order 13813 of October 12, 2017, 82 FR 48385 (October 17, 2017) (directing the Secretaries of the Treasury, Labor and HHS "...to consider proposing regulations or revising guidance, consistent with law, to expand the availability of [STLDI]. To the extent permitted by law and supported by sound policy, the Secretaries should consider allowing such insurance to cover longer periods and be renewed by the consumer."). In contrast, several other commenters stated that changes to the 2016 final rules may provide an opportunity to achieve the goals outlined in the RFI (for example, to promote consumer choice, enhance affordability, and affirm the traditional authority of the States in regulating the business of insurance). These commenters stated that shortening the permitted length of STLDI policies in the 2016 final rules had deprived individuals of affordable coverage options. One commenter explained that due to the increased costs of comprehensive coverage, many financially stressed individuals could be faced with a choice between purchasing STLDI or going without any coverage at all. One commenter highlighted the need for STLDI for individuals who are between jobs for a relatively long period and for whom enrolling in Consolidated Omnibus Budget Reconciliation Act (COBRA) 24 continuation coverage is financially infeasible. Another commenter noted that States have the primary responsibility to regulate STLDI and encouraged the Departments to defer to the States' authority with respect to such coverage. 24 Pub. L. 99-272, April 7, 1986. COBRA added parallel provisions at Code section 4980B, ERISA sections 601-608, and PHS Act sections 2201-2208. On February 21, 2018, the Departments published proposed rules in the Federal Register titled "Short-Term, Limited-Duration Insurance" (2018 proposed rules) in which the Departments proposed changing the definition of STLDI to have a maximum coverage period of less than 12 months after the original effective date of the contract, taking into account any extensions that may be elected by the policyholder without the issuer's consent. 25 Among other things, the Departments solicited comments on whether the maximum length of STLDI should be less than 12 months or some other duration and under what conditions issuers should be able to allow such coverage to continue for 12 months or longer. 26 In addition, the Departments proposed to revise the content of the consumer notice that must appear in the contract and any application materials provided in connection with enrollment in STLDI. The 2018 proposed rules included two variations of the consumer notice--one for policies that had a coverage start date before January 1, 2019, and the other for policies that had a coverage start date on or after January 1, 2019, the latter of which excluded language referencing the individual shared responsibility payment (which was reduced to $0 for months beginning after December 2018). 27, 28 25 83 FR 7437 (February 21, 2018). 26 Id. at 7441. 27 Id. at 7440-7441. 28 Pub. L. 115-97, December 22, 2017. Some commenters on the 2018 proposed rules acknowledged that STLDI fills an important role by providing temporary coverage but stated that STLDI should not take the place of comprehensive coverage. These commenters expressed concern that allowing STLDI to be marketed as a viable alternative to comprehensive coverage would subject uninformed consumers to potentially severe financial risks. Commenters who opposed the proposed changes to the definition also expressed concern that such plans would siphon off healthier individuals from the market for individual health insurance coverage, thereby raising premiums for individual health insurance coverage. Many of these commenters also expressed concerns about the lack of protections for consumers who purchase STLDI, stating that such policies are not a viable option for people with serious or chronic medical conditions due to potential coverage exclusions and benefit limitations in STLDI policies. These commenters further observed that STLDI policies can discriminate against individuals with serious illnesses or preexisting conditions, including individuals with mental health and substance use disorders, older consumers, women, transgender patients, persons with gender identity-related health concerns, and victims of rape and domestic violence. Many of these commenters also expressed concern about aggressive and deceptive marketing practices utilized by marketers of STLDI. Other commenters highlighted the important role that STLDI could play in providing temporary coverage to individuals who would otherwise be uninsured. These commenters, who supported the proposed changes to the definition, also noted that such changes would allow purchasers of STLDI to obtain the coverage they want at a more affordable price for a longer period. With respect to the maximum length of the initial contract term for STLDI, most commenters opposed extending the maximum duration beyond 3 months. Others suggested periods such as less than 6 or 8 months. However, most commenters who supported extending the maximum initial contract term beyond 3 months suggested it should be 364 days. A few commenters suggested more than 1 year. Other commenters stated the maximum length of coverage should be left to the States. Commenters who supported the 2018 proposed rules generally favored permitting renewals of STLDI policies, while those who opposed the 2018 proposed rules generally opposed permitting such renewals. After reviewing comments and feedback received from interested parties, on August 3, 2018, the Departments published final rules in the Federal Register titled "Short-Term, Limited-Duration Insurance" (2018 final rules) 29 with some modifications from the 2018 proposed rules. Specifically, in the 2018 final rules, the Departments amended the definition of STLDI to provide that STLDI is coverage with an initial term specified in the contract that is less than 12 months after the original effective date of the contract, and taking into account renewals or extensions, has a duration of no longer than 36 months in total. 30 The 2018 final rules also finalized the provision that issuers of STLDI must display one of two versions of a notice prominently in the contract and in any application materials provided in connection with enrollment in such coverage, in at least 14-point type. Under the 2018 final rules, the notice must read as follows (with the final two sentences omitted for policies sold on or after January 1, 2019) 31: 29 83 FR 38212 (August 3, 2018). 30 Id. 31 See id. at 38222-38225. This coverage is not required to comply with certain Federal market requirements for health insurance, principally those contained in the Affordable Care Act. Be sure to check your policy carefully to make sure you are aware of any exclusions or limitations regarding coverage of preexisting conditions or health benefits (such as hospitalization, emergency services, maternity care, preventive care, prescription drugs, and mental health and substance use disorder services). Your policy might also have lifetime and/or annual dollar limits on health benefits. If this coverage expires or you lose eligibility for this coverage, you might have to wait until an open enrollment period to get other health insurance coverage. Also, this coverage is not "minimum essential coverage." If you don't have minimum essential coverage for any month in 2018, you may have to make a payment when you file your tax return unless you qualify for an exemption from the requirement that you have health coverage for that month. D. Independent, Noncoordinated Excepted Benefits: Hospital Indemnity or Other Fixed Indemnity Insurance Section 9831 of the Code, section 732 of ERISA, and sections 2722(b)-(c) and 2763 of the PHS Act provide that the respective Federal consumer protections and requirements for comprehensive coverage do not apply to any individual coverage or any group health plan (or group health insurance coverage offered in connection with a group health plan) in relation to its provision of certain types of benefits, known as "excepted benefits." These excepted benefits are described in section 9832(c) of the Code, section 733(c) of ERISA, and section 2791(c) of the PHS Act. HIPAA defined certain types of coverage as "excepted benefits" that were exempt from its portability requirements. 32 The same definitions are applied to describe benefits that are not required to comply with the ACA requirements. 33 There are four statutory categories of excepted benefits: independent, noncoordinated excepted benefits, which are the subject of these final rules; benefits that are excepted in all circumstances; 34 limited excepted benefits; 35 and supplemental excepted benefits. 36 32 See sections 9831(b) - (c) and 9832(c) of the Code, sections 732(b) - (c) and 733(c) of ERISA, and sections 2722(b) - (c), 2763 and 2791(c) of the PHS Act. 33 Section 1551 of the ACA. See also section 1563(a) and (c)(12) of the ACA. Excepted benefits are also not subject to the consumer protections and requirements added by other Federal laws that apply to comprehensive coverage, including MHPAEA, the Newborns' and Mothers' Health Protection Act, the Women's Health and Cancer Rights Act, the Children's Health Insurance Program Reauthorization Act of 2009, Michelle's Law, and Division BB of the CAA, 2021. 34 Under section 9832(c)(1) of the Code, section 733(c)(1) of ERISA, and section 2791(c)(1) of the PHS Act, this category includes, for example, accident and disability income insurance, automobile medical payment insurance, liability insurance and workers compensation, as well as "[o]ther similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits.". 35 Under section 9832(c)(2) of the Code, section 733(c)(2) of ERISA, and section 2791(c)(2) of the PHS Act, this category includes limited scope vision or dental benefits, benefits for long-term care, nursing home care, home health care, or community-based care, or other, similar limited benefits specified by the Departments through regulation. 36 Under section 9832(c)(4) of the Code, section 733(c)(4) of ERISA, and section 2791(c)(4) of the PHS Act, this category includes Medicare supplemental health insurance (also known as Medigap), TRICARE supplemental programs, or "similar supplemental coverage provided to coverage under a group health plan." To be considered "similar supplemental coverage" and thus an excepted benefit, the coverage, whether offered in the group or individual market, must supplement coverage provided under a group health plan. This category does not include coverage that supplements individual health insurance coverage. 26 CFR 54.9831-1(c)(5), 29 CFR 2590.732(c)(5), 45 CFR 146.145(b)(5) and 148.220(b)(7). The category "independent, noncoordinated excepted benefits" includes coverage for only a specified disease or illness (such as cancer-only policies) and hospital indemnity or other fixed indemnity insurance. These benefits are excepted under section 9831(c)(2) of the Code, section 732(c)(2) of ERISA, and section 2722(c)(2) of the PHS Act only if all of the following conditions are met: (1) the benefits are provided under a separate policy, certificate, or contract of insurance; (2) there is no coordination between the provision of such benefits and any exclusion of benefits under any group health plan maintained by the same plan sponsor; and (3) the benefits are paid with respect to an event without regard to whether benefits are provided with respect to such event under any group health plan maintained by the same plan sponsor or, with respect to individual coverage, under any health insurance coverage maintained by the same health insurance issuer. 37 In addition, under existing regulations, hospital indemnity and other fixed indemnity insurance in the group market must pay a fixed dollar amount per day (or other period) of hospitalization or illness, regardless of the amount of expenses incurred, to be considered an excepted benefit. 38 By contrast, in the individual market, under existing regulations, hospital indemnity and other fixed indemnity insurance must also pay benefits in a fixed dollar amount, regardless of the amount of expenses incurred, to be considered an excepted benefit, but is permitted to pay on either a per period of hospitalization or illness, or a per-service basis (for example, $100/day or $50/visit). 39, 40 37 See also section 2763(b) of the PHS Act (providing that "[the] requirements of this part [related to the HIPAA individual market reforms] shall not apply to any health insurance coverage in relation to its provision of excepted benefits described in paragraph (2), (3), or (4) of section 2791(c) if the benefits are provided under a separate policy, certificate or contract of insurance."). 38 26 CFR 54.9831-1(c)(4), 29 CFR 2590.732(c)(4), and 45 CFR 146.145(b)(4). 39 45 CFR 148.220(b)(4)(iii). 40 As discussed further in section I.D.2 of this preamble, the existing individual market regulation also provides that hospital indemnity and other fixed indemnity insurance cannot coordinate between the provision of benefits and an exclusion of benefits under any health coverage to be considered an excepted benefit. See 45 CFR 148.220(b)(4)(ii). The amendments to the regulations regarding independent, noncoordinated excepted benefits coverage that were proposed in the 2023 proposed rules and those finalized in these final rules address the conditions that must be met for hospital indemnity and other fixed indemnity insurance in the group or individual markets to be considered excepted benefits under the Federal regulations. Like other forms of excepted benefits, fixed indemnity excepted benefits coverage does not provide comprehensive coverage. Rather, its primary purpose is to provide income replacement benefits. 41 Benefits under this type of coverage are paid in a flat ("fixed") cash amount following the occurrence of a health-related event, such as a period of hospitalization or illness, subject to the terms of the contract. In addition, benefits are provided at a pre-determined level regardless of any health care costs incurred by a covered individual with respect to the health-related event. Although a benefit payment may equal all or a portion of the cost of care related to an event, it is not necessarily designed to do so, and the benefit payment is made without regard to the amount of health care costs incurred. 42 41 The original version of HIPAA that the House Ways & Means Committee referred to the House floor referred to hospital indemnity or other fixed indemnity insurance as a "hospital or fixed indemnity income-protection policy " (emphasis added). See H.R. Rep. No. 104-496 part I, at 32 (1996), available at: https://www.govinfo.gov/content/pkg/CRPT-104hrpt496/pdf/CRPT-104hrpt496-pt1.pdf. See also 79 FR 15818 (March 21, 2014) ("The primary reason fixed indemnity insurance is considered to be an excepted benefit is that its primary purpose is not to provide major medical coverage but to provide a cash-replacement benefit for those individuals with other health coverage."). 42 Jost, Timothy (2017). "ACA Round-Up: Market Stabilization, Fixed Indemnity Plans, Cost Sharing Reductions, and Penalty Updates," Health Affairs, available at: https://www.healthaffairs.org/do/10.1377/forefront.20170208.058674/full. ("Fixed indemnity coverage is excepted benefit coverage that pays a fixed amount per-service or per-time period of service without regard to the cost of the service or the type of items or services provided."). Traditionally, benefits under fixed indemnity excepted benefits coverage are paid directly to a policyholder, rather than to a health care provider or facility. The policyholder has discretion over how to use such benefits - including using the payment to cover non-medical expenses, such as childcare or transportation - that may or may not be related to the event that precipitated the payment. 43 43 America's Health Insurance Plans (2019). "Supplemental Health Insurance: Hospital or Other Fixed Indemnity, Accident-Only, Critical Illness," available at: https://www.ahip.org/documents/Supplemental-Health-Insurance-Fast-Facts.pdf. 1. Group Market Regulations and Guidance The Departments' 1997 interim final rules implementing the portability and renewability requirements of HIPAA codified at 26 CFR 54.9831-1(c)(4), 29 CFR 2590.732(c)(4), and 45 CFR 146.145(b)(4) established requirements for hospital indemnity and other fixed indemnity insurance to qualify as an excepted benefit in the group market. These requirements, which were effective until February 27, 2005, provided that coverage for hospital indemnity or other fixed indemnity insurance is excepted only if it meets each of the following conditions: (1) the benefits are provided under a separate policy, certificate or contract of insurance; (2) there is no coordination between the provision of the benefits and an exclusion of benefits under any group health plan maintained by the same plan sponsor; and (3) the benefits are paid with respect to an event without regard to whether benefits are provided with respect to the event under any group health plan maintained by the same plan sponsor. 44 44 62 FR 16894 at 16903, 16939 through 16940, 16954, and 16971 (April 8, 1997). The Departments' group market regulations for fixed indemnity excepted benefits coverage were first amended in the 2004 HIPAA group market final rules. Those amendments added language to further clarify that to be hospital indemnity or other fixed indemnity insurance that is an excepted benefit, the insurance must pay a fixed dollar amount per day (or per other time period) of hospitalization or illness (for example, $100/day) regardless of the amount of expenses incurred. 45 An example was also added as part of these amendments illustrating that a policy providing benefits only for hospital stays at a fixed percentage of hospital expenses up to a maximum amount per day does not qualify as an excepted benefit. 46 As explained in the 2004 HIPAA group market final rules, the result is the same even if, in practice, the policy pays the maximum for every day of hospitalization. 47 45 69 FR 78720 at 78735, 78762, 78780, and 78798 - 78799 (December 30, 2004). 46 Id. See also 26 CFR 54.9831-1(c)(4)(iii), 29 CFR 2590.732(c)(4)(iii), and 45 CFR 146.145(b)(4)(iii). 47 Id. The Departments later released Frequently Asked Questions (FAQ) on January 24, 2013, to offer additional guidance on the types of hospital indemnity or other fixed indemnity insurance that meet the criteria for fixed indemnity excepted benefits coverage. 48 The Departments issued the FAQ in response to reports that policies were being advertised as fixed indemnity coverage, but were paying a fixed amount on a per-service basis (for example, per doctor visit or surgical procedure) rather than a fixed amount per period (for example, per day or per week). The FAQ affirmed that, under the 2004 HIPAA group market final rules, to qualify as fixed indemnity excepted benefits coverage, the policy must pay benefits on a per-period basis as opposed to on a per-service basis. 49 The FAQ also affirmed that group health insurance coverage that provides benefits in varying amounts based on the type of procedure or item, such as the type of surgery actually performed or prescription drug provided, does not qualify as fixed indemnity excepted benefits coverage because it does not meet the condition that benefits be provided on a per-period basis, regardless of the amount of expenses incurred. 50 48 Frequently Asked Questions about Affordable Care Act Implementation (Part XI) (Jan. 24, 2013), Q7, available at: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xi.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11. 49 Id. 50 Id. The Departments proposed amendments to the group market regulations for fixed indemnity excepted benefits coverage in the 2016 proposed rules. 51 As explained in those proposed rules, the Departments were concerned that some individuals may mistake these policies for comprehensive coverage that would be considered MEC. 52 To address this confusion, the Departments proposed to adopt a notice provision to inform enrollees and potential enrollees that the coverage is a supplement to, rather than a substitute for, comprehensive coverage, and also proposed to add two illustrative examples to further clarify the condition that benefits must be provided on a per-period basis. 53 The Departments also requested comments on whether to more substantively align the rules for hospital indemnity or other fixed indemnity insurance in the group and individual markets. 54 After consideration of comments, the Departments did not finalize the proposed changes to the group market regulation but noted their intention to address hospital indemnity and other fixed indemnity insurance in future rulemaking. 55 51 81 FR 38019 at 38031-38032, 38038, 38042-38043, and 38045-38046 (June 10, 2016). 52 Id. at 38031-38032. 53 Id. at 38031-38032, 38038, 38042-38043, and 38045-38046. 54 As described in section I.D.2 of this preamble, HHS amended the individual market fixed indemnity excepted benefits coverage regulation to provide additional flexibility, subject to several additional requirements that do not apply in the group market. 79 FR 30239 (May 27, 2014). 55 81 FR 75316 at 75317 (October 31, 2016). 2. Individual Market Regulations and Guidance HHS also issued an interim final rule in 1997 establishing the regulatory framework for the HIPAA individual market Federal requirements and addressing the requirements for hospital indemnity and other fixed indemnity insurance to qualify as an excepted benefit in the individual market. 56 The initial HIPAA individual market fixed indemnity excepted benefits coverage regulation, which was effective until July 27, 2014, provided an exemption from the Federal individual market consumer protections and requirements for comprehensive coverage if the hospital indemnity or other fixed indemnity insurance provided benefits under a separate policy, certificate, or contract of insurance and met the noncoordination-of-benefits requirements outlined in the HHS group market excepted benefits regulations. 57 56 62 FR 16985 at 16992 and 17004 (April 8, 1997). 57 Id.; 45 CFR 146.145(b)(4)(ii)(B) and (C). Following issuance of the Departments' January 24, 2013 FAQ, 58 State insurance regulators and industry groups representing health insurance issuers expressed concerns that prohibiting hospital indemnity and other fixed indemnity insurance from payment on a per-service basis to qualify as an excepted benefit could limit consumer access to an important supplemental coverage option. 59 Based on this feedback, HHS announced in an FAQ released in January 2014 that it intended to propose amendments to the individual market fixed indemnity excepted benefits coverage regulation to allow hospital indemnity or other fixed indemnity insurance sold in the individual market to be considered an excepted benefit if four conditions were met. 60 First, such coverage would be sold only to individuals who have other health coverage that is MEC, within the meaning of section 5000A(f) of the Code. Second, no coordination between the provision of benefits and an exclusion of benefits under any other health coverage would be permitted. Third, benefits would be paid in a fixed dollar amount regardless of the amount of expenses incurred and without regard to whether benefits are provided with respect to an event or service under any other health insurance coverage. Finally, a notice would have to be prominently displayed to inform policyholders that the coverage is not MEC and would not satisfy the individual shared responsibility requirements of section 5000A of the Code. HHS explained that if these proposed revisions were implemented, hospital indemnity or other fixed indemnity insurance in the individual market would no longer have to pay benefits solely on a per-period basis to qualify as an excepted benefit. 58 Frequently Asked Questions about Affordable Care Act Implementation (Part XI) (Jan. 24, 2013), available at: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-xi.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs11. 59 While the FAQ only addressed fixed indemnity insurance sold in the group market, the same statutory framework and legal analysis also applies to hospital indemnity and fixed indemnity insurance sold in the individual market. 60 Frequently Asked Questions about Affordable Care Act Implementation (Part XXVIII) and Mental Health Parity Implementation (Jan. 9, 2014), Q11, available at: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/aca-part-xviii.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs18. In the proposed rule, titled "Patient Protection and Affordable Care Act; Exchange and Insurance Market Standards for 2015 and Beyond" (2014 proposed rule), HHS proposed to amend the criteria in 45 CFR 148.220 for fixed indemnity insurance to be treated as an excepted benefit in the individual market. 61 Consistent with the framework outlined in the January 2014 FAQ, the amendments proposed to eliminate the requirement that individual market fixed indemnity excepted benefits coverage must pay benefits only on a per-period basis (as opposed to a per-service basis) and instead proposed to require, among other things, that it be sold only as secondary to other health coverage that is MEC to qualify as an excepted benefit. 62 61 79 FR 15807 at 15818-15820, 15869 (March 21, 2014). 62 Id. On July 28, 2014, in the rule titled "Patient Protection and Affordable Care Act; Exchange and Insurance Market Standards for 2015 and Beyond" (2014 final rule), HHS finalized the proposed amendments to 45 CFR 148.220(b)(4) with some modifications. Pursuant to the finalized amendments, hospital indemnity or other fixed indemnity insurance in the individual market may qualify as fixed indemnity excepted benefits coverage if payments are made on a per-period and/or per-service basis subject to several additional requirements that do not apply to fixed indemnity excepted benefits coverage in the group market. 63 Under 45 CFR 148.220(b)(4)(i), to qualify as excepted benefits coverage, benefits under an individual market hospital indemnity or other fixed indemnity insurance policy may only be provided to individuals who attest in their application that they have other health coverage that is MEC within the meaning of section 5000A(f) of the Code, or that they are treated as having MEC due to their status as a bona fide resident of any possession of the United States pursuant to section 5000A(f)(4)(B) of the Code. 64 Further, to qualify as an excepted benefit, 45 CFR 148.220(b)(4)(iv) outlines specific notice language that must be prominently displayed in the application materials for individual market hospital indemnity or other fixed indemnity insurance. Finally, consistent with the group market fixed indemnity excepted benefits coverage regulations, 45 CFR 148.220(b)(4)(ii) implements the statutory noncoordination standard and requires that there is no coordination between the provision of benefits under the individual market fixed indemnity excepted benefits insurance policy and an exclusion of benefits under any other health coverage. 63 79 FR 30239 (May 27, 2014). 64 As discussed later in this section and in section III.B.2 of this preamble, the U.S. Court of Appeals for the District of Columbia vacated the requirement at 45 CFR 148.220(b)(4)(i) that an individual attest to having MEC prior to purchasing a hospital indemnity or other fixed indemnity policy in order for the policy to qualify as an excepted benefit. Central United Life Insurance Company v. Burwell, 827 F.3d 70 (D.C. Cir. 2016). HHS made these changes in the 2014 final rule for two reasons. First, as stated previously, interested parties, including State insurance regulators and industry groups representing health insurance issuers, communicated to HHS that fixed indemnity plans that paid benefits on a per-service basis were widely available as a complement to comprehensive coverage in the group and individual markets. The National Association of Insurance Commissioners (NAIC) also expressed that State insurance regulators believed fixed indemnity plans that paid benefits on a per-service basis provided consumers an important supplemental coverage option by helping consumers that purchase MEC pay for out-of-pocket costs. 65 Second, beginning in 2014, most consumers were required to have MEC to avoid being subject to an individual shared responsibility payment under section 5000A of the Code. HHS adopted the MEC attestation requirement to prevent fixed indemnity excepted benefits coverage in the individual market from being offered as a substitute for comprehensive coverage while also accommodating the concerns of interested parties who supported allowing fixed indemnity excepted benefits coverage in the individual market to pay benefits on a per-service basis, rather than only on a per-period basis. 66 However, in its 2016 decision in Central United Life Insurance Company v. Burwell, the U.S. Court of Appeals for the District of Columbia invalidated the requirement at 45 CFR 148.220(b)(4)(i) that an individual must attest to having MEC prior to purchasing fixed indemnity excepted benefits coverage in the individual market. 67 The Court did not engage in a severability analysis to determine whether HHS would have intended to leave the remaining provisions of the regulation in place, and left intact the language permitting fixed indemnity excepted benefits coverage in the individual market to provide benefits on a per-service basis. 65 National Association of Insurance Commissioners (2013). "Letter to Secretaries of Labor, Treasury, and Health and Human Services," available at: https://naic.soutronglobal.net/Portal/Public/en-GB/RecordView/Index/23541. ("State regulators believe hospital and other fixed indemnity coverage with variable fixed amounts based on service type could provide important options for consumers as supplemental coverage. Consumers who purchase comprehensive coverage that meets the definition of 'minimum essential coverage' may still wish to buy fixed indemnity coverage to help meet out-of-pocket medical and other costs."). 66 79 FR 30239 at 30255 (May 27, 2014). 67 827 F.3d 70 (D.C. Cir. July 1, 2016). E. Tax Treatment and Substantiation Requirements for Amounts Received from Fixed Indemnity Insurance and Certain Other Arrangements As part of the 2023 proposed rules, the Treasury Department and the IRS proposed amendments to 26 CFR 1.105-2. For the reasons that follow, the Treasury Department and the IRS are not finalizing the proposed amendments at this time. Hospital indemnity or other fixed indemnity insurance, as well as coverage only for a specified disease or illness, generally are considered "accident or health insurance" under sections 104, 105, and 106 of the Code, regardless of whether they are "excepted benefits" as defined in section 9832(c) of the Code. Premiums paid by an employer (including by salary reduction pursuant to section 125 of the Code) for accident or health insurance are excluded from an employee's gross income under section 106(a) of the Code. The Treasury Department and the IRS also have recognized the ability of employers and employees to agree to include them in employees' gross income notwithstanding section 106(a) of the Code. 68 68 See, for example, IRS Rev. Rul. 2004-55, which concludes that long-term disability benefits received by an employee who has irrevocably elected, prior to the beginning of the plan year, to have the coverage paid by the employer on an after-tax basis for the plan year in which the employee becomes disabled are attributable solely to after-tax employee contributions and are excludable from the employee's gross income under section 104(a)(3) of the Code. Amounts received through accident or health insurance are excluded from an employee's gross income under section 104(a)(3) of the Code if the premiums were paid on an after-tax basis. However, amounts received are included in an employee's gross income if the amounts are attributable to contributions by an employer that were excluded from the employee's gross income under section 106(a) of the Code. Whether amounts received by an employee through accident or health insurance are excluded from an employee's gross income where the premiums or contributions were paid on a pre-tax basis is determined under section 105. Section 105(a) of the Code provides that such amounts are included in gross income except as otherwise provided in section 105 of the Code. Section 105(b) of the Code excludes such amounts from gross income amounts if they are paid to reimburse the employee's expenses for medical care (as defined in section 213(d) of the Code). Under 26 CFR 1.105-2, this means the exclusion "applies only to amounts which are paid specifically to reimburse the taxpayer for expenses incurred by him for the prescribed medical care." 69 69 Additionally, an employer-provided accident or health insurance policy or plan that reimburses an employee for any expenses incurred for medical care is a group health plan subject to section 4980B of the Code, regardless of whether the reimbursements are included in an employee's income under section 105(a) of the Code or excluded under section 104(a)(3) or 105(b) of the Code. In contrast, a policy or plan that does not reimburse an employee for any expenses incurred for medical care is not a group health plan subject to section 4980B of the Code (and section 105(b) of the Code cannot apply to it). The 2023 proposed amendments to 26 CFR 1.105-2 would provide that the exclusion from gross income under section 105(b) of the Code does not apply to amounts that are paid without regard to the amount of incurred medical expenses as defined in section 213(d) of the Code. The proposed amendments also would clarify that, consistent with guidance issued by the Treasury Department and the IRS relating to certain specific types of health plans, the substantiation requirements for qualified medical expenses apply to reimbursements under all types of accident and health plans. 70 Finally, the proposed amendments would update several cross-references in 26 CFR 1.105-2 to reflect statutory changes since the rules were issued in 1956. 71 70 See, for example, 84 FR 28888, 28917 (June 20, 2019) (describing substantiation requirements for employer-sponsored health reimbursement arrangements); see also Q44-55 of IRS Notice 2017-67, 2017-47 IRB 517; Prop. Treas.Reg.§ 1.125-6(b)(4) (2007); IRS Notice 2002-45, 2002-2 CB 93. 71 The current rules reference section 105(d) of the Code, which has been repealed. The rules also reference the definition of a dependent in section 152(f) of the Code which may, in some circumstances, not include children up to the age of 26 that must be eligible to enroll in a group health plan or group or individual health insurance coverage under section 2714 of the PHS Act (which is incorporated by reference in section 9815 of the Code) if the plan or coverage makes available dependent coverage of children. The Treasury Department and the IRS issued the proposed amendments because uncertainty regarding the exclusion under section 105(b) of the Code has resulted in inconsistent treatment by taxpayers of benefits under different types of accident and health plans and has encouraged some taxpayers to apply the exclusion to situations where the amount or even the existence of medical expenses is doubtful. The Treasury Department and the IRS also are concerned that uncertainty regarding the related Federal Insurance Contributions Act (FICA) 72 and Federal Unemployment Tax Act (FUTA) 73 exclusions, and the Federal income tax withholding rules, 74 has resulted in instances where no FICA, FUTA, or Federal income taxes are withheld from or paid with respect to taxable benefits from accident and health plans and policies by either employers or payors. Although these issues are not limited to fixed indemnity plans and policies, the Treasury Department's and the IRS's concerns have recently escalated after identifying an increasing number of arrangements, some involving fixed indemnity plans and policies, that distribute cash benefit payments, purportedly for medical expenses, even if any expenses incurred may already have been reimbursed through other coverage, or participants do not incur any medical expenses within the meaning of section 213(d) of the Code. In some cases, no medical expenses are incurred and participants simply complete certain health-related activities. Benefit payments from such accident and health plans that are not made on account of medical expenses incurred generally would not qualify for exclusion from gross income, FICA, FUTA, or Federal income tax withholding. 72 Subtitle C, chapter 21 of the Code. 73 Subtitle C, chapter 23 of the Code. 74 Subtitle C, chapter 24 of the Code. The Treasury Department and the IRS received comments in support of and in opposition to the proposed amendments to 26 CFR 1.105-2. Commenters who opposed the proposed amendments primarily argued that the exclusion under section 105(b) of the Code should apply with respect to the amount of any medical expenses associated with the health-related event that precipitates payments under accident or health insurance, even if the amount paid is determined without regard to the amount of actual medical expenses incurred (as is required for hospital indemnity or other fixed indemnity insurance to be considered an excepted benefit). These commenters generally argued that only the amount in excess of the medical expenses associated with the health-related event should be included in gross income. The preamble to the 2023 proposed rules noted that, if the proposed amendments to 26 CFR 1.105-2 were finalized, taxpayers would need to consider the impact the proposal would have on determinations of whether amounts received under accident and health plans constitute wages for employment tax and income tax withholding purposes. Many commenters responded that the proposed amendments would, if finalized, prompt the need for additional guidance regarding collecting and paying employment taxes on some or all of the amounts paid through accident or health insurance that are not excluded from gross income, and proper reporting of such amounts on the employee's Form W-2. Commenters also requested further clarification on how incurred medical expenses must be substantiated. The Treasury Department and the IRS intend to address these issues in more detail in future guidance. Accordingly, to provide more time to study the issues and concerns raised by commenters, the Treasury Department and the IRS are not finalizing the proposed amendments to 26 CFR 1.105-2 at this time. No inference should be drawn regarding whether or the extent to which the Treasury Department or the IRS agree with any comments on the scope of section 105(b) of the Code based on this decision. IRS compliance efforts regarding the exclusion from gross income under section 105(b) of the Code will continue to assist taxpayers to satisfy their existing tax responsibilities. Employers are reminded that amounts received through accident or health insurance are not taxable if premiums for the coverage are paid on an after-tax basis, thereby avoiding many of the practical concerns relating to benefits that do not meet the criteria to be excluded from gross income. The Treasury Department and IRS understand that is how most premiums for hospital indemnity or other fixed indemnity insurance are paid. II. Promoting Access to High-Quality, Affordable, and Comprehensive Coverage The Departments recognize that STLDI can provide temporary health coverage for individuals who are experiencing brief periods without comprehensive coverage (for example, due to application of a waiting period for employer coverage). They also recognize that fixed indemnity excepted benefits coverage can provide consumers with income replacement that can be used to cover out-of-pocket expenses not covered by comprehensive coverage or to defray non-medical expenses (for example, mortgage or rent) upon the occurrence of a health-related event. Both STLDI and fixed indemnity excepted benefits coverage generally provide limited benefits at lower premiums than comprehensive coverage, 75 and enrollment is typically available at any time (sometimes subject to medical underwriting) rather than being restricted to open and special enrollment periods. However, the Departments are concerned about the financial and health risks that consumers face if they use either form of coverage as a substitute for comprehensive coverage, particularly as a long-term substitute. Consumers who do not understand key differences between STLDI, fixed indemnity excepted benefits coverage, and comprehensive coverage may unknowingly take on significant financial and health risks if they purchase STLDI or fixed indemnity excepted benefits coverage under the misapprehension that such products provide comprehensive coverage. Consumer confusion can be exacerbated when the products are designed in ways that resemble comprehensive coverage. As discussed further in this section II of this preamble, given significant changes in the legal landscape and market conditions since the Departments last addressed STLDI and fixed indemnity excepted benefits coverage, and the low value that STLDI and fixed indemnity excepted benefits coverage provide to some consumers when used as a substitute for comprehensive coverage, the Departments have determined that it is necessary and appropriate to amend the existing Federal regulations governing both types of coverage to more clearly distinguish them from comprehensive coverage and increase consumer awareness of coverage options that include the full range of Federal consumer protections and requirements. 75 Although it is typically true that the unsubsidized premium price for comprehensive coverage is greater than STLDI or fixed indemnity excepted benefits coverage, consistent with the greater level of benefits provided under comprehensive coverage, see the additional discussion in this section II of this preamble regarding the availability of financial subsidies for eligible individuals to reduce the premium and out-of-pocket costs for comprehensive coverage purchased on an Exchange. A. Access to Affordable Coverage In the preamble to the 2018 final rules, the Departments explained the decision to amend the definition of STLDI to expand the initial term and total duration of such policies by citing STLDI as an important means to provide more affordable coverage options and more choices for consumers. 76 The Departments cited a 21 percent increase in individual health insurance coverage premiums between 2016 and 2017, and a 20 percent decrease in average monthly enrollment for individuals who did not receive PTC, along with a 10 percent overall decrease in monthly enrollment during the same period. 77 Additionally, the Departments noted that in 2018 about 26 percent of enrollees (living in 52 percent of counties) had access to just one issuer on the Exchange. 78 76 83 FR 38212 at 38217 (October 2, 2018). 77 Id. at 38214 (citing CMS (2018). "Trends in Subsidized and Unsubsidized Individual Health Insurance Market Enrollment," available at: https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Marketplaces/Downloads/2018-07-02-Trends-Report-2.pdf.) 78 Id. (citing KFF (2017). "Insurer Participation on ACA Marketplaces, 2014-2018," now available at: https://www.kff.org/private-insurance/issue-brief/insurer-participation-on-the-aca-marketplaces-2014-2021/. ) Since the publication of the 2018 final rules, comprehensive coverage for individuals has generally become more accessible and affordable. For example, a study examining issuer participation trends from 2014 to 2021 in every county in the United States found that the number of consumers with multiple issuer options for individual health insurance coverage on the Exchanges has grown consistently since 2018. In 2021, 78 percent of enrollees (living in 46 percent of counties) had a choice of three or more health insurance issuers, up from 67 percent of enrollees in 2020, 58 percent of enrollees in 2019, and 46 percent of enrollees in 2018. Only 3 percent of enrollees (residing in 10 percent of counties) resided in single-issuer counties in 2021 - down from 26 percent of enrollees (residing in 52 percent of counties) in 2018. 79 Issuer participation in the Exchanges has continued to trend positively in recent years, with the average number of issuers offering individual health insurance coverage on the Exchanges per State increasing from 5 in 2021 to 6 in 2024. 80 The Centers for Medicare & Medicaid Services (CMS) reported that a record 21.3 million people enrolled in Exchange coverage during the 2024 Open Enrollment Period, including 5 million consumers (approximately 24 percent of total enrollments) who were new to Exchanges in 2024, and 16.3 million returning customers. 81 Nearly 5 million more consumers signed up for coverage during the 2024 Open Enrollment Period compared to the same period in 2023 (an increase of more than 30 percent). This follows an increase of approximately 13 percent in 2023 and an increase of approximately 21 percent in 2022. 82 The enrollment gains in recent years were influenced by the expansion of PTC subsidies, as first provided under the ARP and then extended through 2025 under the IRA, as discussed in section I.A of this preamble. 83 In an analysis prior to the passage of the IRA, the Congressional Budget Office stated that if the ARP subsidies were made permanent, they would attract 4.8 million new people to the Exchanges each year, and that 2.2 million fewer individuals would be without health insurance, on average, over the period from 2023 through 2032. 84 79 McDermott, Daniel and Cynthia Cox (2020). "Insurer Participation on the ACA Marketplaces, 2014-2021," KFF, available at: https://www.kff.org/private-insurance/issue-brief/insurer-participation-on-the-aca-marketplaces-2014-2021. 80 See KFF (2024). "Number of Issuers Participating in the Individual Health Insurance Marketplaces, 2014-2024," available at: https://www.kff.org/other/state-indicator/number-of-issuers-participating-in-the-individual-health-insurance-marketplace. 81 See CMS (2024). "Marketplace 2024 Open Enrollment Period Report: Final National Snapshot," available at: https://www.cms.gov/newsroom/fact-sheets/marketplace-2024-open-enrollment-period-report-final-national-snapshot. 82 See CMS (2023). "Health Insurance Marketplaces, 2023 Open Enrollment Report," available at: https://www.cms.gov/files/document/health-insurance-exchanges-2023-open-enrollment-report-final.pdf. 83 Although unsubsidized premiums for 2023 increased on average between 2.2 percent and 4.7 percent compared to the previous year, after 4 years of declines, the expanded PTC subsidies under the IRA largely shielded many consumers from these premium increases. See Ortaliza, Jared, Justin Lo, Krutika Amin, and Cynthia Cox (2022). "How ACA Marketplace Premiums Are Changing By County in 2023," KFF, available at: https://www.kff.org/private-insurance/issue-brief/how-aca-marketplace-premiums-are-changing-by-county-in-2023. 84 Congressional Budget Office (2022). "Letter from Phillip L. Swagel to Rep. Mike Crapo, "Re: Health Insurance Policies," available at: https://www.cbo.gov/system/files?file=2022-07/58313-Crapo_letter.pdf. Additionally, on October 13, 2022, the Treasury Department and the IRS issued final regulations under section 36B of the Code to provide that affordability of employer-sponsored MEC for family members of an employee is determined based on the employee's share of the cost of covering the employee and those family members, not the cost of covering only the employee (2022 affordability rule). 85 It was estimated that this rule change, aimed at addressing the issue often called the "family glitch," would increase the number of individuals with PTC-subsidized Exchange coverage by approximately 1 million per year for the next 10 years. 86 85 87 FR 61979 (October 13, 2022). 86 Id. at 61999. These recent and projected enrollment trends and the availability of the enhanced subsidies lessen the accessibility and affordability concerns expressed by the Departments in the preamble to the 2018 final rules regarding the availability of affordable options for comprehensive coverage, and offer further support for the provisions in these final rules, which are aimed at helping consumers differentiate between comprehensive coverage and other forms of more limited health coverage to decide which option is best for them. Although access to affordable comprehensive coverage has improved in recent years, the Departments recognize that affordability concerns continue to persist among consumers, including among consumers who are enrolled in comprehensive coverage. A 2022 national survey conducted by the Commonwealth Fund found that 29 percent of people with employer-sponsored coverage and 44 percent of those with coverage purchased in the individual market (including coverage purchased through an Exchange) were underinsured, meaning that their coverage did not provide them with affordable access to health care. 87 As benchmarks for affordability, the study considered whether out-of-pocket costs over the prior 12 months, excluding premiums, were equal to 10 percent or more of household income; out-of-pocket costs over the prior 12 months, excluding premiums, were equal to 5 percent or more of household income for individuals living under 200 percent of the FPL ($27,180 for an individual or $55,500 for a family of four in 2022); or the deductible constituted 5 percent or more of household income. The performance of STLDI products along these affordability dimensions has been proven worse, often to striking degree, as discussed in section II.B of this preamble. 87 Collins, Sara, Lauren Haynes, and Relebohile Masitha (2022). "The State of U.S. Health Insurance in 2022: Findings from the Commonwealth Fund Biennial Health Insurance Survey," Commonwealth Fund, available at: https://www.commonwealthfund.org/publications/issue-briefs/2022/sep/state-us-health-insurance-2022-biennial-survey. The Departments also recognize that these affordability concerns could be exacerbated when the expanded PTC subsidies under the IRA end in 2025 or if health expenditures (and therefore premiums) continue to grow at a relatively high rate. 88 The Departments are of the view that it is important to ensure consumers have access to a wide range of products that can support access to affordable health care. However, neither STLDI nor fixed indemnity excepted benefits coverage represent a complete solution to larger issues of affordable access to health care and health coverage, and current marketing practices and benefit designs that mimic comprehensive coverage exacerbates affordability and accessibility concerns. Consumers who enroll in these plans as a substitute for comprehensive coverage or under the misapprehension that STLDI and fixed indemnity excepted benefits coverage are a lower-cost equivalent to comprehensive coverage are at risk of being exposed to significant financial liability in the event of a costly or unexpected health event, often without knowledge of the risk associated with such coverage. 88 Regarding trends in national health expenditure, see CMS (2023). "NHE Fact Sheet," available at: https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/nhe-fact-sheet. B. Risks to Consumers As noted in the introduction to this section II of this preamble, the limitations on benefits and coverage under STLDI or fixed indemnity excepted benefits coverage may allow some issuers to offer such coverage at lower monthly premiums than comprehensive coverage. The Departments are concerned about additional costs to consumers who enroll in STLDI or fixed indemnity excepted benefits coverage and incur medical expenses that are not covered by such coverage. The typical limits on coverage provided by STLDI and fixed indemnity excepted benefits coverage can lead to more and higher uncovered medical bills than consumers enrolled in comprehensive coverage would incur, exposing consumers with STLDI or fixed indemnity excepted benefits coverage to greater financial risk. 89 Healthy consumers who enroll in STLDI or fixed indemnity excepted benefits coverage as an alternative to comprehensive coverage may not realize their STLDI or fixed indemnity excepted benefits coverage excludes or limits coverage for preexisting conditions (including conditions the consumer did not know about when they enrolled), or conditions contracted after enrollment, 90 such as COVID-19, as discussed in this section and in section V.B.2.a. 89 Palanker, Dania, JoAnn Volk, and Kevin Lucia (2018). "Short-Term Health Plan Gaps and Limits Leave People at Risk," Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2018/short-term-health-plan-gaps-and-limits-leave-people-risk. (Describing STLDI marketing materials that list coverage limits that would fall far short of typical costs to a consumer, including $1,000 a day for hospital room and board coverage, $1,250 a day for the intensive care unit, $50 a day for doctor visits while in the hospital, $100 a day for inpatient substance abuse treatment, and $250 for ambulance transport). 90 See Williams, Jackson (2022). "Addressing Low-Value Insurance Products With Improved Consumer Information: The Case of Ancillary Health Products," National Association of Insurance Commissioners, Journal of Insurance Regulation, available at: https://content.naic.org/sites/default/files/cipr-jir-2022-9.pdf. Additionally, a consumer enrolled in STLDI may discover that a newly-diagnosed medical condition is categorized as a preexisting condition, and related medical expenses will not be covered by, or will be only partially covered by, their STLDI policy. 91 For example, a consumer in Illinois who was diagnosed with Stage IV cancer a month after enrolling in STLDI was denied coverage for treatment by the STLDI issuer, both for treatments that led to his successful remission and for a potentially life-saving bone marrow transplant. In his case, the issuer of his STLDI policy determined that his cancer was a preexisting condition because he had disclosed experiencing back pain of undiagnosed cause to the broker who sold him his STLDI policy - leaving him with $800,000 of medical debt and without meaningful health coverage as he continued to fight his illness. 92 91 See Lueck, Sarah (2018). "Key Flaws of Short-Term Health Plans Pose Risks to Consumers," Center on Budget and Policy Priorities, available at: https://www.cbpp.org/research/health/key-flaws-of-short-term-health-plans-pose-risks-to-consumers. See also Hall, Mark and Michael McCue (2022). "Short-Term Health Insurance and the ACA Market," Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2022/short-term-health-insurance-and-aca-market. See also Partnership to Protect Coverage (2021). "Under-Covered: How 'Insurance-Like' Products are Leaving Patients Exposed," available at: https://www.nami.org/NAMI/media/NAMI-Media/Public%20Policy/Undercovered_Report_03252021.pdf. 92 Partnership to Protect Coverage (2021). "Under-Covered: How 'Insurance-Like' Products are Leaving Patients Exposed," available at: https://www.nami.org/NAMI/media/NAMIMedia/Public%20Policy/Undercovered_Report_03252021.pdf. The financial risk for consumers enrolled in STLDI increases with the length of their policy, as the longer consumers are enrolled in STLDI, the more likely they are to incur costs that are not covered. This is especially the case for consumers who encounter newly diagnosed conditions or have a significant medical event while enrolled in STLDI. Researchers found that the maximum out-of-pocket health care spending limit for STLDI was on average nearly three times that of comprehensive coverage in 2020. 93 A 2020 report found that over 60 percent of the STLDI policies surveyed had a maximum out-of-pocket limit greater than the $7,900 limit that was permitted for self-only comprehensive coverage in 2019, and 15 percent had limits in excess of $15,000; as is typical for STLDI, these limits apply only to the coverage period, which in some cases was only 6 months, compared to the annual limits required under the ACA for comprehensive coverage. 94 Consumers enrolled in STLDI who ultimately require medical care are more likely to incur higher out-of-pocket costs than if they had enrolled in comprehensive coverage. 95 Refer to section V.B.2.c of this preamble for additional discussion of the financial risks to consumers. 93 Dieguez, Gabriela and Dane Hansen (2020). "The Impact of Short-term Limited-duration Policy Expansion on Patients and the ACA Individual Market," Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market. 94 Id. See also Palanker, Dania, Kevin Lucia, and Emily Curran (2017). " New Executive Order: Expanding Access to Short-Term Health Plans Is Bad for Consumers and the Individual Market," Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2017/new-executive-order-expanding-access-short-term-health-plans-bad-consumers- and-individual. ("When considering the deductible, the best-selling plans have out-of-pocket maximums ranging from $7,000 to $20,000 for just three months of coverage. In comparison, the ACA limits out-of-pocket maximums to $7,150 for the entire [2017 calendar] year."). 95 Id. As noted in section I.D of this preamble, consumers who enroll in fixed indemnity excepted benefits coverage as an alternative to comprehensive coverage bear similar risk and exposure to significant out-of-pocket expenses due to their health care costs exceeding the fixed cash benefit to which they may be entitled, if benefits are even provided at all for their illness or injury. Comments received in response to the 2023 proposed rules affirmed the Departments' concerns by offering several examples of consumer risk and exposure resulting from enrollment in fixed indemnity insurance. For example, one commenter described a fixed indemnity plan that advertised that it would pay $25 for a doctor visit, $100 for a diagnostic exam, and $300 for neonatal intensive care, and contrasted those benefits to one hospital's pricing schedule for NICU service, Level 4. The commenter observed that a consumer with such fixed indemnity insurance alone could still face $8,500 daily for NICU services. Another commenter stated that indemnity plans that are structured to pay various dollar amounts for different services appear very similar to comprehensive insurance, even though they offer much less coverage. Consumers who enroll in STLDI and fixed indemnity excepted benefits coverage and do not also have comprehensive coverage may experience financial hardship when their medical bills are unaffordable. 96 Notably, the protections against balance billing and out-of-network cost sharing for certain out-of-network services established under the No Surprises Act, which are intended to shield consumers from surprise bills that can result in medical debt, 97 do not apply to STLDI or fixed indemnity excepted benefits coverage. 98 Because STLDI is typically subject to medical underwriting and is not guaranteed renewable, consumers enrolled in STLDI in lieu of comprehensive coverage may be unable to renew their STLDI policy at the end of the coverage period. These consumers therefore face the risk of being uninsured until they are eligible to purchase comprehensive coverage in the individual market during an open enrollment or when a special enrollment period occurs. It is therefore critical for consumers to understand, prior to purchase, that STLDI serves better as a bridge between different sources of comprehensive coverage than as an alternative to comprehensive coverage, and that choosing to substitute STLDI for comprehensive coverage may reduce access to coverage. Similarly, as noted in section I.D of this preamble, consumers need to understand, prior to purchase, that fixed indemnity excepted benefit coverage serves best as an income replacement policy 99 that supplements comprehensive coverage by providing financial assistance, rather than serving as an alternative to comprehensive coverage. 96 Unaffordable medical debt increasingly impacts members of disadvantaged and marginalized communities. See Lopes, Lunna, Audrey Kearney, Alex Montero, Liz Hamel, and Mollyann Brodie (2022). "Health Care Debt In The U.S.: The Broad Consequences Of Medical And Dental Bills," KFF, available at: https://www.kff.org/health-costs/report/kff-health-care-debt-survey. See also Himmelstein, David, Samuel Dickman, Danny McCormick, David Bor, Adam Gaffney, and Steffie Woolhandler (2022). "Prevalence and Risk Factors for Medical Debt and Subsequent Changes in Social Determinants of Health in the US," JAMA Network Open, Volume 5, Issue 9, available at: https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2796358. 97 Families USA (2019). "Surprise Medical Bills, Results from a National Survey," available at: https://familiesusa.org/wp-content/uploads/2019/11/Surprise-Billing-National-Poll-Report-FINAL.pdf. 98 See 26 CFR 54.9816-2T, 29 CFR 2590.716-2(b), and 45 CFR 149.20(b). 99 As an income replacement policy, the policyholder of a fixed indemnity excepted benefits coverage plan typically has broad discretion in how to use the fixed cash benefits provided, including but not limited to payment for medical expenses not covered by comprehensive coverage (for example, deductibles, coinsurance, copays) or to defray non-medical costs (for example, mortgage or rent). In the preamble to the 2018 final rules, the Departments stated that individuals who purchased STLDI would potentially experience improved health outcomes and have greater protection from catastrophic health care expenses than if those individuals were uninsured. 100 However, experience with the COVID-19 public health emergency (PHE) 101 has prompted the Departments to reassess the degree of protection generally afforded by STLDI and fixed indemnity excepted benefits coverage, and to reassess the value of a framework that instead encourages uninsured individuals to purchase comprehensive coverage. Enrollees in STLDI with COVID-19 typically face significant limitations on coverage for COVID-19 related treatments, and high out-of-pocket expenses. 102 In addition, neither STLDI nor fixed indemnity excepted benefits coverage was subject to requirements under section 6001 of the Families First Coronavirus Response Act (Pub. L. 116-127, March 18, 2020), as amended by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. 116-136, March 27, 2020), to cover COVID-19 diagnostic testing, without cost sharing, furnished during the COVID-19 PHE; or the requirement under section 3203 of the CARES Act to cover qualifying coronavirus preventive services, including COVID-19 vaccines, without cost sharing. 103 Instead, both of these important coverage expansions enacted by Congress as part of the nation's response to the COVID-19 PHE applied only to comprehensive coverage. Any coverage by STLDI of (or, with respect to fixed indemnity excepted benefits coverage, benefits provided related to) COVID-19 diagnostic testing or vaccines was subject to the discretion of individual issuers of these policies and applicable State law. Notably, the Health Resources and Services Administration's COVID-19 Coverage Assistance Fund, which reimbursed eligible health care providers for providing COVID-19 vaccines to underinsured individuals, included enrollees in STLDI and excepted benefits coverage within the definition of underinsured. 104 The CARES Act also amended the definition of "uninsured individual" in Social Security Act section 1902(ss) to include individuals enrolled only in STLDI. Even individuals enrolled in STLDI or fixed indemnity excepted benefits coverage who are generally healthy are at risk of needing health care, and thus at risk of incurring unaffordable medical bills at any time. The COVID-19 PHE underscored the unpredictability of when the need for medical care will arise, and the importance of encouraging individuals to enroll in comprehensive coverage. 100 83 FR 38212, 38229 (October 2, 2018). 101 On January 31, 2020, HHS Secretary Alex M. Azar II declared that as of January 27, 2020, a nationwide public health emergency exists as a result of the 2019 novel coronavirus (COVID-19). See HHS Administration for Strategic Preparedness and Response (January 31, 2020). "Determination That A Public Health Emergency Exists," available at: https://aspr.hhs.gov/legal/PHE/Pages/2019-nCoV.aspx. This declaration was last renewed by HHS Secretary Xavier Becerra on October 13, 2022, following previous renewals on April 21, 2020, July 23, 2020, October 2, 2020, January 7, 2021, April 15, 2021, July 20, 2021, October 18, 2021, January 14, 2022, April 12, 2022, and July 15, 2022. See "HHS Administration for Strategic Preparedness and Response, Renewal of Determination That A Public Health Emergency Exists," available at: https://aspr.hhs.gov/legal/PHE/Pages/covid19-13Oct2022.aspx. On January 30, 2023, and February 9, 2023, the Biden-Harris Administration announced that it intended to end the PHE at the end of the day on May 11, 2023. See Executive Office of the President, Office of Management and Budget (January 30, 2023). "Statement of Administration Policy: H.R. 382 and H.J. Res. 7," available at: https://www.whitehouse.gov/wp-content/uploads/2023/01/SAP-H.R.-382-H.J.-Res.-7.pdf; HHS Secretary Xavier Becerra (February 9, 2023). "Letter to U.S. Governors from HHS Secretary Xavier Becerra on renewing COVID-19 Public Health Emergency (PHE)," available at: https://www.hhs.gov/about/news/2023/02/09/letter-us-governors-hhs-secretary-xavier-becerra-renewing-covid-19-public-health-emergency. html. The PHE ended at the end of the day on May 11, 2023. 102 See, for example, Curran, Emily, Kevin Lucia, JoAnn Volk, and Dania Palanker (2020). "In the Age of COVID-19, Short-Term Plans Fall Short for Consumers," Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2020/age-covid-19-short-term-plans-fall-short-consumers. This study found that STLDI policies provide less financial protection than comprehensive coverage if an enrollee needs treatment for COVID-19. The study found that among the 12 brochures reviewed for STLDI policies being sold in Georgia, Louisiana, and Ohio, 11 excluded nearly all coverage for prescription drugs, with some providing limited coverage of inpatient drugs. The study further found that STLDI imposed high cost sharing, with deductibles ranging from $10,000 to $12,500 (which did not count toward the enrollees' maximum out-of-pocket costs) and that enrollees may be required to meet separate deductibles for emergency room treatment, forcing some enrollees to face out-of-pocket costs of more than $30,000 over a 6-month period. Additionally, the study found that STLDI did not cover services related to pre-existing conditions. 103 Additional Policy and Regulatory Revisions in Response to the COVID-19 Public Health Emergency, 85 FR 71142, 71173 (Nov. 6, 2020); See also Departments of the Treasury, Labor, and Health and Human Services. "FAQs about Families First Coronavirus Response Act and Coronavirus Aid, Relief, and Economic Security Act Implementation Part 42, Q1," (April 11, 2020), available at: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-42.pdf and https://www.cms.gov/files/document/FFCRA-Part-42-FAQs.pdf (FAQs Part 42); "FAQs about Families First Coronavirus Response Act and Coronavirus Aid, Relief, and Economic Security Act Implementation Part 50," (October 4, 2021), available at: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-50.pdf and https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/faqs-part-50.pdf (FAQs Part 50); "FAQs about Affordable Care Act Implementation Part 51, Families First Coronavirus Response Act and Coronavirus Aid, Relief, and Economic Security Act Implementation," (Jan. 10, 2022), available at: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-51.pdf and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-51.pdf (FAQs Part 51); FAQs about Families First Coronavirus Response Act and Coronavirus Aid, Relief, and Economic Security Act Implementation Part 52" (February 4, 2022), available at: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/aca-part-52.pdf and https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/faqs-part-52.pdf (FAQs Part 52); and "FAQs about Families First Coronavirus Response Act, Coronavirus Aid, Relief, and Economic Security Act and Health Insurance Portability and Accountability Act Implementation Part 58" (March 29, 2023), available at: https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-58 and https://www.cms.gov/cciio/resources/fact-sheets-and-faqs/downloads/faqs-part-58.pdf (FAQs Part 58). Note that the COVID-19 PHE ended on May 11, 2023. 104 U nderinsured individuals are defined for this purpose as having a health plan that either does not include COVID-19 vaccine administration as a covered benefit or covers COVID-19 vaccine administration but with cost sharing. See Health Resources and Services Administration. "FAQs for The HRSA COVID-19 Coverage Assistance Fund," available at: https://www.hrsa.gov/provider-relief/about/covid-19-coverage-assistance/faq. The Departments have also become aware of potentially deceptive or aggressive marketing of STLDI and fixed indemnity excepted benefits coverage to consumers who may be unaware of the coverage limits of these plans or the availability of Federal subsidies that could reduce the costs of premiums and out-of-pocket health care expenditures for comprehensive coverage purchased through an Exchange. 105 A recent study that engaged in covert testing of health insurance sales representatives found evidence of deceptive marketing practices by agents and brokers who omitted or misrepresented information about the products they were selling. 106 For example, during a phone transaction, a sales representative told the consumer that they were purchasing a comprehensive health insurance plan, but instead sold the consumer two limited benefit insurance plans. During the exchange, the consumer repeatedly informed the sales representative that they had diabetes and had recently been seeking treatment for the condition. However, the application filled out by the sales representative on the consumer's behalf stated that consumer had not been treated for or diagnosed with diabetes for the past 5 years. In another phone transaction, the sales representative enrolled the consumer in a benefit association offering a limited benefit indemnity insurance plan. The representative would not provide the consumer with documentation describing the plan prior to enrollment and stated that the consumer had to purchase the plan on the day of the call if they wanted to be guaranteed the quoted price. The Departments note that these concerns are not limited to individual market consumers considering STLDI or fixed indemnity excepted benefits coverage. Reports that employers are increasingly offering fixed indemnity coverage alongside a plan that offers only a very limited set of primary or preventive care benefits (or in some cases, as the only form of health coverage) have also raised concerns with respect to consumers who obtain this health coverage through their employers. 107 105 Palanker, Dania and Kevin Lucia (2021). "Limited Plans with Minimal Coverage Are Being Sold as Primary Coverage, Leaving Consumers at Risk," Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2021/limited-plans-minimal-coverage-are-being-sold-primary-coverage-leaving-consumers-risk. (Noting that fixed indemnity insurance may be "bundled" with other non-comprehensive insurance products in such a way that "the plans look like comprehensive coverage" while still offering limited benefits). See also Palanker, Dania, JoAnn Volk, and Maanasa Kona (2019). "Seeing Fraud and Misleading Marketing, States Warn Consumers About Alternative Health Insurance Products," Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2019/seeing-fraud-and-misleading-marketing-states-warn-consumers-about-alternative-health. 106 Government Accountability Office (2020). "Private Health Coverage: Results of Covert Testing for Selected Offerings," available at: https://www.gao.gov/products/gao-20-634r. 107 Young, Christen Linke and Kathleen Hannick (2020). "Fixed Indemnity Coverage is a Problematic Form of "Junk" Insurance," USC-Brookings Schaeffer Initiative for Health Policy, available at: https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/08/04/fixed-indemnity-health-coverage-is-a-problematic-form-of-junk-insurance. Consumers who are unaware of the coverage limitations of these arrangements, or who are employed by employers who are similarly unaware, can face overwhelming medical costs if they require items and services that are not covered by the very limited group health plan. This is because the fixed indemnity excepted benefits coverage generally provides only fixed cash benefits that may be far lower than the costs of medical services, rather than coverage intended to cover most of the costs of the medical services themselves. For example, a Texas consumer who was enrolled in two forms of health insurance through his employer received a $67,000 hospital bill after he experienced a heart attack. Although he believed he had comprehensive coverage, he learned that his coverage was provided through a group health plan that covered only preventive services and prescription drugs and a fixed indemnity excepted benefits coverage policy that provided a cash benefit of less than $200 per day of hospitalization. 108 Additionally, employers may incur penalties if they erroneously treat fixed indemnity policies as excepted benefits when the policies do not meet the requirements for excepted benefits (for example, when they are not offered as independent, noncoordinated benefits) and fail to comply with applicable group market Federal consumer protections and requirements for comprehensive coverage, such as the requirement to provide participants, beneficiaries, and enrollees with a summary of benefits and coverage that meets applicable content requirements or the prohibition on lifetime and annual dollar limits on essential health benefits. 109 108 Avila, Jaie (2019). "Show Me Your Bill Helps Wipe Out $70K in Charges After Heart Attack," News 4 San Antonio, available at: https://news4sanantonio.com/news/trouble-shooters/show-me-your-bill-helps-wipe-out-70k-in-charges-after-heart-attack. 109 See 26 CFR 54.9815-2715(e); 29 CFR 2590.715-2715(e); 45 CFR 147.200(e). See also section 2711 of the PHS Act and section 4980D of the Code. In light of research revealing significant disparities in health insurance literacy among certain underserved racial and ethnic groups and people with incomes below the FPL, 110 and as further discussed in sections III.A.1 and V.B.2.g of this preamble, the Departments are also concerned that underserved populations may be particularly vulnerable to misleading or aggressive sales and marketing tactics that obscure the differences between comprehensive coverage and STLDI or fixed indemnity excepted benefits coverage, exposing these populations to higher levels of health and financial risks. As noted in Executive Order 13995, the COVID-19 pandemic has "exposed and exacerbated severe and pervasive health and social inequities in America," highlighting the urgency with which such inequities must be addressed. 111 These concerns continue during the time frame when States are unwinding from the Medicaid continuous enrollment condition under the Families First Coronavirus Response Act (FFCRA), which expired on March 31, 2023, under amendments made by the Consolidated Appropriations Act, 2023. Across the country, State agencies are currently in the process of resuming regular eligibility and enrollment operations, which includes conducting full Medicaid and CHIP renewals and terminating coverage for individuals who are no longer eligible. 112 As a result, individuals may have to transition between coverage programs, leaving them vulnerable. 113 The Departments are concerned that those transitioning out of Medicaid coverage may be susceptible to aggressive or deceptive marketing and sales tactics, and might therefore mistakenly enroll in STLDI or fixed indemnity excepted benefits coverage in lieu of comprehensive coverage. 110 Edward, Jean, Amanda Wiggins, Malea Hoepf Young, Mary Kay Rayens (2019). "Significant Disparities Exist in Consumer Health Insurance Literacy: Implications for Health Care Reform," Health Literacy Research and Practice, available at: https://pubmed.ncbi.nlm.nih.gov/31768496. See also Villagra, Victor and Bhumika Bhuva (2019). "Health Insurance Literacy: Disparities by Race, Ethnicity, and Language Preference," The American Journal of Managed Care, available at: https://www.ajmc.com/view/health-insurance-literacy-disparities-by-race-ethnicity-and-language-preference. 111 86 FR 7193 (January 26, 2021). 112 See CMS, Center for Medicaid & CHIP Services (January 5, 2023). Key Dates Related to the Medicaid Continuous Enrollment Condition Provisions in the Consolidated Appropriations Act, 2023, available at: https://www.medicaid.gov/sites/default/files/2023-01/cib010523_1.pdf. As a condition of receiving a temporary Federal Medical Assistance Percentage (FMAP) increase under section 6008 of the FFCRA, States were required to maintain enrollment of nearly all Medicaid enrollees. This "continuous enrollment condition" expired on March 31, 2023, under amendments made by the Consolidated Appropriations Act, 2023. States adopted other flexibilities in CHIP and BHP that impacted renewals in those programs during this time. 113 See CMS, Center for Medicaid & CHIP Services (January 27, 2023). "Letter to State Health Officials from Deputy Administrator and Director Daniel Tsai RE: Medicaid Continuous Enrollment Condition Changes, Conditions for Receiving the FFCRA Temporary FMAP Increase, Reporting Requirements, and Enforcement Provisions in the Consolidated Appropriations Act, 2023," available at: https://www.medicaid.gov/sites/default/files/2023-08/sho23002.pdf. C. Impact on Risk Pools At the time the 2018 final rules were issued, the Departments acknowledged that expanding access to STLDI could have potential negative effects on the risk pools for individual health insurance coverage and on individuals who find themselves insufficiently protected by the typically limited benefits of an STLDI policy. 114 However, the Departments were of the view that the affordability and access challenges facing consumers at that time outweighed those potential negative effects and necessitated action to increase access to STLDI to provide an alternative option for individuals who were unable or disinclined to purchase comprehensive coverage. 114 83 FR 38212 at 38218 (August 3, 2018). As discussed earlier in section II.A of this preamble, access to affordable comprehensive coverage has significantly improved since the 2018 final rules were published. However, research based on individual market data for plan year 2020 has substantiated concerns about the negative impact that the shift of healthier individuals from comprehensive coverage to STLDI has on individuals remaining in the risk pools for individual health insurance coverage. 115 Because healthier individuals are more likely to enroll in STLDI than individuals with known medical needs, the extended contract terms and renewal periods of STLDI under the current Federal regulations result in healthier consumers leaving (or opting out of) the risk pools for individual health insurance coverage for extended periods of time. This has resulted in increased premiums for individuals seeking to purchase individual health insurance coverage. 116 For unsubsidized individuals, the costs are borne directly by the consumer, and for subsidized individuals, the costs are borne largely by the Federal Government in the form of increased per capita PTC spending associated with increased individual health insurance coverage premiums. Likewise, reports of fixed indemnity excepted benefits coverage being marketed and sold as an alternative to comprehensive coverage, as discussed in section V.B.2.a of this preamble, raise concerns about the potential for such practices having a similar impact on the risk pools for individual health insurance coverage. 115 See Dieguez, Gabriela and Dane Hansen (2020). "The Impact of Short-term Limited-duration Policy Expansion on Patients and the ACA Individual Market," Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market. 116 Id. ("Carrier expectations for the impact of [regulatory actions including the expansion of short-term, limited-duration insurance policies and other loosely regulated insurance and the repeal of the Federal individual shared responsibility payment being reduced to $0] on premiums in the ACA individual market for 2020 are approximately 4 percent in [S]tates that have not restricted the sale or duration of STLD policies Among the [S]tates that have limited the impact of loosely regulated insurance through reinstating an individual mandate or by restricting STLD expansion, carriers have assumed an average premium impact in 2020 due to regulatory actions that is about 5 percent lower than other [S]tates.") As noted in section V.B.2.e of this preamble, this study also found that the few issuers that explicitly included a premium adjustment because of the adoption of the revised Federal definition of STLDI in the 2018 final rules increased premiums by between 0.5 percent and 2 percent in 2020. Another study looking at States that have adopted policies that restrict STLDI to shorter durations than allowed under the current Federal regulations found that, from 2018 to 2020, States that restricted or prohibited the sale of STLDI saw fewer consumers enroll in such insurance, were able to keep more healthy people in the individual health insurance coverage market risk pool, and saw a greater decline in average medical costs for enrollees in individual health insurance coverage. 117 The study reported that, as a result, the risk score - a measurement of the relative medical costs expected for the populations covered by comprehensive coverage in each State, both on- and off-Exchange - decreased by 40 percent more in States with more regulation of STLDI than States with less regulation. 118 117 See Hall, Mark and Michael McCue (2022). "Short-Term Health Insurance and the ACA Market," Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2022/short-term-health-insurance-and-aca-market. 118 Id. In addition to ensuring that consumers can clearly distinguish STLDI from comprehensive coverage, this new evidence provides an additional basis for the Departments' conclusion that it is important to amend the Federal definition of STLDI. D. Need for Rulemaking For the reasons described in this section II of this preamble, the Departments are of the view that it is necessary and appropriate to amend the Federal definition of STLDI to ensure that consumers can clearly distinguish STLDI from comprehensive coverage, protect the risk pools and stabilize premiums for individual health insurance coverage, and promote access to affordable comprehensive coverage. With respect to individual market fixed indemnity excepted benefits coverage, the decision in Central United Life Ins. Co. v. Burwell, which invalidated the requirement that an individual must attest to having MEC prior to purchasing fixed indemnity excepted benefits coverage in the individual market, and the passage of the Tax Cuts and Jobs Act, which reduced the individual shared responsibility payment to $0 for months beginning after December 31, 2018, increase the likelihood that individuals would purchase fixed indemnity excepted benefits coverage as a substitute for comprehensive coverage. HHS is of the view that these changes necessitate rulemaking with respect to individual market fixed indemnity excepted benefits coverage. Further, while the Departments did not finalize the proposed amendments to the group market fixed indemnity excepted benefits coverage regulations outlined in the 2016 proposed rules, the Departments noted their intention to address fixed indemnity excepted benefits coverage in future rulemaking. 119 The Departments have continued to monitor the impact of these coverage options and remain concerned about the negative impacts of fixed indemnity excepted benefits coverage on consumers when such products are sold as an alternative to comprehensive coverage. 119 81 FR 75316 at 75317 (October 31, 2016). In light of the Departments' ongoing concerns about the numerous negative impacts of STLDI and fixed indemnity excepted benefits coverage being offered as an alternative to comprehensive coverage, as well as the significant changes in market conditions and in the legal landscape since the Departments' last regulatory actions addressing these products, and in consideration of the comments on the 2023 proposed rules received by the Departments, the Departments are finalizing changes to the Federal regulations governing STLDI and addressing notice requirements in the individual and group market regulations related to fixed indemnity excepted benefits coverage. HHS is also finalizing the technical amendments to the individual market fixed indemnity excepted benefits coverage regulation to remove the MEC attestation requirement currently codified at 45 CFR 148.220(b)(4)(i). As further explained in section III.B of this preamble, the Departments are not finalizing the proposed payment standards and noncoordination provisions regarding fixed indemnity excepted benefits coverage at this time. The Departments remain concerned about the issues addressed by these proposals, and intend to address these issues in future rulemaking, after additional study and consideration of the concerns raised in comments. III. Overview of the Final Regulations - The Departments of the Treasury, Labor, and Health and Human Services A. Short-Term, Limited-Duration Insurance After considering the public comments, the Departments are finalizing the proposed amendments to the Federal definition of STLDI with some modifications. Under the definition in these final rules, STLDI means health insurance coverage provided pursuant to a policy, certificate, or contract of insurance that has an expiration date specified in the policy, certificate, or contract of insurance that is no more than 3 months after the original effective date of the policy, certificate, or contract of insurance, and taking into account any renewals or extensions, has a duration no longer than 4 months in total. For purposes of this definition, a renewal or extension includes the term of a new STLDI policy, certificate, or contract of insurance issued by the same issuer to the same policyholder within the 12-month period beginning on the original effective date of the initial policy, certificate, or contract of insurance. As explained in section III.A.2 of this preamble, in response to comments, the Departments are specifying that for purposes of this definition, if the issuer is a member of a controlled group, a renewal or extension also includes the term of a new STLDI policy, certificate, or contract of insurance issued by any other issuer that is a member of such controlled group. As used in this context, the term "controlled group" means any group treated as a single employer under section 52(a), 52(b), 414(m), or 414(o) of the Code, as amended. These final rules also retain the requirement that STLDI issuers display a notice on the first page (in either paper or electronic form, including on a website) of the policy, certificate, or contract of insurance, and in any marketing, application, and enrollment materials (including reenrollment materials) provided to individuals at or before the time an individual has the opportunity to enroll (or reenroll) in the coverage, in at least 14-point font. As finalized in these final rules, STLDI issuers must use the following updated language for the STLDI consumer disclosure notice: IMPORTANT: This is a short-term, limited-duration policy, NOT comprehensive health coverage This is a temporary limited policy that has fewer benefits and Federal protections than other types of health insurance options, like those on HealthCare.gov. Looking for comprehensive health insurance? - Visit HealthCare.gov or call 1-800-318-2596 (TTY: 1-855-889-4325) to find health coverage options. - To find out if you can get health insurance through your job, or a family member's job, contact the employer. Questions about this policy? - For questions or complaints about this policy, contact your State Department of Insurance. Find their number on the National Association of Insurance Commissioners' website (naic.org) under "Insurance Departments." As explained in section III.A.4 of this preamble, in response to comments, the notice adopted in these final rules contains additional specificity, including that STLDI does not have to meet Federal standards for comprehensive coverage and information about finding contact information for State departments of insurance on the NAIC website (naic.org). In response to comments, the Departments are finalizing modified applicability dates. These final rules apply to new STLDI policies sold or issued on or after September 1, 2024. The provisions of the 2018 final rules continue to apply to STLDI policies sold or issued before September 1, 2024, except that the updated notice provision adopted in these final rules applies to such policies for coverage periods beginning on or after September 1, 2024. As was proposed in the 2023 proposed rules, these final rules are effective 75 days after publication in the Federal Register. 1. In General The Departments received comments generally in support of and generally opposed to the adoption of the STLDI proposals in the 2023 proposed rules. The Departments summarize and respond to comments about the STLDI proposals in the 2023 proposed rules later in this section of the preamble. Some commenters stated that the 2023 proposed rules were an overreach of the Departments' authority because Congress did not provide an explicit delegation of authority to define the terms "short-term" and "limited-duration." Some commenters expressed concern that the 2023 proposed rules are contrary to congressional intent because Congress specifically determined that certain types of insurance would not be subject to the requirements of the ACA, including STLDI, which is excepted from the definition of individual health insurance coverage. Commenters suggested that the Departments' interpretation is unreasonable because it conflicts with and undermines Congress's express goals for consumers to have access to STLDI plans that are exempt from Federal regulation, to reduce gaps in health insurance and the number of uninsured. One commenter also expressed concern that the Departments' interpretation will increase medical underwriting frequency to every 3 to 4 months leading to more consumers losing coverage. One commenter stated that the Departments' interpretation is unreasonable because it pressures consumers into enrolling in comprehensive coverage to avoid greater financial exposure. Several commenters stated that there is no statutory basis for the Departments to regulate consumer behavior and the Departments have no legal authority to impose burdens or limitations on STLDI, such as a consumer notice. One commenter argued that the Departments lack the authority to implement a shorter maximum allowed length because the proposals are overly broad and will unduly harm consumers. Several commenters stated that the proposed rules are arbitrary, capricious, and not in accordance with law because the Departments rely on factors to justify the new definition that were not relevant to Congress's considerations. The Departments are not persuaded by these comments. As explained in greater detail in this section III.A.1 of this preamble, these final rules revise the definition for the term "short-term, limited-duration insurance," and set standards to more clearly distinguish STLDI from individual health insurance coverage. These final rules do not regulate consumer behavior. Consumers will continue to have access to STLDI plans that are generally exempt from the Federal consumer protections and requirements for comprehensive coverage that apply to individual health insurance coverage. 120 As detailed later in this section of this preamble, the Departments have clear authority to promulgate regulations to define STLDI and to pursue the current amendments. The Departments also disagree that the definition in the proposed rules, and as finalized in these rules, is unreasonable, inconsistent with the law, or arbitrary and capricious. 120 Neither the proposed rules nor these final rules seek to extend the Federal consumer protections and requirements for comprehensive individual health insurance coverage to STLDI. Other commenters stated that the Departments have clear statutory authority under the PHS Act to interpret undefined terms in the PHS Act, ERISA, and the Code, 121 and to promulgate regulations that interpret (or reinterpret) the meaning of "short-term, limited-duration," so long as their interpretation is reasonable. These commenters observed that Congress did not define the term "short-term, limited-duration insurance," and primarily only included a reference to STLDI as an exclusion from individual health insurance coverage. 122, 123 These commenters explained that the Departments must give meaning to the term short-term, limited-duration insurance to distinguish it from individual health insurance coverage. 121 See section 715 of ERISA and section 9815 of the Code, which incorporate provisions of part A of title XXVII of the PHS Act (generally, sections 2701 through 2728 of the PHS Act) into ERISA and the Code. See also section 104 of HIPAA. See also sections 505 and 734 of ERISA, sections 2761 and 2792 of the PHS Act, section 1321(a)(1) and (c) of ACA and section 7805 of the Code. 122 See section 2791(b)(5) of the PHS Act (defining "individual health insurance coverage"). 123 While STLDI is generally not subject to the Federal consumer protections and requirements for comprehensive coverage that apply to individual health insurance coverage, the agent and broker compensation disclosure and reporting requirements in section 2746 of the PHS Act apply to health insurance issuers offering individual health insurance coverage or STLDI. The Departments disagree with the commenters who questioned the Departments' legal authority to promulgate Federal regulations to define STLDI and distinguish it from individual health insurance coverage. As explained in the preamble to the 2018 final rules, 124 the Departments have clear statutory authority under the Code, ERISA, and the PHS Act to implement those statutes. 125 To determine what is and is not individual health insurance coverage, which is essential to ensure that the Code, ERISA, and the PHS Act function as Congress intended, and to allow enforcement of the rules that apply to individual health insurance coverage, the Departments must give meaning to the term STLDI. 126 124 83 FR 38212 at 38215 (August 3, 2018). 125 See section 9815 of the Code and section 715 of ERISA, which incorporate provisions of Part A of title XVIII of the PHS Act (generally, sections 2701 through 2728 of the PHS Act) into the Code and ERISA. See also section 104 of HIPAA. See also section 7805 of the Code, sections 505 and 734 of ERISA, sections 2761 and 2792 of the PHS Act, and section 1321(a)(1) and (c) of the ACA. See also Ass'n for Community Affiliated Plans v. U.S. Department of the Treasury, 966 F.3d 782 (D.C. Cir. 2020). 126 As discussed in footnote 13, the definition of STLDI also has some relevance with respect to certain provisions that apply to group health plans and group health insurance issuers over which the Departments of Labor and the Treasury have jurisdiction. The 2023 proposed rules are faithful to Congress's intent because Congress wanted STLDI to be an option but did not intend STLDI to be a substitute for comprehensive coverage or to pass as comprehensive coverage while avoiding ACA requirements and other Federal consumer protections applicable to comprehensive coverage. Finally, the 2023 proposed rules and these final rules are not designed to limit access to STLDI or pressure consumers into enrolling in comprehensive coverage. Rather, they are designed to, among other things, ensure that consumers can distinguish between STLDI and comprehensive coverage. Congress provided the Secretaries of the Treasury, Labor, and HHS with explicit authority to promulgate regulations as may be necessary or appropriate to carry out the provisions of the Code, ERISA, and the PHS Act. 127 This includes the authority to issue regulations on STLDI to define it and set standards to distinguish it from individual health insurance coverage. 127 See section 9833 of the Code, section 734 of ERISA, and section 2792 of the PHS Act. The Departments' authority to issue regulations that define STLDI and set standards to distinguish it from individual health insurance coverage was also recently affirmed in the D.C. Circuit. 128 In 2020, the D.C. Circuit explicitly considered the Departments' authority to define STLDI as finalized in the 2018 final rules and affirmed the Departments' authority to promulgate such regulations. 129 The D.C. Circuit stated: 128 Ass'n for Community Affiliated Plans v. U.S. Department of the Treasury, 966 F.3d 782 (D.C. Cir. 2020), aff'd 966 F.3d 782 (D.C. Cir. 2020). 129 Ass'n for Community Affiliated Plans v. U.S. Department of the Treasury, 966 F.3d 782 (D.C. Cir. 2020). "Without further guidance from Congress, we will not place amorphous restrictions on the Departments' authority to define such an open-ended term. It suffices to say that the Departments have the discretion to define STLDI to include policies shorter than the standard policy term." 130 130 Id. at 789. Furthermore, the decision made clear that Congress gave the Departments "wide latitude" to define STLDI, which includes the flexibility to narrow the definition of STLDI in the future, provided the Departments provide a reasoned explanation for the change. 131 Both the 2023 proposed rules and these final rules provide the Departments' reasoned explanations for the changes to the Federal definition of STLDI. These final rules adopt a revised Federal definition of the term STLDI and set standards to more clearly distinguish STLDI from individual health insurance coverage without placing unreasonable burdens on issuers of STLDI. 131 Id. at 789 and 792 (citing to Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125 (2016)). The Departments acknowledge that the final rules may be associated with some consumers being subject to medical underwriting more frequently. For example, a consumer who prefers STLDI coverage and chooses to reenroll in STLDI coverage with a different issuer every 4 months may be subject to medical underwriting each time they enroll or renew coverage, whereas under the current rules they could stay in one STLDI policy for a longer duration. However, in the Departments' view, this possibility does not outweigh other potential benefits to consumers of the revised definition of STLDI, in part because consumers face a similar risk under the current rules. Even when enrolled in STLDI coverage that complies with the 2018 final rules, a consumer can be subject to post-claims underwriting and their STLDI coverage may not cover certain health conditions that develop unexpectedly or over time. Yet because the STLDI coverage has a longer maximum duration under current rules, a consumer who remains in STLDI coverage might go without necessary benefits for a longer period of time, forcing the consumer to choose between necessary medical care and high out-of-pocket expenses. Consumers may avoid the potential consequences of more frequent medical underwriting by enrolling in comprehensive coverage subject to Federal consumer protections and requirements. The definition and standards, as proposed and finalized, apply to health insurance issuers that elect to offer STLDI, and they do not regulate consumer behavior. Issuers will not be prohibited from selling STLDI and consumers may continue to choose to purchase it. The changes to the Federal definition and standards for STLDI will help consumers make more informed purchasing decisions and mitigate the risk that consumers will mistakenly enroll in STLDI as a substitute for comprehensive coverage. The Departments disagree that the revised Federal definition of STLDI is unreasonable or arbitrary and capricious. As explained in the preamble to the 2023 proposed rules 132 and in the introduction to this section III.A of this preamble, the Federal definition established in these final rules clearly distinguishes STLDI from individual health insurance coverage that is subject to the Federal consumer protections and requirements for comprehensive coverage. Further, the statute does not explicitly denote a required length for STLDI or to what extent the definition of STLDI must vary from the definition of individual health insurance coverage, so the Departments are interpreting and implementing the statute in a manner that distinguishes between STLDI and individual health insurance coverage. Over the last two decades, the Departments have used this discretion to both shorten and lengthen the duration of STLDI as the Departments have deemed appropriate and necessary given the market conditions and legal landscape they were then facing. Beginning in 1997, the Departments defined STLDI as coverage of less than 12 months to accommodate 12-month preexisting condition exclusion periods imposed by group health plans and group health insurance issuers when a new hire did not have 12 months of creditable coverage that ended no more than 63 days prior to the enrollment date in the plan or coverage. 133 Once preexisting condition exclusions were prohibited and the Departments implemented a limit on employee waiting periods of up to 90 days plus a 1-month reasonable and bona fide employment-based orientation period (as defined in section 9801(b)(4) of the Code, section 701(b)(4) of ERISA, and 2704(b)(4) of the PHS Act), 134 and comprehensive coverage in the individual market was guaranteed available to individuals through or outside of the Exchanges, the Departments determined that a shorter duration for STLDI was more appropriate and revised the definition in the 2016 final rules. 135 Subsequently, when the Departments were concerned about the availability of affordable health insurance options, the Departments lengthened the initial contract term to less than 12 months with a maximum allowed duration of 36 months (including renewals and extensions) in the 2018 final rules. 136, 137 132 See, for example, 88 FR 44596 at 44610, 44612, 44614-44618 (July 12, 2023) (discussing how the proposed changes to definitions of "short-term" and "limited-duration" and the proposed modifications to the required consumer notice would allow consumers to better distinguish between STLDI and comprehensive coverage). 133 62 FR 16894 (April 8, 1997). See also 69 FR 78,720 (December 30, 2004) (finalizing the definition of STLDI in the 1997 HIPAA interim final rules). 134 26 CFR 54.9815-2708, 29 CFR 2590.715-2708, and 45 CFR 147.116. 135 81 FR 75316 at 75317, 75318 (October 31, 2016) 136 As noted previously, the Departments' authority to issue the 2018 final rules was challenged and upheld in Ass'n for Community Affiliated Plans v. U.S. Department of the Treasury, 966 F.3d 782 (D.C. Cir. 2020). See also Ass'n for Community Affiliated Plans v. U.S. Department of the Treasury, 392 F.Supp.3d 22 (D.D.C. 2019). 137 83 FR 38212 at 38218 (August 3, 2018) The definition of STLDI in the 2023 proposed rules, and that the Departments are finalizing in these final rules, is consistent with applicable Federal law (for example, the Code, ERISA, and the PHS Act). The 2023 proposed rules proposed a revised Federal definition that set standards for STLDI that clearly distinguish it from individual health insurance coverage that is subject to the Federal consumer protections and requirements. This proposal and the definition finalized in these rules is consistent with Congress maintaining the exclusion of STLDI from the PHS Act definition of individual health insurance coverage. Further, as noted by commenters and discussed in section III.A.2 of this preamble, the new definition gives reasonable meaning to the terms "short-term" and "limited-duration" since they reflect periods of time that are brief in comparison to the length of comprehensive coverage sold with an initial term of 12 months, on a guaranteed renewable basis. 138 The definition of STLDI in the 2023 proposed rules and these final rules is consistent with the original intent of HIPAA, as reinforced by the ACA, to provide temporary, stopgap coverage for individuals transitioning between comprehensive coverage. 138 As the court noted in Ass'n for Community Affiliated Plans v. U.S. Department of the Treasury regarding the STLDI definition adopted in the 2018 final rules, "(u)nder the Departments' definition, 'short-term' refers to the initial contract term, while 'limited-duration' refers to the policy's total length, including renewals. This reasonable reading gives independent meaning to each term." 966 F.3d at 789. The Departments are applying the same general framework to establish the new definition adopted in these final rules, with "short-term" referring to the initial contract term and the term "limited-duration" referring to the policy's total length, including extensions and renewals. Some commenters suggested that the Departments failed to provide sufficient justification, or lacked sufficient data or analysis, to support the proposed changes to the Federal definition of STLDI, particularly with respect to the changes to limit the initial duration of STLDI policies to 3 months, and the maximum duration to 4 months including renewals and extensions. In addition, one commenter expressed concern that an abrupt change to the maximum duration of STLDI may have unintended consequences on overall health care coverage and consumer choices, as occurred when the Departments increased the maximum duration of STLDI from less than 3 months to less than 12 months in the 2018 final rules. Some commenters suggested that the 2023 proposed rules would impose a market-disrupting change in the duration of STLDI without providing evidence to support this change. As the Supreme Court stated in Encino Motorcars v. Navarro, 139 and the D.C. Circuit Court repeated in Association for Community Affiliated Plans v. U.S. Department of the Treasury, 140 "[a]gencies are free to change their existing policies as long as they provide a reasoned explanation for the change." The Departments satisfy this requirement; the proposed rules and these final rules provide a reasoned explanation of the changes to the Federal definition of STLDI. As explained in section III.A.2 of this preamble, the Departments determined that it is necessary and appropriate to amend the Federal definition of STLDI to ensure that consumers can clearly distinguish STLDI from individual health insurance coverage, protect the risk pools and stabilize premiums for individual health insurance coverage, and promote access to affordable comprehensive coverage. While the Departments acknowledge that they have limited data on enrollment in STLDI, the Departments have sufficient information and evidence to conclude that the changes to the definition finalized in these rules are appropriate and justified. 139 136 S.Ct. 2117, 2125 (2016). 140 966 F.3d at 792. The Departments are of the view that these final rules are necessary and appropriate to combat deceptive marketing practices, distinguish STLDI from individual health insurance coverage, and address the changes in the legal landscape and market conditions from 2018 to 2024. Further, as discussed in section II.A of this preamble, since the publication of the 2018 final rules, comprehensive coverage for individuals has generally become more accessible and affordable, and while affordability concerns persist among consumers, STLDI is an inadequate substitute for comprehensive coverage. Aggressive, deceptive marketing practices are an ongoing challenge for consumers shopping for coverage. As discussed in section II.B and section III.A.3 of this preamble, recent secret shopper studies have detailed ongoing practices by sellers of STLDI that do not inform consumers of eligibility for less expensive Exchange plans or that provide misleading information about STLDI with limited benefits. 141 Deceptive marketing practices can have devastating financial implications for consumers that purchased STLDI without fully understanding its limitations and later encounter unexpected and expensive medical events that are not covered by their insurance. 142 In addition, as explained in section III.A.2 of this preamble and the preamble to the 2023 proposed rules, the Federal definition for STLDI in these final rules is consistent with the group market rules regarding the 90-day waiting period provision under the ACA and with STLDI's traditional role of serving as temporary coverage for individuals transitioning between other types of comprehensive coverage. The definition is also similar to the less-than-3-month maximum term for STLDI under the 2016 final rules and under a number of State laws and aligns with the goal of Executive Order 14009 to support protections for people with preexisting conditions. The Departments have weighed the potential benefits and costs to consumers when developing the proposed rules and these final rules and concluded the changes will not unduly harm consumers. 143 141 Schwab, R., & Volk, J. (August 28, 2023). "The Perfect Storm: Misleading Marketing of Limited Benefit Products Continues as Millions Losing Medicaid Search for New Coverage," Center on Health Insurance Reforms, available at: https://chirblog.org/the-perfect-storm-misleading-marketing-of-limited-benefit-products-continues-as-millions-losing- medicaid-search-for-new-coverage. 142 Deam, Jenny (2021). "He Bought Health Insurance for Emergencies. Then He Fell Into a $33,601 Trap," ProPublica, available at: https://www.propublica.org/article/junk-insurance. 143 See the Regulatory Impact Analysis in section V of this preamble. While the Departments are of the view that the changes to the Federal definition of STLDI finalized in these rules are critical, these final rules take steps to limit the potential of the rules having an abrupt, disruptive effect, particularly with respect to consumers currently enrolled in STLDI coverage, and to address the potential reliance interests of both issuers offering STLDI and consumers enrolled in STLDI under the 2018 final rules. As discussed in section III.A.6 of this preamble, with the exception of the notice provision, these final rules will not be applicable to STLDI policies sold or issued before September 1, 2024. This will result in a phased-in approach that limits the potential for market disrupting impact by allowing individuals currently enrolled in STLDI to maintain coverage that meets the standards in the 2018 final rules through the duration of their current policy. In addition, this phased-in approach does not require issuers who have relied on the current rules to modify contracts for STLDI policies that are currently in place. Further, the proposed changes that are finalized in these rules will not result in an abrupt change in the maximum permitted duration of STLDI in many States. Of the States that currently permit STLDI, seven States and the District of Columbia already have a maximum permitted length of less than 3 months for STLDI while four additional States prohibit the sale of STLDI entirely, notwithstanding the longer duration permitted under the 2018 final rules. 144 Finally, as these final rules intend to protect against misleading marketing practices that harm consumers, the benefits of further differentiating STLDI from comprehensive coverage outweigh any potential unintended consequences of changing the maximum allowable duration of STLDI. As outlined in this section and elsewhere in these rules, the definition is well reasoned, is clearly within the Departments' authority, and is consistent with other applicable Federal law, and is therefore not arbitrary and capricious. 144 See Healthinsurance.org (2023). "Duration and Renewals of 2023 Short-Term Medical Plans by State," available at: https://www.healthinsurance.org/wp-content/uploads/2023/09/state-by-state-short-term-health-insurance. pdf; see also Dieguez, Gabriela and Dane Hansen (2020). "The Impact of Short-term Limited-duration Policy Expansion on Patients and the ACA Individual Market," Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market. Some commenters expressed concern that the proposed definition of STLDI would interfere with the authority of States to regulate insurance pursuant to the McCarran-Ferguson Act and PHS Act. These commenters stated that the McCarran-Ferguson Act reserves the regulation of insurance to States so that States can tailor their health insurance policies to the needs of their residents. They stated that State regulators are better positioned to understand the unique characteristics and requirements of each State's respective insurance markets and are more responsive to the needs of their insurance markets. Another commenter stated that under the PHS Act, Federal authority to regulate insurance is secondary to the primary authority of the States, and any Federal intrusion on State authority must be based on information that a State may not be substantially enforcing PHS Act requirements. A commenter noted that States have demonstrated their willingness and capacity to regulate STLDI coverage because half of States have regulations in place. For example, the commenter noted that the sale of STLDI is prohibited in some States 145 and other States have restricted the maximum allowed term of STLDI to 3, 6, or 12 months or coverage that terminates at the end of the calendar year. 146 Other commenters stated that some States only allow limited renewals of STLDI. Another State regulates STLDI by requiring that STLDI policies sold in the State provide certain consumer protections, implementing a separate risk pool, and creating a special enrollment period for consumers that exhaust the 36-month period of STLDI coverage, while setting minimum benefit and coverage requirements to meet the needs of seasonal employees that desire flexibility and low-cost health care coverage. 147 A commenter noted that 12 States currently prohibit health status underwriting for STLDI, which effectively bans STLDI in those States. The commenter stated that the proposed rules fail to balance States' interest in regulating health insurance issuers and their health insurance markets with Congress's intent to provide protections to consumers. On the other hand, a few commenters noted that variation in State oversight of STLDI has resulted in a patchwork of consumer protections across States, and one commenter stated that consumers would benefit from national-level STLDI regulation. 145 The commenter noted that STLDI is not for sale in a number of States including California, Colorado, Connecticut, Hawaii, Maine, Massachusetts, New Jersey, New Mexico, New York, Rhode Island, Vermont, and Washington. See also Healthinsurance.org (2023). "Duration and Renewals of 2023 Short-Term Medical Plans by State," available at: https://www.healthinsurance.org/wp-content/uploads/2023/09/state-by-state-short-term-health-insurance.pdf (As of September 6, 2023, STLDI is not for sale in 14 States - California, Colorado, Connecticut, Hawaii, Maine, Massachusetts, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Rhode Island, Vermont, and Washington - and the District of Columbia.) 146 The commenter stated that Illinois allows the sale of STLDI that lasts for up to 180 days, and in New Hampshire, STLDI contracts can last for up to 6 months with a renewal or extension of up to a total of 18 months. 147 The commenter stated that Iowa imposed minimum benefit and coverage requirements on short-term plans above Federal standards. These final rules establish the Federal definition of STLDI with respect to the maximum length of the initial contract term, the maximum allowable duration (including renewals and extensions), and a consumer notice. The Departments acknowledge and respect States' authority to regulate the business of insurance. The Departments generally agree that States retain the authority to regulate STLDI and further note that these final rules do not change or otherwise modify the existing ERISA or PHS Act preemption standard. 148 As such, States may impose requirements tailored to the needs of their populations, and may adopt limitations on stacking, as well as limitations on sales and marketing practices. Relatedly, in section III. B of this preamble, in these final rules, the Departments added language to the notice to alert consumers as to how the coverage they are purchasing might vary from individual health insurance coverage. States may impose additional language requirements for a consumer notice and remain free to regulate STLDI. 148 Section 731 of ERISA and sections 2724 and 2762 of the PHS Act (implemented in 29 CFR 2590.731(a) and 45 CFR 146.143(a) and 148.210(b)). The Departments agree that the States play an important role in regulating STLDI and recognize the federalism implications of the proposed rules and these final rules. 149, As noted by commenters, the McCarran-Ferguson Act generally affirms the preeminence of State regulation, and also explicitly allows for Federal regulation when an act of Congress specifically relates to the business of insurance. 150 However, the commenters' argument that Federal authority to regulate insurance is secondary to the primary authority of the States conflates Federal authority to regulate insurance under section 1012 of the McCarran-Ferguson Act with HHS's authority under section 2723 of the PHS Act to enforce requirements in part A and D of title XXVII of the PHS Act against issuers. 151 Under section 2723 of the PHS Act, States have authority to enforce the requirements of part A and D of title XXVII of the PHS Act, and where the State fails to substantially enforce a provision (or provisions) of part A or D with respect to health insurance issuers in the State, HHS shall enforce such provision (or provisions) in the State. In contrast, the McCarran-Ferguson Act balances State and Federal interests in regulating the business of insurance. Section 1012(a) of the McCarran-Ferguson Act maintained State regulatory authority by enabling State preemption of some Federal law, and section 1012(b) of the McCarran-Ferguson Act limited Federal regulatory authority by generally exempting the "business of insurance" from Federal law. 152 Although Congress allowed an exception for State preemption of Federal law in this way, Congress also preserved Federal authority to regulate insurance provided that, to overcome the State preemption, congressional action must specifically relate to the business of insurance. 153 It is without question that HIPAA, the ACA, and the other Acts of Congress that added Federal consumer protections and requirements applicable to health insurance issuers offering group and individual health insurance coverage specifically relate to the business of insurance. In addition, as discussed earlier, the Departments have clear legal authority to define STLDI and set standards to distinguish it from individual health insurance coverage. This includes authority to adjust the interpretations for and implementation of the terms "short-term" and "limited-duration" that set the length of the initial contract term and the maximum duration (including renewals and extensions) for STLDI, as well as to update the consumer notice. As outlined previously, Congress provided the Departments with explicit authority to promulgate regulations as may be necessary or appropriate to carry out the provisions of the Code, ERISA, and the PHS Act. The Departments are of the view that the Federal regulatory definition of STLDI in these final rules is necessary and appropriate to carry out the provisions of the Code, ERISA, and the PHS Act. Further, the Departments must give meaning to the undefined statutory term STLDI, and the meaning must distinguish it from individual health insurance coverage. This is because the PHS Act imposes certain requirements on individual health insurance coverage and does not impose those same requirements on STLDI. The Departments are also of the view that it is necessary and appropriate for consumers considering the purchase of STLDI, and those purchasing such insurance, to be aware that such coverage is not subject to the Federal consumer protections and requirements for comprehensive coverage. Defining STLDI in a way that requires a short, standard description of how the coverage might vary from individual health insurance coverage allows for a clear determination by regulators that the policy is STLDI, and promotes ease of understanding by consumers. As explained previously and detailed in the 2023 proposed rules, the changes to the Federal definition of STLDI, including the updates to the consumer disclosure notice, are reflective and responsive to changes observed by the Departments in market conditions and the legal landscape. 149 See 88 FR at 44648 - 44649. See also the federalism discussion in section V.H of this preamble. 150 Compare "The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business..." 15 USC 1012(a), with "No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance: Provided, that after June 30, 1948, the Act of July 2, 1890, as amended, known as the Sherman Act, and the Act of October 15, 1914, as amended, known as the Clayton Act, and the Act of September 26, 1914, known as the Federal Trade Commission Act, as amended [15 U.S.C. 41 et seq.], shall be applicable to the business of insurance to the extent that such business is not regulated by State Law.... 15 USC 1012(b). 151 HHS also has authority under section 2761 of the PHS Act to enforce the requirements in part B of title XXVII of the PHS Act against issuers in situations where a State fails to substantially enforce one or more provisions of part B with respect to health insurance issuers in the State. 152 See Steffen, Peter B. (2000) "After Fabe: Applying the Pireno Definition of Business of Insurance in First-Clause McCarran-Ferguson Act Cases," University of Chicago Legal Forum: Vol. 2000, available at: https://chicagounbound.uchicago.edu/uclf/vol2000/iss1/15 ("The first clause enabled [S]tate law to supersede [F]ederal law; the second clause provided a [F]ederal antitrust exemption for the 'business of insurance' The Act gave [S]tates some powers they did not have before, by stating in the first clause that only a [F]ederal law that 'specifically relates to the business of insurance' can preempt a [S]tate law dealing with insurance. Congressional legislation merely affecting insurance would not meet the first-clause test and thus would not, be exempt from the general prohibition on preemption. Rather, in order to apply, [F]ederal law must specifically relate to the 'business of insurance' "). 153 Id., citing Lee R. Russ, 3 Couch on Insurance sec. 2:4 at 2-12 (Clark 1994) ("McCarran-Ferguson turns the traditional rule of [F]ederal preemption of [S]tate law on its head."). These final rules define STLDI for purposes of the Code, ERISA, and the PHS Act. Insurance coverage that meets the definition of STLDI in these final rules will qualify for the exception to the Federal definition of individual health insurance coverage and be exempt from the Federal consumer protections and requirements applicable to comprehensive coverage. Nothing in these final rules prevents regulation of STLDI for purposes of State law. For example, States may determine whether to permit the sale of STLDI in their insurance markets. If a State law permits or requires an action that is inconsistent with the Federal definition of STLDI, any coverage offered pursuant to that State law that does not meet the standards set forth in these final rules would not qualify as STLDI under these final rules and would be subject to the Federal consumer protections and requirements applicable to comprehensive coverage. For example, if a State were to prohibit policies issued in that State from including the Federal consumer notice, then coverage in that State that did not include the Federal consumer notice language would not qualify for the exclusion from the PHS Act definition of individual health insurance coverage and thus would be subject to the Federal consumer protections and requirements applicable to individual health insurance coverage. Amending the Federal regulation defining STLDI protects the distinctively Federal role and interest in ensuring that the Federal definition for STLDI clearly distinguishes STLDI from individual health insurance coverage for consumers in every State. As discussed in the preamble to the 2023 proposed rules, many STLDI policies that are sold through associations are sold across numerous States. Often consumers are purchasing STLDI policies in a different State from the State in which the policy is regulated. This can create challenges for both consumers and State regulators. The Departments are of the view that establishing a shorter Federal maximum duration for STLDI may reduce the incentives for issuers to offer STLDI through associations to the extent that they are using associations as a way to avoid State limits on duration. This, in turn, will help minimize consumer confusion related to coverage offered through associations. In addition, STLDI with a shorter maximum allowable duration would decrease the impact of STLDI on Federal Government spending. As discussed in section III.A.6 of this preamble, STLDI that has a maximum allowable duration of up to 36 months, including renewals and extensions, has an annual impact on Federal PTC spending due to selection-induced effects. The Departments are of the view that these final rules appropriately balance States' interests in regulating health insurance issuers and their health insurance markets with Congress' intent to establish a general Federal framework for health insurance coverage, including the provision of certain key protections to consumers enrolled in comprehensive coverage. Some commenters expressed general support for the proposed definition of STLDI. Commenters in favor of the proposed definition noted that it would return STLDI to its traditional and intended purpose of providing temporary, stopgap coverage between periods of comprehensive coverage, and not serve as a long-term substitute for comprehensive coverage. Some of these commenters highlighted that low health literacy rates, a long maximum allowed term of STLDI that mimics the duration of comprehensive coverage, and deceptive marketing practices cause many consumers to confuse STLDI with comprehensive coverage. These commenters also stated that STLDI lacks Federal consumer protections and is inadequate to serve patients grappling with complex medical needs such as those that require maternity care or habilitative care; behavioral health problems; or chronic diseases such as cancer and cardiovascular disease. These commenters further stated that unwary consumers unexpectedly are underinsured when they enroll in STLDI and may end up forgoing needed, routine medical treatment and exacerbating chronic medical conditions because of limited benefits or high cost-sharing responsibilities. Consequently, consumers may then be sicker when they finally seek care in the emergency room for untreated medical conditions, which can increase costs absorbed by providers and facilities, costing the health care system more in the long run. Commenters who supported the STLDI definition in the proposed rules warned that some consumers who enroll in STLDI as an alternative to comprehensive coverage can become subject to unexpected medical debt leading to unforeseen long-term financial consequences. Other commenters that supported the revised Federal definition for STLDI stated that while STLDI is highly profitable for health insurance issuers, agents, and brokers, the impact of STLDI on the risk pools for individual health insurance coverage indicates that it is necessary to clarify the distinctions between STLDI and comprehensive coverage. Other commenters expressed general opposition to the STLDI definition proposed in the 2023 proposed rules. These commenters stated that while STLDI is not adequate coverage for everyone, STLDI provides a useful, short-term, affordable option, particularly for consumers who do not have access to PTC subsidies, and provides access to specialists that are not in-network with many comprehensive coverage options. The Departments acknowledge that the changes to the Federal definition of STLDI that are finalized in these rules may result in individuals who prefer STLDI losing access to such coverage as a long-term coverage option. However, as explained previously and in the 2023 proposed rules, the Departments have concluded that these concerns are now outweighed by the negative financial and health consequences that some individuals who enroll in STLDI in lieu of comprehensive coverage experience; consumer challenges in differentiating STLDI from individual health insurance coverage, particularly in light of low health literacy rates and aggressive marketing; and the negative impact on the risk pools for individual health insurance coverage when healthier individuals enroll in STLDI in lieu of individual health insurance coverage. 154 154 See section V of this preamble for the regulatory impact analysis; see also 88 FR 44596 at 44608 (2023). As the availability of affordable comprehensive coverage options has increased since the 2018 final rules were finalized, the Departments are of the view that STLDI is no longer needed to provide a year-round coverage option for individuals and should be limited to a temporary coverage option for shorter periods when an individual experiences gaps between comprehensive coverage. The Departments agree with commenters that the definition of STLDI under the 2018 final rules heightened the risk that uninformed consumers will mistakenly purchase STLDI as a substitute for comprehensive coverage, and under current market conditions, unnecessarily expose themselves to severe financial risks if they have complex medical needs or conditions. The Departments agree with commenters that the lack of key Federal consumer protections and requirements that apply to benefits offered by STLDI 155 results in STLDI being an inadequate substitute for comprehensive coverage, especially for those with complex medical needs. Some consumers with complex health conditions may enroll in STLDI because a preferred provider may be in-network with an STLDI policy but out-of-network with comprehensive coverage plans. 156 However, STLDI plans are typically associated with higher overall financial risk due to high premium increases that may be imposed upon an individual whose health condition worsens. For example, a study that examined the potential impacts of STLDI and associated State policies on cancer diagnoses found that individuals in States that prohibited STLDI were associated with an increase in early-stage cancer diagnoses when compared to States that did not regulate STLDI. 157 In addition, because issuers of STLDI can engage in medical underwriting, individuals can be charged higher premiums based on health status, gender, age and other factors. 158 Enrolling in comprehensive coverage instead of STLDI prior to when a consumer is diagnosed with a complex medical condition or incurs major medical expenses will promote access to care and improve overall health outcomes. 155 See, for example, Dieguez, Gabriela and Dane Hansen (2020). "The Impact of Short-Term Limited-Duration Policy Expansion on Patients and the ACA Individual Market," Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market. 156 In some circumstances, even accounting for the expense of using an out-of-network provider, comprehensive coverage still may be the less expensive choice overall because of lower out-of-pocket spending a consumer would enjoy when enrolled in comprehensive coverage. In many cases, expenses for premiums and cost sharing for comprehensive coverage enrollees are still lower than the uncovered costs associated with STLDI, particularly when an individual undergoes costly medical treatment. 157 Barnes, Justin, Anne Kirchhoff, Robin Yabroff, and Fumiko Chino (2023). "State Policies Regulating Short-Term Limited Duration Insurance Plans and Cancer Stage at Diagnosis," JNCI Cancer Spectrum, Volume 7, Issue 5, available at: https://doi.org/10.1093/jncics/pkad060. 158 See Pollitz, Karen, Michelle Long, Ashley Semanskee, and Rabah Kamal (2018). "Understanding Short-Term Limited Duration Health Insurance," KFF, available at: https://www.kff.org/affordable-care-act/issue-brief/understanding-short-term-limited-duration-health-insurance. See also Lueck, Sarah (2018). "Key Flaws of Short-Term Health Plans Pose Risks to Consumers," Center on Budget and Policy Priorities, available at: https://www.cbpp.org/research/health/key-flaws-of-short-term-health-plans-pose-risks-to-consumers. In addition, the Departments share commenters' concerns that low health literacy rates can have a detrimental impact on health insurance decision-making, putting some consumers at increased risk for purchasing STLDI when they are looking to purchase comprehensive coverage. Low health literacy rates combined with potentially erroneous assumptions about minimum standards for coverage makes the average consumer vulnerable to deceptive marketing practices and creates barriers to accessing health care and comprehensive coverage. As discussed in the preamble to the 2023 proposed rules, consumers may not understand that while some STLDI policies may have lower premiums than comprehensive coverage, consumers may incur steep and potentially debt-inducing health care bills once enrolled in STLDI due to limited benefits provided by such coverage, limited Federal consumer protections, and high-cost sharing requirements. 159 A qualitative study cited by commenters examined consumer comprehension of marketing materials for STLDI and found that not only did participants have low health insurance literacy rates, but they struggled to understand the plan's limitations because the ACA has shaped their expectations about what "typical" health plans cover. 160 As a result, consumers often expect that all health insurance provides the same benefits and protections even absent deceptive marketing practices, increasing the importance of guardrails to distinguish comprehensive coverage from STLDI. These concerns are exacerbated in underserved communities, given their low rates of health literacy. 161 As discussed in the 2023 proposed rule, in addition to systemic and social structures that impact access to health care, 162 health literacy can make it more difficult for historically underserved and marginalized groups to navigate high deductibles, expanded cost sharing, coverage exclusions and narrow formularies found in STLDI. 163 These barriers can lead to consumers rationing their medicine or not taking it at all or delaying necessary health care services, causing devastating consequences to their health. 164 Shortening the maximum allowable term and duration of STLDI will serve as a clear indicator to consumers about the nature of each coverage option and instill more confidence in their coverage decisions. The Departments are also concerned about the prevalence of deceptive marketing practices, as noted by commenters who referenced secret shopper studies and anecdotes about negative consumer experiences, including when deceptive marketing practices were used to encourage consumers to enroll in STLDI instead of receiving education about their eligibility for low-cost comprehensive coverage or to inhibit consumers from choosing the coverage they need to access health care and protect themselves from financial burdens. 159 See, for example, 88 FR 44596 at 44608, 44612, 44613, 44615-44617, 44646 (July 12, 2023). 160 Georgians for a Healthy Future (2019). "Report on Testing Consumer Understanding of a Short-Term Health Insurance Plan," available at: https://healthyfuturega.org/wp-content/uploads/2019/04/Consumer-Testing-Report_NAIC-Consumer-Reps.pdf. 161 Kutner M, Greenberg E, Jin Y, Paulsen C. The Health Literacy of America's Adults: Results from the 2003 National Assessment of Adult Literacy (NCES 2006-483). Washington, DC: U.S. Department of Education, National Center for Education Statistics; 2006. 162 Muvuka, B., et al (2020). "Health Literacy in African-American Communities: Barriers and Strategies," Health Literacy Research and Practice, available at: https://journals.healio.com/doi/full/10.3928/24748307-20200617-01. 163 88 FR 44596 at 44608, 44613, 44615 (July 12, 2023). 164 Schumacher, Jessica R. et al. (2013). "Potentially Preventable Use of Emergency Services: The Role of Low Health Literacy," Medical Care 51(8), August 2013, available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3756810. Finally, the Departments agree that it is necessary and appropriate to revisit the Federal STLDI definition to further distinguish between these types of coverage given concerns about the impact on risk pools. As discussed in section II.C of this preamble, STLDI siphons off healthier individuals from the risk pools for individual health insurance coverage, thereby raising premiums for such coverage. Some commenters expressed particular concern about the impact of deceptive and aggressive marketing practices for STLDI given the increase in consumers currently looking for health coverage options as States resume Medicaid eligibility redeterminations due to the expiration of the FFCRA Medicaid continuous enrollment condition, as discussed in section II.B of this preamble. These commenters explained that many consumers who lose Medicaid coverage and are seeking new coverage at a low cost will be vulnerable to misleading or aggressive sales and marketing tactics that obscure the differences between comprehensive coverage and STLDI, and might therefore mistakenly enroll in STLDI in lieu of comprehensive coverage. These commenters noted that underserved populations with low health literacy and incomes below the FPL may be particularly vulnerable. The Departments recognize that more individuals may be considering new coverage options as a result of an increased volume of Medicaid eligibility redeterminations, and therefore may be particularly susceptible to this type of misleading or aggressive sales and marketing tactics even though affordable options for comprehensive coverage may be available to them. CMS has made it a priority to ensure that as many people as possible maintain continuous comprehensive coverage during this "unwinding period." 165 CMS has a robust plan in place to reach people with Medicaid or CHIP coverage, so that they are aware of the steps they need to take to maintain their Medicaid or CHIP coverage, or, if no longer eligible, to smoothly transition to other forms of coverage, such as individual health insurance coverage purchased through an Exchange. 166 This plan includes new policy and operational flexibilities, such as a temporary exceptional circumstances special enrollment period available through HealthCare.gov for qualified individuals and their families who lose Medicaid or CHIP coverage following the end of the continuous enrollment condition; multi-pronged, large-scale national and local outreach and stakeholder engagement efforts; and investments and innovations in enrollment assistance. 167 State-based Exchanges have taken similar steps to update or implement new special enrollment period policies, as well as conduct outreach and stakeholder engagement, to support qualified individuals and their families who lose Medicaid or CHIP coverage following the end of the continuous enrollment condition. Despite these efforts, current data shows that a substantial number of people have lost coverage and may want to enroll in coverage. 168 165 See Temporary Special Enrollment Period (SEP) for Consumers Losing Medicaid or the Children's Health Insurance Program (CHIP) Coverage Due to Unwinding of the Medicaid Continuous Enrollment Condition- Frequently Asked Questions (FAQ) (January 27, 2023), available at: https://www.cms.gov/technical-assistance-resources/temp-sep-unwinding-faq.pdf. 166 See CMS (2023). "Unwinding and Returning to Regular Operations after COVID, Medicaid and CHIP Renewals Outreach and Educational Resources," available at: https://www.medicaid.gov/resources-for-states/coronavirus-disease-2019-covid-19/unwinding-and-returning-regular-operations-after-covid-19/medicaid-and-chip- renewals-outreach-and-educational-resources/index.html. 167 See CMS (August 26, 2022). "Biden-Harris Administration Makes Largest Investment Ever in Navigators Ahead of HealthCare.gov Open Enrollment Period," available at: https://www.cms.gov/newsroom/press-releases/biden-harris-administration-makes-largest-investment-ever-navigators-ahead-healthcaregov-open. 168 See Corallo, Bradley, Jennifer Tolbert, Patrick Drake, Sophia Moreno, and Robin Rudowitz, (2024). "Halfway Through the Medicaid Unwinding: What Do the Data Show?" KFF, available at: https://www.kff.org/policy-watch/halfway-through-the-medicaid-unwinding-what-do-the-data-show. Commenters requested that the Departments clarify whether any of the existing special enrollment periods would allow a consumer to access comprehensive coverage if their STLDI coverage ends outside of an open enrollment period. Some commenters recommended that the Departments create a new special enrollment period for individuals to enroll in comprehensive coverage after their STLDI coverage ends, or that allows an individual to enroll in coverage through an Exchange upon the termination of STLDI coverage specifically for situations where a consumer elected STLDI following a loss of employment-based coverage due to a job transition or to provide temporary coverage during an employer's waiting period. Some commenters expressed concern about the potential for consumers to experience gaps in coverage in the absence of access to a special enrollment period, explaining that those consumers purchasing a 3-month STLDI plan mid-calendar year would become financially vulnerable with no continued coverage options until the next open enrollment period. The Departments affirm that individuals who lose eligibility for STLDI coverage, such as when their STLDI policy ends, are already eligible for a special enrollment period and have 60 days to enroll in group health plan coverage, either insured or self-funded. 169 HHS did not propose to create a new individual market special enrollment period for individuals to enroll in individual health insurance coverage (on- or off-Exchange) at the expiration of their STLDI coverage and declines to do so in these final rules. Providing consumers with an individual market special enrollment period to purchase off-Exchange or on-Exchange coverage when they lose eligibility for STLDI or their STLDI policy ends could confuse or mislead consumers who are considering their health coverage options. Consumers may delay enrolling in comprehensive coverage when first available, on the expectation that such coverage would be available at any time, even if STLDI coverage does not renew or is otherwise terminated. Also, as explained previously, inflating the fraction of low-risk individuals who enroll in STLDI rather than individual health insurance coverage will have negative consequences for the risk pools for individual health insurance coverage. 169 See 26 CFR 54.9801-6, 29 CFR 2590.701-6, 45 CFR 146.117. Furthermore, there are other options for individuals who anticipate experiencing longer gaps between comprehensive coverage. For example, an individual who loses comprehensive coverage may be eligible for a special enrollment period that allows them to enroll in group coverage sponsored by their employer, the employer of their parent, spouse or partner, or individual health insurance coverage, either directly with the issuer, or through the Exchanges, where they may be eligible for APTC. 170, 171 In some circumstances, they may be eligible for other coverage such as government-based assistance for qualified individuals under Medicaid, CHIP, or BHP. 172 In addition, if a consumer experiences a reduction in benefits or termination of employment and is uncertain as to when they will be eligible for other comprehensive coverage, the consumer in many cases has the option of electing coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) 173 (18, 29, or 36 months depending on the nature of the COBRA qualifying event) or State mini-COBRA continuation coverage laws. Also, as discussed in section III.A.2 of this preamble, an individual who enrolls in STLDI coverage from one issuer and wishes to purchase another STLDI policy maintains the option of enrolling in STLDI coverage with another issuer that is not a member of the same controlled group. 170 45 CFR 155.420. 171 45 CFR 147.104(b)(2). 172 Medicaid eligibility requirements vary by State. 173 Pub. L. 99-272, April 7, 1986. One commenter suggested that the Departments require that certain consumer protection provisions apply to STLDI. Other commenters urged the Departments to extend the prohibition on rescissions to STLDI. One of these commenters explained that STLDI issuers can rescind the patient's coverage following post-claims underwriting, 174 leaving patients without any financial or medical protection and at high risk of incurring medical debt. 174 Post-claims underwriting refers to the practice of engaging in an underwriting review after a claim is made rather than going through the time and expense of doing such a review to assess the consumer's actuarial risk and medical conditions at the time the policy is purchased. The Departments appreciate commenters' suggestions regarding ways in which to ensure STLDI provides key Federal consumer protections. The Departments agree that STLDI can place a consumer's health and financial well-being at risk if they experience a significant medical event or have a complex medical condition. As discussed in this preamble at section II.B, consumers may be susceptible to deceptive marketing and sales practices that often mask post-claims underwriting practices by STLDI issuers and the exclusion of key essential health benefits and Federal consumer protections under STLDI plans. Consumers may be unaware of the limitations of their STLDI coverage until they need care or have incurred significant medical expenses, particularly those with low health literacy. However, the Departments did not propose to apply Federal consumer protections to STLDI and are not finalizing in these final rules the extension of any of the individual health insurance coverage Federal consumer protections and requirements to STLDI. 175 The Departments further note it would be inconsistent with the statute to extend the Federal prohibition on rescissions to STLDI, as Congress limited its applicability to group health plans and health insurance issuers offering group or individual health insurance coverage. 176 In addition, as discussed in section III.A.2 of this preamble, the Departments have determined that limiting extensions and renewals of STLDI instead of applying guaranteed renewability to STLDI appropriately distinguishes STLDI from individual health insurance coverage. 175 While STLDI is generally not subject to the Federal consumer protections and requirements for comprehensive coverage that apply to individual health insurance coverage, the agent and broker compensation disclosure and reporting requirements in section 2746 of the PHS Act apply to health insurance issuers offering individual health insurance coverage or STLDI. Those requirements will be addressed by HHS in a separate rulemaking. See Requirements Related to Air Ambulance Services, Agent and Broker Disclosures, and Provider Enforcement; Proposed Rules, 86 FR 51730 at 51740 - 51744 and 51770 - 51771 (Sept. 16, 2021). 176 See PHS Act section 2712. Other commenters suggested that the Departments collect data on key elements, including, for example, compensation paid by issuers to brokers or agents; plan-level enrollment/disenrollment and claims data that is disaggregated by age, income, race/ethnicity, and geographic locations; coverage limits; and other data to enable regulators and stakeholders to assess whether and how children and families are being served by STLDI. The Departments agree with commenters that it would be useful to have access to more data on STLDI. HHS is committed to collecting information from issuers offering STLDI regarding any direct or indirect compensation provided by the issuer to an agent or broker associated with enrolling individuals in STLDI, as authorized under section 2746 of the PHS Act. 177 However, beyond this requirement, the Departments do not currently have authority to collect data from issuers of STLDI. States, in contrast, can survey and collect data on STLDI under State authority and the NAIC Market Analysis and Procedures Working Group annually collects data from issuers of STLDI. 178 The Departments encourage States that do not already collect such data to consider the collection of data from STLDI issuers, as suggested by commenters, to assist with Federal and State oversight of STLDI. 177 See Requirements Related to Air Ambulance Services, Agent and Broker Disclosures, and Provider Enforcement; Proposed Rules, 86 FR 51730 at 51740 - 51744 and 51770 - 51771 (Sept. 16, 2021). 178 The NAIC is currently collecting additional data on STLDI as part of its Market Conduct Annual Statement data call for STLDI offered in 2023. See https://content.naic.org/mcas-2023.htm. 2. Definitions of "Short-term" and "Limited-duration" The 2023 proposed rules proposed to amend the Federal definition of "short-term, limited-duration insurance" in 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103 to reflect a new interpretation of the phrase "short-term" to mean a policy, certificate, or contract of insurance with an issuer that has an expiration date specified in the policy, certificate, or contract of insurance that is no more than 3 months after the original effective date of the policy, certificate, or contract of insurance. 179 The 2023 proposed rules also proposed to interpret "limited-duration" to mean a maximum coverage period that is no longer than 4 months in total, including renewals and extensions. 180 For this purpose, the Departments proposed that a renewal or extension would include the term of a new STLDI policy, certificate, or contract of insurance issued by the same issuer to the same policyholder within the 12-month period, beginning on the original effective date of the initial policy, certificate, or contract of insurance. As proposed, in this context, the phrase "same issuer" would refer to the entity licensed to sell the policy, consistent with the definition of health insurance issuer in 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103. Under this proposal, the duration of coverage would be calculated based on the total number of days of coverage (either consecutive or non-consecutive) that a policyholder is enrolled in an STLDI policy with the same issuer within the prior 12-month period, regardless of whether the coverage issued to the policyholder is under the same or a new policy, certificate, or contract of insurance. 179 88 FR 44596 at 44610-44611 (July 12, 2023). 180 Id. at 44611-44614 (July 12, 2023). The calculation for the duration of coverage, however, would not include days of coverage under an STLDI policy, certificate, or contract of insurance sold to the same policyholder by a different issuer. As the Departments explained in the preamble to the 2023 proposed rules, this proposed distinction would effectively limit stacking of policies sold by the same issuer, would be easier for issuers to track and comply with than if applied across different issuers, and would allow consumers to purchase subsequent STLDI policies from other issuers within a 12-month period. 181 181 Id. at 44612 (July 12, 2023). As explained in the preamble to the 2023 proposed rules, the new proposed definition for STLDI is consistent with the group market rules regarding the 90-day waiting period provision under the ACA and with STLDI's traditional role of serving as a temporary coverage for individuals transitioning between other types of comprehensive coverage. The proposed definition is also similar to the less-than-3-month maximum term for STLDI under the 2016 final rules and under a number of State laws, 182 and aligns with the goal of Executive Order 14009 to support protections for people with preexisting conditions. 182 See, for example, D.C. Code§31-3303.13d; 18 Del. Admin. Code 1320-4.0; Haw. Rev. Stat.§ 431:10A-605; Md. Code Ann., Insurance§ 15-1301(s); N.M. Stat.§ 13.10.3.8; Or. Rev. Stat.§743B.005; and Ver. Stat. Ann. tit. 8§ 4084a(c). See also Healthinsurance.org (2023). "Duration and Renewals of 2023 Short-Term Medical Plans by State," available at: https://www.healthinsurance.org/wp-content/uploads/2023/09/state-by-state-short-term-health-insurance.pdf. The Departments requested comments on the proposed new interpretations of the phrases "short-term" and "limited-duration." The Departments also requested comments on whether the interpretation of "short-term" in the proposed definition of STLDI should be some other length, such as no longer than 4 months, and why, and whether there are circumstances under which issuers should be allowed to renew or extend STLDI for periods of time beyond what would be permitted in the proposed rules. The Departments also requested comments on whether there are additional ways to differentiate STLDI from comprehensive coverage options, including information on State approaches or limits on the sale of STLDI by a different issuer, and how the subsequent issuer would determine whether or not an applicant had previous STLDI with another issuer. The Departments also solicited comments on whether to broaden the limits on stacking to include issuers that are members of the same controlled group. Given that the majority of comments addressed the definitions of "short-term" and "limited-duration" together, the Departments are addressing comments related to the maximum allowed length and the definitions for these two terms together, along with the comments related to the practice of stringing together multiple or consecutive policies, a practice known as "stacking." Commenters suggested various options for the allowable maximum duration. Some commenters supported finalizing the maximum duration as proposed. These commenters agreed that STLDI serves as an adequate gap filler for consumers that need a bridge between comprehensive forms of coverage, and a 3-month initial term makes it easier for a consumer to distinguish between STLDI and comprehensive coverage. In addition, some of these commenters supported a short initial term to protect consumers from the inherent risks of enrolling in coverage that does not provide Federal consumer protections or comprehensive health benefits, and to curb negative impacts on the risk pools for individual health insurance coverage. Some commenters were of the view that the proposed definitions of the terms "short-term" and "limited-duration" better align with the plain language of the statute than the current definitions. Others supported shortening the initial maximum allowable period to a period less than allowed under the current rules, but longer than the proposed 3-month period, for example a period of less than 6 months, to strike a balance between the drawbacks of STLDI with consumers' need for gap-coverage when coverage is needed for a short period of time, they have no other insurance options, or comprehensive coverage is otherwise unaffordable. Other commenters stated that STLDI policies should be permitted to have longer durations as long as they end by December 31 of the calendar year in which the policy period commences, at which point individuals can enroll in comprehensive coverage during the annual individual market open enrollment period. One commenter, who supported the proposed maximum duration, suggested that the Departments require that all initial contract terms end by December 31 of the policy year in which the policy commences (even when the STLDI policy is purchased late in the year), to minimize situations where consumers miss the annual individual market open enrollment period. The commenter suggested that requiring STLDI policies to end by December 31 would cause consumers to look for new coverage during the individual market open enrollment period and increase the likelihood that they would enroll in comprehensive coverage. The commenter further suggested that, for alignment with the proposed maximum duration, the Departments could allow renewal for up to 4 months (past December 31), but only if the full 4-month period of coverage is not sold at the same time and that an additional notice is sent to consumers about the annual individual market open enrollment period. Other commenters opposed modifying the initial maximum allowed length of "short-term" and instead recommended keeping the 2018 final rule's maximum allowed length for an initial contract term of less than 12 months. With respect to the definition of "limited-duration," some commenters suggested the Departments redefine the standard to allow a longer maximum length than proposed. One commenter requested that the Departments define "limited-duration" as up to 12 to 18 months. Another commenter suggested that the Departments define "limited-duration" as up to 9 months in a 12-month period to allow consumers who do not have a qualifying event for a special enrollment period to purchase comprehensive coverage to use STLDI to bridge the gap between annual open enrollment periods in the individual market. Commenters who supported a longer allowable maximum duration than the proposed period stated that limiting the maximum allowed length to no more than 3 months and a 1-month extension fails to account for all circumstances for which a consumer may need access to STLDI. Commenters gave examples of consumers who may benefit from being able to purchase longer-duration STLDI coverage, such as workers experiencing a change in employment, or unemployment; contract workers who do not have coverage through their employer; self-employed individuals or owners of a small business; college students who are not on their parent's insurance; workers in industries that require frequent travel, such as nurses and truckers; consumers with varying and unpredictable incomes; or consumers eligible for little or no APTC who would encounter a substantial premium expense if they enrolled in comprehensive coverage. In advocating for a longer maximum allowed duration, one commenter also noted that the average length of unemployment is 20.6 weeks, while according to a group of issuers and marketers of STLDI the average length of enrollment in STLDI is only 7 months. Other commenters stated that the maximum allowable length of STLDI should be left to the States. Some commenters suggested the Departments require issuers offering STLDI with renewals and extensions of up to 4 months to guarantee that the renewal or extension be available to the consumer without additional underwriting if the consumer chooses to renew or extend their coverage. Although the Departments acknowledge that there will be times when consumers may experience gaps in comprehensive coverage that exceed the maximum allowable duration for STLDI finalized in these rules, the Departments are not persuaded that a longer maximum initial contract term or longer maximum duration, taking into account renewals or extensions, is appropriate. Maintaining the definition that permits a longer initial length of up to 1 year would not alleviate the challenges consumers currently face in distinguishing STLDI from individual health insurance coverage, would continue to place consumers who enroll in STLDI at financial risk, and would not mitigate the impact on the risk pools for individual health insurance coverage or those consumers purchasing individual health insurance coverage. Because of low health literacy, consumers face the risk of inadvertently enrolling in STLDI coverage that does not sufficiently provide coverage for unexpected or significant medical events that arise during the coverage period. The Departments are not persuaded by comments that urged the Departments to align the maximum duration with a time frame that reflects average periods of unemployment, such as 6 to 9 months, rather than the proposed limit. The limit of no-more-than 3 months with a 1-month extension aligns with the 90-day waiting period limitation and 1-month additional reasonable and bona fide employment-based orientation period that is permitted under the ACA. The Departments are of the view that aligning the maximum duration of an STLDI policy with the period Federal law expressly permits as an "orientation" period in employment-based coverage most appropriately reflects STLDI's traditional role to fill temporary gaps in coverage. Consumers who purchase STLDI during a 90-day waiting period have a predictable end to their gap in coverage. Their gap is defined, and generally temporary, and thus is exactly the type of gap that STLDI traditionally serves to fill. In contrast, a loss in coverage due to a loss of employment is not the type of gap that STLDI traditionally is intended to fill because consumers that experience a loss of employment do not have certainty regarding how long their gap in comprehensive coverage will be, and for some that gap will not be temporary and may extend beyond the average length of unemployment. By enrolling in STLDI in lieu of COBRA continuation coverage or individual health insurance coverage during the 60-day period for which they are eligible for a special enrollment period for loss of qualifying coverage, these consumers may lose access to comprehensive coverage until the next individual market open enrollment period. While STLDI may be an appropriate choice for some individuals during a period of unemployment, the Departments concluded that aligning the maximum duration with the 90-day waiting period limitation and 1-month additional reasonable and bona fide employment-based orientation period better captures the traditional role of STLDI. In addition, consumers are more likely to face an unexpected health issue during a longer coverage period - such as 6, 9, or 12 months - and may find themselves insufficiently protected by the typically limited benefits of an STLDI policy and potential resulting financial burdens. By allowing an initial term of no more than 3 months, the interpretation of "short-term" for purposes of the revised Federal definition of STLDI finalized in these rules provides a clear demarcation from the 1-year length of a policy year for individual health insurance coverage. In addition, as discussed earlier, STLDI's traditional role is to provide coverage for temporary gaps for consumers transitioning between comprehensive coverage. A maximum period of no more than 3 months and 1-month extension (for a total maximum duration of 4 months, including renewals or extensions) is more appropriate for coverage intended to fill a temporary gap in comprehensive coverage. As explained in the preamble to the 2016 final rules, for longer gaps in coverage, guaranteed availability of coverage and special enrollment period requirements in the individual market under the ACA ensure that individuals can purchase individual health insurance coverage through or outside of the Exchange that is minimum essential coverage and includes the Federal consumer protections and requirements for comprehensive coverage. 183 Many consumers will also have the opportunity to enroll in comprehensive coverage offered by an employer and some may be eligible for other coverage, such Medicaid, CHIP or BHP. 183 81 FR 75318 (Oct. 31, 2016). The Departments are similarly not persuaded by the recommendation that STLDI be permitted to have a longer maximum duration, provided that coverage ends by December 31. Although the Departments appreciate that this approach would minimize gaps in coverage between when an individual's STLDI ends and when they can enroll in comprehensive individual health insurance coverage during the annual individual market open enrollment period, the Departments are concerned that such an approach would not sufficiently distinguish STLDI from individual health insurance coverage, which also ends on December 31. Finally, as mentioned in the 2023 proposed rules, the maximum allowable length of no more than 3 months and a 1-month extension represents a balance between providing a flexible standard that captures many of the circumstances for which an individual would want to enroll in STLDI, responds to the significant changes in the legal landscape and market conditions since the Departments last addressed STLDI, and addresses the low value that STLDI provides to consumers when used as a substitute for comprehensive coverage. Some commenters requested that the Departments impose a guaranteed renewability requirement on STLDI to prevent additional underwriting if a consumer chooses to renew or extend their coverage. The Departments have determined that limiting extensions and renewals of STLDI instead of applying guaranteed renewability to STLDI appropriately distinguishes STLDI from individual health insurance coverage. As such, these final rules do not impose a guaranteed renewability requirement on STLDI. Underwriting practices, including post-claims underwriting are outside the scope of these final rules. Many commenters supported the new proposed interpretation of "limited-duration" and accompanying proposed definition of renewal or extension to address stacking of STLDI policies by the same issuer to the same policyholder within a 12-month period. These commenters stated that issuers have exploited this loophole to sell consumers consecutive STLDI policies that collectively sidestep the maximum duration limits, deliberately misleading consumers about differences between STLDI and comprehensive coverage. According to some of these commenters, addressing the stacking loophole would reduce the risk of consumers unknowingly enrolling in coverage with inadequate benefits for an extended period of time. Commenters further stated stacking practices provide consumers with a false sense of security that they purchased a viable long-term substitute for comprehensive coverage and make it more challenging for consumers to distinguish STLDI from individual health insurance coverage. Commenters expressed concern about the exposure to financial risk that consumers face when purchasing stacked STLDI policies, explaining that a consumer typically faces new deductibles, new annual out-of-pocket limitations, and new preexisting condition limitations with each new STLDI policy term. A commenter noted that consumers may not understand that a health event experienced when covered under one STLDI policy could serve as the basis to impose a preexisting exclusion under a subsequent STLDI policy to deny benefits for the same condition. Other commenters questioned the basis for the Departments to adopt this part of the definition of "limited-duration" to address stacking of policies sold by the same issuer, members of the same controlled group, and/or by unrelated issuers, stating that the Departments do not have authority to constrain consumer choice. A commenter argued that preventing consumers from purchasing subsequent STLDI policies from an issuer of their choice is contrary to the statute, which looks at the issuer's conduct rather than the consumer's conduct, and would run afoul of the decision in Central United Life Ins. Co. v. Burwell. 184 The commenter further stated that Congress unambiguously specified in the ACA and HIPAA the types of insurance and actors 184 827 F.3d 70, 74 (D.C. Cir. 2016). Congress intended to regulate, and Congress consistently chose to exempt STLDI from the definition of individual health insurance coverage and to regulate issuer behavior instead of consumer behavior. Another commenter encouraged the Departments to defer to States on whether and to what extent an issuer could sell consecutive or multiple STLDI policies to consumers within a 12-month period. Other commenters stated that addressing the stacking loophole would leave consumers financially vulnerable, as some will not understand that their STLDI coverage cannot be renewed or extended with the same issuer and will have limited coverage options outside the annual individual market open enrollment period. 185 185 See section III.A.4 of this preamble. Some commenters who supported addressing the stacking loophole encouraged the Departments to extend the new interpretation of "limited-duration" and the accompanying definition of renewal or extension to include all issuers that are a part of the same controlled group. These commenters stated that issuers with shared ownership should not be able to exploit their corporate structure to avoid consumer protections and effectively circumvent the otherwise applicable maximum duration limits for STLDI coverage. Some commenters suggested that extending the limitation to include all issuers in the same controlled group could help address concerns regarding STLDI sold through associations, 186 as associations might be positioned to facilitate the issuance of stacked STLDI policies from different subsidiaries of the same controlled group. One commenter stated that members of the same controlled group should have the data and member-tracking capabilities to know if a consumer has purchased an STLDI policy within the 12 months from another issuer within the same controlled group. 186 For further discussion on STLDI sold through associations, see section III.A.5 of this preamble. The Departments agree with commenters that supported the Departments' authority to address the stacking loophole as part of the definition of renewal or extension for purposes of the new interpretation of "limited-duration." As stated in the preamble to the 2023 proposed rules, the Departments are concerned that stacking practices lengthen the duration of STLDI coverage without offering the benefits of comprehensive coverage that is subject to Federal consumer protections and requirements for comprehensive coverage, including limitations on medical underwriting, the prohibition of preexisting condition exclusions, and the prohibition on coverage rescissions. Using the stacking loophole, issuers could enroll consumers in multiple consecutive STLDI policies that together provide coverage for 12 months (or longer), in effect circumventing the rules related to maximum duration and making it more challenging for consumers to distinguish STLDI from comprehensive coverage. 187 187 88 FR 44596 at 44612-44613 (July 12, 2023). As discussed in section III.A.1 of this preamble, the Departments have clear authority to interpret and implement the Code, ERISA, and the PHS Act as they do here. This includes the authority to issue regulations on STLDI to define it and set standards that distinguish it from individual health insurance coverage. Providing a definition for what a renewal or extension means in the context of the new interpretation of "limited-duration" is included within this authority and is not a constraint on consumer behavior. Instead, the definition and standards, as proposed and finalized, apply to health insurance issuers that elect to offer STLDI. Further, consumers will continue to have access to STLDI plans that are generally exempt from the Federal consumer protections and requirements for comprehensive coverage. 188 Neither the proposed rules nor these final rules sought to extend to STLDI or otherwise make changes with respect to the applicability of those consumer protections and requirements. 188 While STLDI is generally not subject to the Federal consumer protections and requirements for comprehensive coverage that apply to individual health insurance coverage, the agent and broker compensation disclosure and reporting requirements in section 2746 of the PHS Act apply to health insurance issuers offering individual health insurance coverage or STLDI. After considering comments, the Departments are finalizing as proposed that a renewal or extension, for purposes of applying the interpretation of "limited-duration" under the new STLDI definition adopted in these final rules, includes the term of a new STLDI policy, certificate, or contract of insurance issued by the same issuer to the same policyholder within the 12-month period beginning on the original effective date of the initial policy, certificate, or contract of insurance. Subsequent sales to the same policyholder by the same issuer within the same 12-month period will be treated comparably to renewals for purposes of calculating and applying the limited-duration standard. The Departments also agree that extending the definition of renewal or extension for purposes of applying the new interpretation of "limited-duration" to limit stacking of STLDI policies sold by issuers that are members of the same controlled group is appropriate and necessary. This prevents issuers from circumventing the maximum duration standards in the revised Federal STLDI definition adopted in these final rules by marketing policies of one member of a controlled group to policyholders enrolled in STLDI coverage of another member of the controlled group, keeping that policyholder enrolled in STLDI coverage for more than the maximum allowed coverage period. The final rules therefore provide that for purposes of applying the new interpretation of "limited-duration," a renewal or extension includes the term of a new STLDI policy, certificate, or contract of insurance offered by either the same issuer or, if the issuer is a member of a controlled group, any other issuer that is a member of the same controlled group. For these purposes, a "controlled group" means any group treated as a single employer under section 52(a), 52(b), 414(m), or 414(o) of the Code. HHS uses a similar definition of "controlled group" for purposes of the guaranteed renewability rules and QHP issuer standards, and the Departments anticipate the usage is familiar to health insurance issuers. 189 189 See 45 CFR 147.106(d)(3) and (4) (providing an exception to market withdrawal under guaranteed renewability regulations) and 156.20 (defining an "issuer group" for purposes of QHP issuer standards). The relevant metric to calculate whether the duration of coverage sold by the same issuer or any other issuer that is a member of the same controlled group to the same policyholder satisfies the revised Federal interpretation of "limited-duration" in these final rules is the total number of days of coverage (either consecutive or non-consecutive) that the policyholder is enrolled in an STLDI policy with the same issuer or any other issuer that is a member of the same controlled group. That calculation applies regardless of whether the coverage is a renewal or extension under the same policy, certificate, or contract of insurance, or if it involves the issuance of a new STLDI policy, certificate, or contract of insurance to the same policyholder within the 12-month period beginning on the original effective date of the initial policy, certificate, or contract of insurance. Several commenters requested that the Departments expand the approach to address the stacking loophole to also include the sale of STLDI policies by unaffiliated issuers. These commenters were concerned that stacking will continue through policies sold by multiple issuers. Some commenters questioned whether focusing only on stacking policies sold by the same issuer achieves the goals described in the proposed rules because consumers could still stack STLDI purchased from different issuers. One commenter expressed concern that the proposed limitation on stacking by only the same issuer would harm consumers because seeking STLDI policies from multiple issuers would result in the coverage offering different networks and benefits. A commenter that supported extending the approach to address the stacking loophole to also apply to STLDI policies sold by unaffiliated issuers shared that some States prohibit consumers from enrolling in STLDI for more than 3 months in a 12-month period, regardless of issuer. Another commenter, who was supportive of the general concept of limiting stacking across issuers, cautioned that it would be exceedingly difficult for issuers to implement a limit on the sale of multiple STLDI policies by different issuers within the same year at this time. Some commenters who supported the extension of the approach to unaffiliated issuers explained that such an approach could be implemented by issuers certifying, by consumer attestation, or by another similar mechanism, that the policyholder has not purchased STLDI coverage from any issuer within the previous 12-month period, while others suggested that the Departments create a safe harbor for issuers that require consumers to sign attestations regarding previous STLDI coverage. While the Departments appreciate these comments and recommendations, the Departments decline to extend the definition of renewal or extension for purposes of applying the revised interpretation of "limited-duration" to limit stacking of policies issued by unaffiliated issuers. As explained in the proposed rules, the Departments are cognizant of the administrative burden for issuers of tracking and ensuring compliance with such a prohibition. 190 However, States may choose to further address issuer stacking practices, such as by prohibiting stacking across issuers not within the same controlled group. 190 88 FR 44596 at 44646 (July 12, 2023). One commenter suggested the Departments limit an issuer's ability to issue subsequent STLDI policies to members of the same household. The Departments did not propose to limit an issuer's ability to sell subsequent STLDI policies to members of the same household and decline to adopt such a limitation in these final rules. Members of the same household may need temporary, stopgap coverage at different times over a 12-month period. Limiting the ability of members of the same household to purchase STLDI coverage would remove flexibility for consumers and unnecessarily complicate their health insurance enrollment process because issuers would have to determine whether members of the same household have enrolled in any STLDI coverage during the previous 12-month period each time any member of the household enrolls in STLDI, which could create an administrative burden on issuers. Furthermore, whereas limiting stacking across affiliated issuers in the same controlled group will prevent issuers from using their corporate structure to circumvent the rules related to maximum duration, it is not apparent to the Departments that limiting stacking across unaffiliated issuers or different members of the same household accomplishes any similar goal. Finally, the administrative burden of tracking members of the same household may outweigh any potential benefit of restricting the sale of multiple STLDI policies to individuals who reside in the same household. Some commenters requested that the Departments affirm that consumers are entitled to renewal guarantees that might be offered by an STLDI issuer. As explained in the preamble to the 2018 final rules, renewal guarantees generally permit a policyholder, when purchasing their initial insurance contract, to pay an additional amount in exchange for a guarantee that the policyholder can elect to purchase, for periods of time following the expiration of the initial contract, another policy or policies at some future date, at a specific premium that would not require any additional underwriting. 191 The Departments affirm that the final rules do not address renewal guarantees. However, the Departments acknowledge that the revisions to the Federal definition--including the provision that requires counting the term of a new STLDI contract issued by the same issuer or, if the issuer is a member of a controlled group, any other issuer that is a member of the same controlled group, to the same policyholder within the 12-month period beginning on the original effective date of the initial policy, contract, or certificate of insurance toward the total maximum duration of STLDI--would limit the guarantees that such instruments may be able to provide. 192 191 See 83 FR 38219, 38220 (Aug. 3, 2018). 192 While the Departments may be limited in their ability to take an enforcement action with respect to transactions involving products or instruments that are not health insurance coverage, the Departments may have the authority to regulate the coverage issued pursuant to such a product or instrument. 3. Sales and Marketing Practices In the 2023 proposed rules, the Departments expressed concerns about reports of aggressive and deceptive sales and marketing practices related to STLDI where STLDI is marketed as a substitute for comprehensive coverage, despite being exempt from most of the Federal individual market consumer protections and requirements for comprehensive coverage. 193, 194 The Departments solicited comments on additional ways to help consumers distinguish between comprehensive coverage and STLDI. In particular, the Departments requested comments on ways to prevent or otherwise mitigate the potential for direct competition between comprehensive coverage and STLDI during the open enrollment period for comprehensive individual health insurance coverage. 195 193 See 88 FR 44596 at 44613 (July 12, 2023). 194 The agent and broker compensation disclosure and reporting requirements in section 2746 of the PHS Act apply to health insurance issuers offering individual health insurance coverage or STLDI. 195 See 88 FR 44596 at 44613-44614 (July 12, 2023). Many commenters agreed that STLDI deceptive marketing practices have caused many consumers to confuse STLDI with comprehensive coverage. These commenters stated that these misleading marketing practices often attract younger, healthier consumers who may not realize how limited STLDI coverage is until faced with out-of-pocket costs. Commenters observed that studies indicate that STLDI has been aggressively and deceptively marketed to consumers especially during the open enrollment period for comprehensive individual health insurance coverage, 196 which has left consumers at increased risk of purchasing plans that do not meet their medical needs. Commenters also noted that the population of individuals affected by States resuming Medicaid eligibility redeterminations due to the end of the FFCRA's Medicaid continuous enrollment condition has been vulnerable to these practices. Commenters highlighted evidence of salespeople neglecting to tell consumers that they may be eligible for subsidized ACA plans, asserting that an individual's health needs would be covered by an STLDI plan despite plan documents contradicting these assertions, or misstating an STLDI plan's coverage of certain preexisting conditions. Commenters also included examples of deceptive marketing practices (some of which were identified during secret shopper studies), such as marketing materials with images of activities for which coverage of associated injuries are excluded, marketing materials with logos of well-known issuers that are not affiliated with the STLDI being sold, or websites selling STLDI that include the words "Obamacare" or "ACA." 196 Government Accountability Office (2020). "Private Health Coverage: Results of Covert Testing for Selected Offerings," available at: https://www.gao.gov/products/gao-20-634r. One commenter suggested that the Departments should monitor and limit marketing of STLDI that is conducted in a manner that may lead consumers to unwittingly enroll in STLDI. The commenter stated that multiple States have already implemented prohibitions against aggressive and deceptive marketing of STLDI products to protect individuals. The commenter stated that a Federal prohibition on such marketing tactics would ensure that people are aware of the most affordable and comprehensive health coverage options available to them, are not exposed to deceptive marketing practices, and are able to avoid potentially catastrophic gaps in coverage. Other commenters expressed concern regarding the sale of STLDI over the telephone and Internet. The commenters cited studies showing an increase in sales over the telephone and Internet since the 2018 final rules. Commenters stated that although telephone and Internet sales are convenient for consumers, the incentives to provide reliable customer service are low. Commenters noted that such sales methods are prone to abuse and make it hard for consumers to get concrete, verifiable answers about the product they are being sold before they buy it. Other commenters suggest that sellers of STLDI be reviewed for compliance with laws enforced by the Federal Trade Commission that prohibit deceptive marketing practices. Some commenters suggested that marketers of STLDI sold over the telephone or Internet should be required to provide a clear warning to consumers about the true coverage terms prior to the conclusion of a sale. Some commenters encouraged the Departments to collaborate with State departments of insurance to combat misleading marketing practices. Commenters noted that the expansion of STLDI following the 2018 final rules has presented challenges for State regulators attempting to monitor the applicable State market and protect potential consumers against deceptive marketing practices. Commenters suggested that the Departments, in collaboration with the Federal Trade Commission and the Federal Bureau of Investigation, should investigate and stop lead generators and sales agents who use deceptive marketing techniques through websites, social media, phone calls, and other means. Several commenters urged the Departments to establish a Federal prohibition on the sale of STLDI during the annual open enrollment period for comprehensive individual health insurance coverage. Commenters cautioned that when STLDI is marketed and sold during the annual individual market open enrollment period, the potential for consumer confusion is particularly acute. Commenters explained that sellers take advantage of the annual open enrollment period when more consumers are shopping for comprehensive individual health insurance coverage to push them into products that are not comprehensive and argued that halting sales of STLDI during this period would decrease consumer confusion and facilitate access to comprehensive coverage. Another commenter stated that legitimate needs for STLDI coverage may arise at any time of year and recommended that if the Departments place restrictions on the sale of STLDI during the annual individual market open enrollment period, those restrictions should be limited to the sale of products with a January 1 effective date. Another commenter suggested that the Departments explicitly prohibit Federal and State Exchanges from linking to or advertising STLDI. The commenter stated that HHS should also impose a similar requirement on agents and brokers to prohibit side-by-side advertising of STLDI or other non-compliant plans on the same webpage as individual health insurance coverage that is subject to the Federal consumer protections and requirements for comprehensive coverage. One commenter suggested that the Departments consider prohibiting the offering of higher broker commissions for the sale of STLDI than commissions for the sale of comprehensive coverage, arguing that this type of prohibition could significantly decrease the financial incentive for agents and brokers to encourage consumers to purchase STLDI over comprehensive coverage and help reduce direct competition between these two types of products. Some commenters encouraged the Departments to invest in and take steps to increase consumer education and enrollment assistance activities that could improve consumer understanding of the differences between comprehensive coverage and STLDI. Other commenters suggested placing requirements on agents and brokers or the consumer to better ensure consumers understand the differences between STLDI and comprehensive coverage. For example, one commenter suggested that the Departments require agents and brokers to sign an attestation that the information given to the consumer by the agent or broker spells out in plain language the terms of the STLDI coverage and acknowledges that the consumer understands the limitations. The commenter asserted this would help ensure that underserved communities and patients with chronic medical conditions who struggle to find affordable health insurance options are not targeted by unscrupulous sales and marketing tactics. Another commenter urged the Departments to adopt the same disclosure and consent requirements applicable to agents, brokers, and web-brokers assisting consumers in a Federally-facilitated Exchange or State Exchange using the Federal platform for agents, brokers, and web-brokers assisting consumers purchasing STLDI. 197 One commenter suggested that the Departments require a statement for consumers to sign acknowledging that the coverage does not meet the minimum standards required under the ACA and does not provide equivalent Federal consumer protections. 197 See 45 CFR 155.220 for standards applicable to agents and brokers and web-brokers who assist qualified individuals, qualified employers, or qualified employees enrolling in qualified health plans. The Departments appreciate these comments and suggestions and will take them into consideration in any future regulations or guidance defining STLDI. In addition, the Departments appreciate the recommendations regarding steps that the Departments can take outside of rulemaking to educate consumers about their health coverage options and limit the possibility that consumers inadvertently purchase STLDI when shopping for comprehensive coverage. HHS has already taken steps separate from these final rules to limit the potential for individuals to inadvertently purchase an STLDI plan when shopping for a qualified health plan and will consider additional opportunities to do so. HealthCare.gov, the platform for the Federally-facilitated Exchanges and State Exchanges using the Federal platform, neither links to nor advertises STLDI. 198 In addition, for the Federally-facilitated Exchanges and State Exchanges using the Federal platform, direct enrollment entities 199 are generally required to use three different website pages to display and market coverage - one for qualified health plans offered through the Exchange, one for individual health insurance coverage offered outside the Exchange, and one for any other products, including STLDI. 200 Direct enrollment entities participating in the Federally-facilitated Exchanges and State Exchanges using the Federal platform must also limit marketing of non-QHPs, such as STLDI, during the Exchange eligibility application and QHP selection process. 201 In its proposed rule entitled "Patient Protection and Affordable Care Act, HHS Notice of Benefit and Payment Parameters for 2025; Updating Section 1332 Waiver Public Notice Procedures; Medicaid; Consumer Operated and Oriented Plan (CO-OP) Program; and Basic Health Program," HHS proposed to apply these requirements to direct enrollment entities operating in State Exchanges and to web-brokers that assist with or facilitate enrollment in coverage in a manner that constitutes enrollment through the State-based Exchanges. 202 198 See section 1311(d)(2) of the ACA, which generally prohibits an Exchange from making available any health plan that is not a qualified health plan. See also CMS, Frequently Asked Questions on Reuse of Exchange for Ancillary Products (March 29, 2013), available at: https://www.cms.gov/cciio/resources/files/downloads/ancillary-product-faq-03-29-2013.pdf. 199 "Direct enrollment entity" means an entity that an Exchange permits to assist consumers with direct enrollment in qualified health plans offered through the Exchange in a manner considered to be through the Exchange as authorized by 45 CFR 155.220(c)(3), 45 CFR 155.221, or 45 CFR 156.1230. 45 CFR 155.20. 200 45 CFR 155.221(b)(1). 201 45 CFR 155.221(b)(3). 202 88 FR 82510, 82568 and 82562 (Nov. 24, 2023) ("Consistent with§§ 156.1230(b)(1) and (2), to directly enroll consumers in a manner that is considered to be through the Exchange, QHP issuer DE entities are required to comply with the applicable requirements in§ 155.221... In this rulemaking, we propose to extend these FFE requirements to also apply them to QHP issuer DE entities in State Exchanges. As proposed to be applied in these State Exchanges, QHP issuer DE entities would similarly be required to provide consumers with correct information, without omission of material fact, regarding the Exchanges, QHPs offered through the Exchanges, and insurance affordability programs. In addition, QHP issuer DE entities in State Exchanges would also be required to refrain from marketing or conduct that is misleading (including by having a DE website that the State Exchange determines could mislead a consumer into believing they are visiting the Exchange's website), coercive, or discriminates based on race, color, national origin, disability, age, or sex... Finally, we propose to extend the current web-broker FFE standard of conduct established at§ 155.220(j)(2)(i) to also apply to web-brokers assisting consumers in State Exchanges, and consequently to these State Exchanges. Section 155.220(j)(2)(i) requires agents, brokers, or web-brokers that assist with or facilitate enrollment of qualified individuals, qualified employers, or qualified employees, in coverage in a manner that constitutes enrollment through an FFE, or assist individuals in applying for APTCs and CSRs for QHPs sold through an FFE, must provide consumers with correct information, without omission of material fact, regarding the FFEs, QHPs offered through the FFEs, and insurance affordability programs... and refrain from marketing or conduct that is misleading (including by having a DE website that HHS determines could mislead a consumer into believing they are visiting HealthCare.gov ), coercive, or discriminates based on race, color, national origin, disability, age, or sex.") 4. Notice In the preamble to the 2023 proposed rules, the Departments explained that the notice is important to help consumers distinguish between comprehensive coverage and STLDI and ensure that consumers are aware of the limitations of STLDI. 203 The Departments proposed to amend the existing STLDI notice to further clarify the differences between STLDI and comprehensive coverage and identify options for consumers to obtain comprehensive coverage in concise, understandable language that would be meaningful to them. 204 The Departments proposed to apply the amendments to the notice to all STLDI policies sold or issued on or after the effective date of the final rules and to existing STLDI policies for notices provided upon renewal or extension on or after the effective date of the final rules. 205 203 88 FR 44596 at 44614 (July 12, 2023). 204 Id. at 44614-44618. 205 Id. at 44618-44619. In the 2023 proposed rules, the Departments proposed that the notice must be displayed (in either paper or electronic form) prominently in at least 14-point font, on the first page of the policy, certificate, or contract of insurance (including for renewals or extensions), in any marketing and application materials provided in connection with enrollment in such coverage, including on websites that advertise or enroll individuals in STLDI, and in any enrollment and reenrollment materials that are provided at or before the time an individual has the opportunity to enroll or reenroll in coverage (including on any website used to facilitate reenrollment in STLDI). 206 206 Id. at 44614-44616. In these final rules, the Departments are finalizing the revised notice with modifications to implement feedback from comments and consumer testing, improve consumer comprehension of the notice, and further distinguish between STLDI and comprehensive coverage. As discussed in section III.A.6 of this preamble, the revised notice must be provided with respect to both new and existing STLDI for coverage periods (including renewals or extensions) beginning on or after September 1, 2024. Some commenters were generally opposed to revisions to the notice standard. These commenters expressed concern that the Federal revised notice may not comport with notices that State legislatures and regulators create, often in consultation with consumer advocates and State insurance experts. A commenter expressed concern that the information about ACA coverage in the proposed notice would confuse the average person shopping for health coverage. Another commenter suggested that the Departments defer to the NAIC and State regulatory experts who are currently drafting minimum standards for STLDI products. A commenter suggested that States should have the option to substitute their own required disclosure language in place of the Federal mandated language and that notice provisions should only be applicable if a State has no comparable notice provisions. Another commenter shared a study asserting that the revised notice did not substantially improve consumer understanding of STLDI and that any notice should be of short length because most consumers have trouble understanding lengthy explanations that tend to present multiple concepts in the same notice. Other commenters supported the proposed revisions to the notice standard and agreed that the revisions would help educate consumers about the differences between comprehensive coverage and STLDI before a decision is finalized about health coverage in a way that would alleviate downstream concerns about applicable benefits and costs. The Departments agree that it is important to provide consumers with concise, accurate information to evaluate insurance products so that consumers may make informed decisions about health insurance coverage. The Departments sought to address potential confusion caused by the notice by requesting comments on the proposed notice standard and conducting consumer testing. Based on current research highlighting deceptive marketing practices and consumer confusion, 207, 208, 209 the Departments are of the view that it is necessary and appropriate for issuers of STLDI to disclose key differences between comprehensive coverage and STLDI before completing the sale or renewal so consumers can make informed decisions. The revised notice standard under these final rules will help clarify the differences between STLDI and comprehensive coverage. As the Departments agree that the revisions to the notice standard alone will not protect consumers from deceptive marketing practices, revisions to the notice standard are being finalized in tandem with revisions to the definitions of the terms "short-term" and "limited-duration." The Departments disagree with and decline to adopt the suggestion that the notice should not be part of the Federal definition of STLDI. 207 For one example of deceptive marketing practices, see Federal Trade Commission (2022). "FTC Action Against Benefytt Results in $100 Million in Refunds for Consumers Tricked into Sham Health Plans and Charged Exorbitant Junk Fees," available at: https://www.ftc.gov/news-events/news/press-releases/2022/08/ftc-action-against-benefytt-results-100-million-refunds-consumers-tricked-sham-health-plans- charged. 208 Palanker, Dania and Kevin Lucia (2021). "Limited Plans with Minimal Coverage Are Being Sold as Primary Coverage, Leaving Consumers at Risk," Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2021/limited-plans-minimal-coverage-are-being-sold- primary-coverage-leaving-consumers-risk. (Noting that fixed indemnity insurance may be "bundled" with other non-comprehensive insurance products in such a way that "the plans look like comprehensive coverage" while still offering limited benefits). See also Palanker, Dania, JoAnn Volk, and Maanasa Kona (2019). "Seeing Fraud and Misleading Marketing, States Warn Consumers About Alternative Health Insurance Products," Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2019/seeing-fraud-and-misleading-marketing-states-warn-consumers-about-alternative-health. 209 Government Accountability Office (2020). "Private Health Coverage: Results of Covert Testing for Selected Offerings," available at: https://www.gao.gov/products/gao-20-634r. With respect to concerns about the lack of State input in the revisions to the notice standard, the Departments consulted plain language experts, conducted consumer testing, and considered comments on the 2023 proposed rules from State regulators, consumer advocates, and other interested parties. The Departments therefore disagree that there was a lack of State input. The Departments concluded that a uniform Federal notice best furthers the Departments' interest in ensuring that information is communicated to consumers to enable them to identify and distinguish STLDI from comprehensive coverage. Therefore, the Departments decided not to specify that the revised notice would be applicable only if a State has no comparable notice provision. In addition, these final rules do not prevent States from requiring additional language be included with the notice for purposes of State law or prohibit issuers from including additional language in their notices. Policies that do not include the language in the revised notice under these final rules will not be considered STLDI coverage, and therefore will not qualify for the exception for STLDI from the definition of individual health insurance coverage for purposes of Federal law. One commenter alleged that the revised notice standard raised First Amendment concerns because the notice violates the First Amendment's prohibition on compelled speech. The commenter argued that the revised notice standard constitutes a content-based restriction and is not justified because it is not narrowly tailored to serve a compelling government interest. The Departments disagree with this commenter. The rules do not require the provision of a notice, but instead simply provide that coverage offered without such a notice would not qualify as STLDI and would be subject to the Federal consumer protections and requirements applicable to comprehensive coverage. Moreover, as discussed in section III.B.1 of this preamble, required disclosures of factual, uncontroversial information in commercial speech are subject to more deferential First Amendment scrutiny and have been upheld where the disclosure requirement reasonably relates to a government interest, and is not unjustified or unduly burdensome. 210 Regardless, the Departments believe that the revised notice standard would pass muster under any form of First Amendment scrutiny. 210 The U.S. Supreme Court recognized this standard of scrutiny in Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985) (" Zauderer ") and later confirmed it in National Institute of Family and Life Advocates v. Becerra, 138 S.Ct. 2361, 2372, 2376 (2018) ('' NIFLA'' ). The Departments have a substantial, and even compelling, government interest in combatting deceptive marketing practices by ensuring consumers are informed about the key differences between STLDI and comprehensive coverage, are aware of their option to purchase comprehensive coverage, and have access to resources for additional information about the range of available health coverage options so consumers can make informed choices. As discussed in section II.B of this preamble, this is currently of particular importance due to significant changes in market conditions and in the legal landscape and low health literacy amid widespread deceptive marketing practices that play on consumer confusion about the benefits and limitations of STLDI. The revised notice communicates factual information to consumers about the differences between STLDI and comprehensive coverage and explains how consumers can find resources when consumers have questions about the different coverage options. Finally, the revised notice is reasonably related to, and narrowly tailored to, the government's interest in informing consumers about STLDI coverage, and combating deceptive marketing practices and potential sources of misinformation, by directing consumers to appropriate resources to learn more about the range of available health coverage options. The notices do not include irrelevant or superfluous information unrelated to these interests. Accordingly, these final rules serve substantial government interests. In addition, the revised notice standard is not unjustified, unduly burdensome, or insufficiently tailored to the interests described previously. As stated in the preamble to the 2023 proposed rules, the Departments are concerned about consumers who are at risk of significant financial liability if they enroll in STLDI that exposes consumers to high health care costs that are not covered by their STLDI policy. The language on the Federal revised notice includes factual, uncontroversial information. The Departments consulted plain language experts, conducted consumer testing, and considered comments on the proposed revised notice to ensure the language was factual, easy to read, and understandable. Furthermore, the revised notice standard does not unduly burden issuer speech because issuers remain free to communicate with consumers about their coverage using any methods of communication they choose. As discussed in section V.B.2.d of this preamble, the Departments estimate that the cost to issuers of displaying the revised notice will be relatively low, because the Departments have adopted static language that issuers do not have to tailor to the policy or State of sale. For the reasons discussed previously, the Departments are of the view that requiring STLDI issuers to provide a notice that provides factual information to consumers prior to when the consumers purchase coverage is reasonably related to the government's stated interests in ensuring consumers can distinguish STLDI and comprehensive coverage and are informed of options to purchase comprehensive coverage, should the consumer wish to obtain such coverage. The information required to be disclosed is clearly identified and has a direct nexus to that legitimate government interest. Finally, the revised notice standard is narrowly tailored to inform consumers about the limitations of STLDI and to combat deceptive marketing practices and potential sources of misinformation by directing consumers to appropriate resources to learn more about their health coverage options. The notice does not include irrelevant or superfluous information unrelated to informing and directing consumers to appropriate resources. The Departments sought comments on whether the proposed placement for the notice substantially improves the likelihood that consumers have a meaningful opportunity to review the notice and their health coverage options before applying for, enrolling in, or reenrolling in STLDI, as well as any practical or logistical barriers to providing this notice as proposed. In particular, the Departments sought comments from members of underserved communities, and organizations that serve such communities, on whether the language accessibility, formatting, and content of the notice sufficiently mitigate barriers that exist to ensuring all individuals can read, understand, and consider the full range of their health coverage options. 211 211 88 FR 44596 at 44617 (July 12, 2023). Most commenters supported the proposed placement of the notice on the first page of any policy, certificate, or contract of insurance (including for renewals and extensions), website used to facilitate enrollment (or reenrollment) in STLDI, and marketing and application materials provided in connection with enrollment in STLDI, because the benefits of simplifying access to the notice far outweighs any associated burden of including the information in these locations. One commenter suggested that issuers should have the flexibility to put the notice for renewals on a separate document and not on the face page of the policy, certificate, or contract of insurance because some States require pre-approval of notice provisions. Another commenter supported the notice being provided in the same format that sales of STLDI are conducted, since misleading marketing often occurs when STLDI is not sold in person and consumers are given limited time to contemplate their insurance choices before being pressured to choose a product. For example, if enrollment occurs over the telephone, the commenter suggested the seller should be required to read the notice to the consumer and record their acknowledgement, or if the enrollment occurs via the internet, a prominent notice should be featured during the accompanying online sign-up process. Other commenters recommended that the Departments require audio and video advertisements to include an audio version of the notice within the first 10 seconds of any advertisement of STLDI coverage. Another commenter suggested that telephone solicitors, brokers or agents making sales calls, or in-person sales should be required to inquire as to the consumer's preferred language through a qualified language translator or language telephone line. Commenters also suggested that the notice be provided in multiple common languages other than English that are spoken in the United States in a manner that is culturally appropriate, readable, and clear so that consumers can make appropriate coverage decisions. Commenters highlighted the importance of the notice being accessible to individuals with disabilities. The Departments are finalizing the standard for the notices to be prominently displayed on the first page of applicable materials 212 in at least 14-point font, as proposed. Because ensuring that consumers understand any limitations of what they are purchasing is of utmost importance, provision of the notice should not be saved until the time of enrollment when consumers may feel pressured to sign up and effectuate coverage instead of restarting their search for a different insurance product. The Departments agree with commenters that the need for consumers to have easy access to the notice during enrollment and reenrollment outweighs the burden associated with placement of the notice on the first page of applicable materials. The Departments further agree with commenters that if the STLDI policy is sold online or electronically then the notice should be communicated in the same format as the sale. Further, consistent with the proposal in the 2023 proposed rules, the placement standard under these final rules extends the notice to websites that advertise or offer the opportunity to enroll (or reenroll) in STLDI. Although these final rules provide that the notice must be prominently displayed in any marketing materials provided in connection with enrollment (or reenrollment) in STLDI, the Departments decline to require audio and video advertisements include an audio version of the notice within the first 10 seconds of any advertisement of STLDI coverage. The Departments did not include a proposal on audio and video advertisements in the 2023 proposed rules and therefore decline to address such other types of communication formats in these final rules. 212 The applicable materials on which the STLDI notice must be prominently displayed (in either paper or electronic form) are the first page of the policy, certificate, or contract of insurance (including for renewals or extensions), any marketing and application materials provided in connection with enrollment in such coverage, including on websites that advertise or enroll individuals in STLDI, and in any enrollment and reenrollment materials provided at or before the time an individual has the opportunity to enroll or reenroll in coverage (including on any website used to facilitate reenrollment in STLDI). The Departments agree that it is important that the notice be accessible and understandable to individuals with limited English proficiency. While the Departments did not propose and are not finalizing language access standards specific to these notices as part of this rulemaking, the Departments remind plans and issuers that they are required to comply with other State and Federal laws establishing accessibility and language access standards to the extent applicable. For example, recipients of Federal financial assistance must comply with Federal civil rights laws that prohibit discrimination. These laws may include section 1557 of the Affordable Care Act, 213 title VI of the Civil Rights Act of 1964, 214 section 504 of the Rehabilitation Act of 1973, 215 and the Americans with Disabilities Act of 1990. 216 Section 1557 and title VI require covered entities to take reasonable steps to ensure meaningful access to individuals with limited English proficiency, which may include provision of language assistance services such as written translation of written content in paper or electronic form into languages other than English. Sections 1557 and 504 require covered entities to take appropriate steps to ensure effective communication with individuals with disabilities, including provision of appropriate auxiliary aids and services at no cost to the individual. Auxiliary aids and services may include interpreters, large print materials, accessible information and communication technology, open and closed captioning, and other aids or services for persons who are blind or have low vision, or who are deaf or hard of hearing. Additionally, section 508 of the Rehabilitation Act of 1973 requires that information provided through information and communication technology also must be accessible to individuals with disabilities, unless certain exceptions apply. 213 42 U.S.C.§ 18116. 214 42 U.S.C.§ 2000d et seq. 215 29 U.S.C.§ 794. 216 42 U.S.C.§ 12101 et seq. In the 2023 proposed rules, the Departments requested comment on two potential formats for the revised notice standard 217 (Notice A and Notice B). 217 88 FR 44596 at 44616-44617 (July 12, 2023). The proposed STLDI notice (Notice A) was as follows: Notice to Consumers About Short-Term, Limited-Duration Insurance IMPORTANT: This is short-term, limited-duration insurance. This is temporary insurance. It isn't comprehensive health insurance. Review your policy carefully to make sure you understand what is covered and any limitations on coverage. - This insurance might not cover or might limit coverage for: preexisting conditions; or essential health benefits (such as pediatric, hospital, emergency, maternity, mental health, and substance use services, prescription drugs, or preventive care). - You won't qualify for Federal financial help to pay for premiums or out-of pocket costs. - You aren't protected from surprise medical bills. - When this policy ends, you might have to wait until an open enrollment period to get comprehensive health insurance. Visit HealthCare.gov online or call 1-800-318-2596 (TTY: 1-855-889-4325) to review your options for comprehensive health insurance. If you're eligible for coverage through your employer or a family member's employer, contact the employer for more information. Contact your State department of insurance if you have questions or complaints about this policy. An alternative proposed STLDI notice (Notice B) was as follows: WARNING This is not comprehensive insurance. This is short-term, limited-duration insurance. This plan has fewer protections than comprehensive insurance options you can find on HealthCare.gov Questions? - For more info about comprehensive coverage, visit HealthCare.gov online or call 1-800-318-2596 (TTY: 1-855-889-4325). - For more info about your employer's coverage, or a family member's employer coverage, contact the employer. For questions or complaints about this policy, contact your State department of insurance. The Departments received comments in support of both notice formats. Some commenters supported implementing the format of Notice A because they found the bulleted format easier to read and more understandable than a chart. Other commenters supported implementing the format of Notice B because they were of the view that the format is easier to follow and has more concise language. A commenter stated that consumers understand information better that is presented in charts. Another commenter suggested that the Departments design a notice format that would allow issuers to check boxes next to relevant provisions. Other commenters recommended that the Departments conduct consumer testing of the content and presentation of the notices through focus groups or surveys to ensure the notices are understandable. These commenters stated that notices should be tested with multiple audiences, particularly given current disparities in health insurance literacy rates and concerns for individuals with limited English proficiency and with disabilities. HHS consulted plain language experts and engaged in consumer testing as part of the consideration of comments on the revised notice. Based on the testing of Notice A and Notice B, feedback from plain-language experts, along with consideration of comments on the revised notice, the Departments are finalizing the table format used in Notice B, with content modifications that are discussed in detail this section. Consumer testing revealed that the table format, comparing key features of STLDI and insurance offered through HealthCare.gov, helped consumers best distinguish between STLDI coverage and comprehensive coverage, and understand the differences between such coverage types. After taking into account feedback from the comments, consulting with plain-language experts, and conducting consumer testing, the Departments are finalizing the following language for the notice to improve readability and effectiveness of the notice: IMPORTANT: This is a short-term, limited-duration policy, NOT comprehensive health coverage This is a temporary limited policy that has fewer benefits and Federal protections than other types of health insurance options, like those on HealthCare.gov. Looking for comprehensive health insurance? - Visit HealthCare.gov or call 1-800-318-2596 (TTY: 1-855-889-4325) to find health coverage options. - To find out if you can get health insurance through your job, or a family member's job, contact the employer. Questions about this policy? - For questions or complaints about this policy, contact your State Department of Insurance. Find their number on the National Association of Insurance Commissioners' website (naic.org) under "Insurance Departments." The Departments took into consideration all comments received on the notice. As mentioned in this section, following an initial review of the comments, HHS performed consumer testing to evaluate the effectiveness and readability of different messages and notice formats, including messages or changes to the proposed revised notice recommended by commenters. These final rules revise the content of the proposed notice to better inform consumers considering purchasing STLDI about the differences between STLDI and comprehensive coverage, support informed coverage purchasing decisions, and promote readability. The revised notice balances including information about STLDI with readability and length so that consumers will be more likely to read and understand the notice. The Departments sought comments on whether additional changes to the notice language would improve readability or further help individuals distinguish STLDI from comprehensive coverage, and whether there are practical or logistical barriers that would present challenges to compliance with the new proposed notice standard. The Departments solicited comments on all aspects of the proposed revisions to the notice standard, including whether to add a website link and telephone number for HealthCare.gov, and the proposed placement of the notice in the marketing, application, and enrollment (or reenrollment) materials, including the extension of the notice provision to websites that advertise or offer the opportunity to enroll (or reenroll) in STLDI and on the associated administrative burden for issuers, agents, brokers, or others who will be involved in providing the notice to consumers. Many commenters suggested specific changes to the content of the revised notice standard. A commenter requested that the notice be displayed in highly readable fonts such as a Sans Serif font in a 14-point font to improve the readability of the notice. Some commenters suggested that the notice include additional information to explain what it means that STLDI is exempt from most Federal consumer protection laws. Some commenters recommended that the notice include a statement that STLDI coverage commonly conducts post-claims underwriting and may deny claims for chronic health conditions, surgeries, and other common services. A commenter recommended that the Departments add language warning consumers about the possibility of recissions because STLDI issuers often engage in post-claims chart review to search for signs of an undisclosed preexisting condition and thereby rescind coverage. The commenter recommended that the notice state: "This insurance may rescind or retroactively cancel your coverage and not pay claims based on your medical history." The Departments are finalizing the requirement that the notice be in 14-point font size. While the final rules do not include a requirement that the notice be displayed in a specific font, the Departments would not consider the notice to be prominently displayed unless the font used is clear and readable. The revised notice standard will give issuers the flexibility to use a font that aligns with the format of their policies. In addition, the Departments revised the content of the chart based on comments and consumer testing. As a result, the chart clarifies that STLDI is not required to meet the Federal standards for comprehensive coverage and might not cover chronic health conditions like diabetes, cancer, stroke, arthritis, heart disease, mental health and substance use. In contrast, the notice does not specifically caution consumers that STLDI might conduct post-claims underwriting, or post-claims recissions. The Departments had to balance providing useful information that clarifies the differences between STLDI and comprehensive coverage and the readability, length, and effectiveness of the notice. The differences highlighted in the notice were selected primarily because consumer testing showed they were more effective at helping consumers distinguish between STLDI and comprehensive coverage than other options considered. Some commenters suggested the notice address the 10 categories of essential health benefits 218 and state explicitly which essential benefits are not covered. Other commenters requested that the notice address coverage for certain types of items or services, such as maternity services, habilitative and rehabilitative services, and devices, so that consumers fully understand what coverage could be missing when purchasing STLDI. While the Departments agree that it is important to highlight for consumers that essential health benefits might not be covered by an STLDI policy, the notice only highlights a few categories of essential health benefits, including prescription drugs, preventive screenings, maternity care, emergency services, hospitalization, pediatric care, and physical therapy. The Departments had to balance the importance of notifying consumers of the types of benefits that might not be covered, with the importance of not overcrowding the notice so that the notice is easy to read and understand. 218 See section 1302 of the ACA, and 45 CFR 156 subpart B (defining essential health benefits). Some commenters supported the notice including information about where consumers can access additional information about comprehensive coverage options, including referencing HealthCare.gov or the State Exchange website where the consumer resides, including when the coverage is sold by associations. Some commenters requested that the notice explain what subsidies may be available for consumers that enroll in coverage on the Exchanges instead of STLDI to increase transparency of the costs to consumers. Some commenters suggested adding information on the timing of the annual individual market open enrollment period to underscore the differences between STLDI and comprehensive individual health insurance coverage and help consumers plan their transition to Exchange coverage. Commenters also suggested that providing information on special enrollment periods for those losing Medicaid or employer coverage would further clarify consumers' coverage options. Additionally, given the potential for varied open enrollment or special enrollment periods across different States, a commenter recommended adding language saying, "Because State Based Exchanges may have different enrollment timelines, if you lose coverage always check your eligibility on Healthcare.gov or your State Based Exchange for possible enrollment options." The Departments agree with commenters that it is important for the notice to include information about where consumers can access additional information about comprehensive coverage options, and are finalizing a notice standard that includes information about HealthCare.gov. Through this website, consumers in States with a Federally-facilitated Exchange or State Exchange using the Federal platform can purchase comprehensive coverage, and consumers in States with a State Exchange can get directed to the State Exchange. In addition, HealthCare.gov provides additional information about comprehensive coverage that might help consumers further distinguish STLDI coverage from comprehensive coverage, and may help consumers better understand the notice. The Departments considered including in the revised notice standard additional details, as suggested by commenters, about open enrollment, special enrollment periods, and subsidies. However, the Departments are concerned about the length these topics could add to the notice, and the burden associated with customizing the notices to include enrollment time frames which can vary slightly from State to State. After consideration of the comments, the Departments are finalizing the revised notice standard without information on these topics. However, the Departments note that information on each of these topics is available on HealthCare.gov, and the notice directs consumers to HealthCare.gov for additional information on health coverage options. Some commenters suggested additional or alternative language to focus consumers' attention or to convey key points. A commenter suggested using the phrase "Important Notice - Please Read Carefully" as the title to better catch the attention of consumers and inform them that this is important information they should consider prior to purchase. Another commenter supported the use of the word "WARNING" in capital letters as a heading in the notice for clarity. A commenter suggested adding to the introductory notice language, "This plan has fewer protections, provides fewer benefits, and has higher out of pocket costs than comprehensive insurance options you can find on HealthCare.gov." A commenter suggested that the Departments replace the last sentence of the introductory paragraph with something very close to the following in bold text, "You may be able to get much better coverage for less money (with tax credits) through a health insurance exchange even outside of open enrollment." A commenter suggested that the Department should change the heading of the second column of the comparison table from "Insurance on HealthCare.gov" to "Comprehensive Insurance on Healthcare.gov." One commenter encouraged the Departments to remove the statement that STLDI is not comprehensive coverage because of a study that indicated that 95 percent of STLDI plans provide comprehensive coverage. A commenter suggested that the Departments revise "You won't qualify for [F]ederal help to pay for premiums or out-of-pocket costs," to "Most people qualify for tax credits that will lower out of pocket costs if they purchase coverage that meets certain [F]ederal requirements. For more information, visit [this website]." In addition, the Departments could create a website to link consumers to clear information, the commenter stated. The Departments took into consideration comments that suggested alternative language to include in the introductory paragraph. Based on consumer testing, the Departments are finalizing the revised notice standard with the heading, "IMPORTANT," instead of "WARNING." The Departments are of the view that "IMPORTANT" is sufficient to draw attention to the notice. In addition, the Departments revised the introductory paragraph to clarify that STLDI and insurance options on HealthCare.gov are not the only insurance options that might provide comprehensive coverage. While employer coverage is not included in the table, the Departments finalized the revised notice standard with a bullet point reminding consumers that have access to employer coverage to contact that employer about coverage options. The Departments are of the view that suggested additions to the introductory paragraph add content that is already accounted for in the table section of the notice. The Departments are not revising the notice heading for the second column. The heading, "Insurance on HealthCare.gov," effectively communicates that the column applies to insurance options available on HealthCare.gov. Some commenters provided recommendations for ways to enhance consumers' understanding of the notice. One commenter suggested that the Departments define key terms used in the notice and use alternate language to indicate that the coverage is "comprehensive" because some consumers believe that it means the best or most expensive coverage that most consumers do not need. A commenter discouraged the use of terms "may" and "might" because they fall short of conveying how STLDI does not meet Federal standards. The Departments considered comments and worked with plain language experts to ensure that the revised notice standard is written in plain language that maximizes readability for the average consumer. While consumer testing revealed that consumers did not always understand terms used in the notice (including the term "comprehensive"), the testing showed that consumers were still able to distinguish between STLDI and comprehensive coverage, based on the notice. Therefore, the Departments are of the view that defining key terms is not critical to the effectiveness of the notice and are finalizing the revised notice standard without defining key terms. In addition, the Departments will use the term "might" to preface certain rows in the table. It is important to include the term "might" to ensure that the content in the table accurately describes all STLDI coverage, as some STLDI might voluntarily, or under State law, provide the consumer protections listed in the notice. Some commenters were in support of including the name and State of domicile of the issuer, name and State of domicile of the association (if applicable), website, and telephone number for the State department of insurance tailored to each STLDI policy in the notices included in marketing, application, and renewal materials to help consumers access regulators and consumer advocacy resources that can assist consumers regarding questions or concerns about their policies. Commenters stated that STLDI coverage filed in another State or sold through an out-of-State association should be required to include in the notice both the contact information of the insurance regulator in the State in which the consumer resides and the State in which the plan is filed, to aid in maintaining accountability for issuers and associations selling these insurance products. Commenters stated that access to such information will assist consumers in receiving accurate information about insurance products to make informed decisions about coverage and should be made available in the preferred language of individuals and families. Commenters argued that State regulators often have difficulty monitoring and regulating STLDI sold through out-of-State associations, the associations may attempt to operate outside the reach of the State in which the STLDI is sold, and consumers may be unaware of what State has regulatory authority over the product they are purchasing. Other commenters were opposed to including State-specific information in the notices because the information would be of limited benefit to consumers and unnecessarily increase the administrative burden and costs for issuers. Another commenter suggested that the Departments provide a link to the directory of State insurance departments that the NAIC maintains. In developing the proposed revised notice language, the Departments sought to balance the goals of distinguishing STLDI from comprehensive coverage and combatting deceptive marketing practices, as well as reducing misinformation by directing consumers to appropriate resources, with the need to provide a concise, understandable notice that would be meaningful and useful to consumers. 219 The Departments understand commenters' concerns regarding the burden associated with customizing notices to include State-specific information. However, the Departments also recognize the value of including State-specific information, such as appropriate contact information. After consideration of comments and the results of consumer testing, the Departments are finalizing changes to the notice to incorporate uniform language as part of the required content for the revised notice standard that directs individuals to an NAIC webpage where they can find the contact information for the applicable State regulatory agency. This approach avoids adding an administrative burden on issuers to tailor the notice for each plan depending on the domicile of each consumer. In the case of STLDI sold by out-of-State associations, the link to the NAIC webpage would provide consumers with access to contact information for State regulators in the State where the consumer purchased the STLDI coverage as well as the State where the STLDI is issued. Although this is a link to a non-United States Government website, the Departments are including this link in the notice because it allows consumers to access State-specific contact information, without requiring plans and issuers to customize the notice. The Departments cannot attest to the accuracy of information provided on the NAIC webpage or any other linked third-party site. The NAIC link is provided for reference only and the inclusion in the notice of a link to a non-United States Government website does not constitute an endorsement by the Departments. Also, the privacy protections generally provided by United States Government websites do not apply to third-party sites. 219 See 88 FR 44596 at 44614-44615 (July 12, 2023). In addition, as described earlier in this section, the Departments incorporated static language as part of the content for the revised notice standard finalized in these final rules that direct individuals to HealthCare.gov where individuals can navigate to their State's Exchange or get information about different types of health coverage options. This approach is intended to balance the desire to ensure individuals can access State-specific information with not increasing the burden on issuers associated with the development of customized notices that provide State-specific contact information. Since the Departments are not including State-specific or association-specific contact information as part of the revised notice standard, the Departments decline to specify a certain agency's contact information that should be included for products that are filed in multiple States. The preamble to the 2023 proposed rules explained that the Departments were considering whether to add a statement to the notice describing the maximum permitted length of STLDI under the Federal definition, explaining that coverage cannot be renewed or extended beyond the maximum allowable duration, and explaining that the length of STLDI may be shorter subject to State law. The Departments sought comments on this approach, including how best to clearly and concisely communicate such information to consumers, including how to address the bifurcated applicability dates with respect to the proposals around the maximum allowed length; whether such information is already included elsewhere in the plan documents; and on the associated administrative burden for issuers, agents, brokers, or others who would be involved in providing the notice to consumers. The Departments also sought comments on whether information about the maximum allowed length of new or existing STLDI and options regarding renewal and extensions would be included in enrollment materials (or reenrollment materials) provided to enrollees as part of the normal course of business. Commenters generally supported adding a statement to the notice describing the maximum allowed length of STLDI under Federal and State rules, where applicable. One commenter requested that the Departments add, "coverage is intended to last for 3 months, if you enroll in the plan you may have to wait until the next open enrollment period to enroll in comprehensive coverage." A commenter suggested adding a sentence to the notice after the second sentence of the introductory paragraph that says, "Coverage cannot last beyond 4 months or even less depending on the State in which you live." This minimally increases the length of the notice while informing the consumer that the policy cannot be renewed beyond 4 months or a shorter period depending on the State in which the consumer resides, the commenter stated. While the Departments appreciate that information on maximum duration may be useful to consumers, the Departments remain concerned about how to clearly and concisely communicate such information to consumers using static language, without creating confusion for consumers if the duration of their policy differs from the maximum duration standards in the notice - for example, because of the bifurcated applicability dates, 220 shorter maximum durations allowed under State law, or the specifics of their policy. Given these concerns and based on consumer testing and consultation with plain language experts, the Departments are finalizing the notice without adding information on the maximum permitted length of STLDI. Since States have the flexibility to enact a different maximum permitted length of STLDI, including a standardized maximum permitted length in the revised notice standard may confuse consumers. The Departments are also mindful of limiting the amount of information provided on the notice for readability and comprehension and are of the view that the burden on issuers of requiring issuers to tailor their notices to each State outweighs the potential benefits of adding more language to the notice to capture State-specific information on the maximum permitted length for the STLDI policy. In addition, the Departments anticipate that information on the maximum allowed length of the STLDI coverage is included in the policy, certificate, or contract of insurance, and that options for renewal and extensions are typically included in enrollment materials (or reenrollment materials) provided to enrollees as part of the normal course of business. 220 See section III.A.6 of this preamble for discussion of the STLDI applicability dates finalized in these final rules. The Departments solicited comments on whether it would be beneficial to consumers to require issuers to include language in the notice that clearly informs consumers that the notice is an officially required document, such as "This notice is required by Federal law." One commenter suggested that including such a statement would further validate the importance of the notice and accentuate the caution warranted when considering purchasing STLDI, while another commenter argued that the statement would add length to the notice and is not critical for consumers' understanding of their rights. Consumer testing revealed that some testers found the inclusion of that phrase at the bottom of the notice helpful and reported that it made the information on the notice seem more legitimate, other consumers stated this statement suggested that the STLDI policy was endorsed by the Federal Government. After consideration of the comments and results from consumer testing, the Departments are finalizing the notice without the inclusion of a statement that the notice is required by Federal law. The Departments are of the view that any potential benefit of including the language is outweighed by the risk that some consumers will interpret the statement as a Federal endorsement of the policy. 5. Short-Term, Limited-Duration Insurance Sold Through Associations In section III.A.5 of the preamble to the 2023 proposed rules, the Departments explained that they understand most sales of STLDI occur through group trusts or associations that are not related to employment (sometimes referred to as individual membership associations) 221 and solicited comments on what steps, if any, can be taken to support State oversight of STLDI sold to or through associations. 222 Under these arrangements, out-of-State issuers file STLDI products for approval in one State and then sell the same policies in other States through an association, many times with few requirements on consumers to participate in the association, other than payment of association dues. State regulators have reported that they often lack the authority to track sales of policies made through out-of-State associations and are unable to approve or regulate such policies when offered for sale by issuers that are not licensed by their State. Further, as explained in section III.A.V of the preamble to the 2023 proposed rules, the Departments have received feedback that many issuers take advantage of the ambiguity about which State's jurisdiction applies to the STLDI they sell to avoid State regulation. 223 For example, one study found that in a review of 34 policy brochures for STLDI, 28 of the brochures included references to associations. 224 Consumers may not understand that some STLDI marketed in their States are not regulated by their State and do not include State-specific consumer protections. 221 See 88 FR 44596 at 44618 (July 12, 2023). 222 Id. 223 Id. 224 Id. (citing Curran, Emily, Dania Palanker, and Sabrina Corlette (2019). "Short-term Plans Sold Through Out-of-State Associations Threaten Consumer Protections," Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2019/short-term-health-plans-sold-through-out-state-associations-threaten-consumer-protections.) The Departments received comments agreeing that association-based STLDI coverage is often used as a vehicle to avoid local State regulation, with one commenter stating that such coverage is increasing in prevalence for employers with 10 or fewer employees. Commenters explained that because these association products are sold in States in which they are not registered, States have limited ability to protect their consumers from hidden fees and limited benefits. Nevertheless, some commenters asserted that States are best positioned to oversee the marketing of association-based STLDI coverage. Some commenters encouraged the Departments to work with States and the NAIC to improve oversight of products sold through out-of-State associations including collecting and sharing data and clarifying State authority to regulate these arrangements on behalf of their residents. Another commenter urged the Departments to consider additional enforcement mechanisms to ensure that STLDI issuers are not selling STLDI products in States in which they are not approved and ensure that consumers have recourse to file complaints when necessary. As with the current regulatory definition of STLDI, the provisions of these final rules apply to STLDI sold to or through associations. As explained in the preamble to the 2023 proposed rules, coverage that is provided to or through associations, but not related to employment, and is sold to individuals, either as certificate holders or policyholders, is not group coverage under section 9832 of the Code, section 733(b)(4) of ERISA, and section 2791(b)(4) of the PHS Act. 225 If the coverage is offered to an association member other than in connection with a group health plan, the coverage is considered coverage in the individual market under Federal law, regardless of whether it is considered group coverage under State law. Thus, any health insurance sold to individuals through a group trust or association, other than in connection with a group health plan, or sold to a group trust or association to the extent the insurance is intended to cover association members who are individuals, must meet the definition of STLDI at 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103, or else be considered individual health insurance coverage that is subject to all the Federal individual market consumer protections and requirements for comprehensive coverage. 225 88 FR 44596 at 44618 (July 12, 2023) (citing 45 CFR 144.102(c)). The Departments are aware that some group trusts and associations have also marketed STLDI policies to employers as a form of employer-sponsored coverage. As explained in section I.C of this preamble, there is no provision excluding STLDI from the Federal definition of group health insurance coverage. 226 Thus, any health insurance that is sold to or through a group trust or association in connection with a group health plan and which purports to be STLDI would in fact be group health insurance coverage and must comply with the Federal consumer protections and requirements for comprehensive coverage applicable to the group market. Failure to meet those requirements could result in penalties for employers offering such coverage. 227 226 See section 2791(b)(5) of the PHS Act, which excludes STLDI from the definition of "individual health insurance coverage". 227 Section 4980D of the Code. The Departments did not propose changes specific to association-based STLDI coverage and are not finalizing any such changes in these final rules. The Departments will continue to work closely with States, both individually and through the NAIC, to support State oversight and enforcement efforts of STLDI offered through associations. 6. Applicability Dates In the 2023 proposed rules, the Departments proposed applicability dates for the proposed amendments to the Federal definition of STLDI that distinguish between new and existing STLDI under 26 CFR 54.9833-1, 29 CFR 2590.736, and 45 CFR 146.125 and 148.102. The Departments also proposed a technical amendment to 26 CFR 54.9833-1, 29 CFR 2590.736, and 45 CFR 146.125 (regarding applicability dates) to remove outdated language. The Departments proposed the technical amendment would apply to all coverage (that is, both new and existing STLDI) as of the effective date of the final rules. The Departments did not receive any comments on the proposed applicability dates for the technical amendments and are finalizing them as proposed. For new STLDI sold or issued on or after the effective date of the final rules, the Departments proposed that the amendments to the definition of STLDI would apply for coverage periods beginning on or after such date. For STLDI sold or issued before the effective date of the final rules (including any subsequent renewal or extension consistent with applicable law), the Departments proposed that the current Federal definition of such coverage would continue to apply with respect to the maximum allowable duration. Therefore, under the proposed rules, existing STLDI could continue to have an initial contract term of less than 12 months and a maximum duration of up to 36 months (taking into account any renewals or extensions), subject to any limits under applicable State law. The Departments proposed that the amendments to the notice provision at paragraph (2) of the proposed definition of "short-term, limited-duration insurance" in 26 CFR 54.9801-2, 29 CFR 2590.701-2, and 45 CFR 144.103 would apply for coverage periods beginning on or after the effective date of the final rules, regardless of whether the coverage was sold or issued before, on, or after the effective date of the final rules. The Departments sought comments on whether the proposed revised notice standard should apply only to new STLDI or should apply to both new STLDI and existing coverage upon renewal or extension, and whether the application of the proposed revised notice standard to existing STLDI should instead be delayed until January 1, 2025, or some other date. The Departments sought comments on whether all STLDI policies and any renewals or extensions of such coverage, including existing coverage sold or issued prior to the effective date of the final rules, should instead end upon the effective date of the final rules or some other date. The Departments also sought comments on whether an applicability date that would provide a longer transition period for consumers with policies, certificates, or contracts of STLDI sold or issued before the effective date of the final rules could help alleviate any potential market disruption. In addition, the Departments sought comments on whether it would be more reasonable for all STLDI policies, and any renewals or extensions of such coverage in effect before the date the final rules are published, to end before January 1, 2025, or some other date. Only a few commenters commented on the applicability date for new STLDI policies. One commenter stated that it is critically important for consumers that the proposed amendments to the Federal definition of STLDI take effect as soon as possible for new STLDI policies to better inform consumers about the differences between STLDI and comprehensive coverage and protect consumers from deceptive marketing practices. A few commenters suggested that the Departments delay the applicability date for new STLDI policies, with recommended dates ranging from between 90 days and 12 months after the effective date of the final rules. Commenters recommended providing this additional time because STLDI products have already been filed and approved for 2024 and issuers need more time to evaluate plan designs, update system processes, re-file policy forms with State regulators and complete other administrative tasks. The Departments agree that an applicability date of 75 days following publication of these final rules might cause challenges for some States and issuers as they move to revise plan designs and file new policy forms that comply with the Federal definition of SLTDI under these final rules. The Departments are mindful of the administrative obstacles identified by commenters and are of the view that providing more time to comply with the revised Federal definition of STLDI will be beneficial both to issuers and States. However, the Departments are also mindful of the caution from commenters that the potential for consumer confusion is particularly acute when STLDI is marketed and sold during the annual individual market open enrollment period. Although these final rules do not prohibit the sale or marketing of STLDI during the individual market open enrollment period, the Departments are of the view that the potential for consumer confusion about whether they are considering purchasing an STLDI plan or comprehensive coverage will be substantially lessened if the final rules go into effect for new STLDI policies before the beginning of the next individual market open enrollment period. 228 Therefore, after consideration of comments, these final rules provide that the new definition of STLDI will apply to new STLDI policies, certificates, or contracts of insurance for coverage periods beginning on or after September 1, 2024. 229 This applicability date will provide issuers and States with more time to come into compliance with these final rules for new STLDI policies. It will also allow uninsured consumers who enroll in a new STLDI policy on or after September 1, 2024, to bridge the gap to when new comprehensive coverage purchased during the next individual market open enrollment period would begin. The Departments decline to extend the applicability for new STLDI policies further to ensure an end to the marketing of STLDI with a longer maximum allowed length prior to the beginning of open enrollment for the 2025 individual market plan year. 230 228 The next individual market open enrollment period begins on November 1, 2024. See 45 CFR 155.410(e)(4)(i). 229 For new STLDI policies, the new maximum duration standards and the revised notice established in these final rules will apply for coverage periods beginning on or after September 1, 2024. 230 The individual market open enrollment period for plan year 2025 begins on November 1, 2024. See 45 CFR 155.410(e)(4)(i). The Departments received some comments on the applicability date with respect to the maximum allowable duration for existing STLDI (including renewals and extensions). A few commenters requested that the revised maximum allowable duration apply to existing policies as soon as possible. These commenters stated that agents and brokers may attempt to steer as many consumers as possible into policies that are subject to the 2018 final rules prior to the applicability date for new policies, locking consumers into less protective coverage with a longer duration, and potentially destabilizing the risk pools for individual health insurance coverage. Commenters stated that this is particularly concerning as more consumers are shopping for health coverage as States resume Medicaid eligibility redeterminations due to the end of the FFCRA's Medicaid continuous enrollment condition. Another commenter stated that the Departments should apply the same applicability date for the maximum duration to new and existing policies because having a different applicability date for new and existing STLDI could create confusion for consumers and issuers. However, a different commenter suggested that the proposed applicability date for the revised maximum duration to apply to existing coverage would minimize confusion for currently enrolled consumers. One commenter supported the proposed applicability date for the revised maximum duration to apply to existing STLDI, as the dates allow issuers to honor their contractual obligations while avoiding unnecessary disruptions in coverage. Another commenter suggested aligning the applicability date for the revised maximum duration to apply to existing STLDI with the existing term or the start of the subsequent plan year for Exchange coverage, whichever comes first, and providing a 60-day special enrollment period to consumers whose coverage ends after the individual market open enrollment period. Other commenters recommended that the Departments postpone the applicability date for the revised maximum duration for STLDI to apply to existing policies to accommodate the end of the initial contract term, but prevent renewals or extensions to strike a balance between avoiding disruption of current plans and prolonging the harms of the maximum permitted duration under the current Federal definition of STLDI. These commenters also suggested this alternative approach would simplify the application of the revised maximum duration for STLDI coverage under the final rules. Other commenters suggested setting a different fixed applicability date for the revised maximum duration for SLTDI to apply to existing policies that aligns with the start of the individual market open enrollment period for plan years 2025 or 2026. 231 231 The individual market open enrollment periods for plan years 2025 and 2026 begins on November 1, 2024, and November 1, 2025, respectively. See 45 CFR 155.410(e)(4)(i). The Departments appreciate the need to implement the changes to the revised maximum duration for STLDI as soon as practical to mitigate the risk of consumers mistakenly enrolling in STLDI in lieu of comprehensive coverage. At the same time, the Departments recognize that some consumers who are already enrolled in STLDI purchased such coverage with the understanding it would continue for a given period of time, consistent with the current Federal definition of STLDI and applicable State law. Such individuals may also have purchased coverage with the expectation that they could renew coverage, consistent with the current Federal definition and applicable State law. While the Departments want to balance avoiding prolonging the harms of a longer maximum permitted duration, to minimize disruption and confusion for individuals who purchased or were enrolled in STLDI prior to the effective date of the final rules, the Departments are finalizing the proposal to permit such individuals to remain covered under STLDI for the maximum initial contract term, as well as for renewals and extensions, to the extent permitted under the 2018 final rules, subject to any limits under applicable State law. Although the Departments are not applying the revised maximum duration for STLDI to renewals or extensions of existing coverage, consumers can opt not to renew or extend their coverage prior to reaching the maximum duration permitted for such coverage. The Departments are not persuaded by the concern that having different applicability dates for the revised maximum duration for new and existing coverage will create confusion for consumers and issuers. As noted by one commenter, allowing individuals with existing coverage to continue their coverage for the maximum duration allowed when they purchased STLDI may instead minimize confusion and align with the consumer's expectations when they purchased the coverage. Confusion for consumers who newly enroll in STLDI coverage on or after September 1, 2024, is likely to be minimal since they would not be eligible to purchase, renew, or extend an STLDI policy for the longer maximum duration permitted under the 2018 final rules. The Departments are of the view that the different applicability dates will also create minimal confusion and burden for issuers, which already need to track which STLDI policies are eligible for renewal or extension and for how long. The Departments are finalizing the applicability date for existing STLDI policies with respect to the maximum allowable duration for such coverage as proposed. As discussed in section III.A.1 of this preamble, HHS declines to create a special enrollment period for individuals to enroll in individual health insurance coverage at the expiration of their STLDI coverage. However, nothing in Federal law would prevent an individual from discontinuing their STLDI coverage prior to its expiration date to align the end of their STLDI coverage with the start of individual health insurance coverage or other comprehensive coverage. Some commenters supported applying the proposed revised notice to new STLDI sold or issued on or after the effective date of the final rules and to existing coverage upon renewal or extension. Another commenter recommended that the Departments apply the proposed amendments to the notice only to new STLDI sold or issued on or after the effective date of the final rules and to existing coverage starting 12 months after the publication of these final rules. Some commenters expressed concern that the proposed applicability dates for the revised STLDI notice did not provide enough time for implementation in States that require notices be submitted to the State department of insurance for review or approval. The Departments agree with commenters that the revised notice should promptly apply to both new and existing (upon renewal or extension) STLDI coverage to alert all consumers who are considering purchasing or renewing STLDI to the differences between comprehensive coverage and STLDI. The notice is key to providing consumers with the information necessary to make an informed decision about the range of available coverage options. However, the Departments recognize that it would be burdensome on issuers to finalize three separate applicability dates (that is, for the notice provisions, for the maximum duration standards applicable to new policies, and for the maximum duration standards applicable to existing policies). In addition, the Departments acknowledge that issuers in some States may need to engage with their State regulator prior to implementing the new notice. After consideration of comments, the Departments are finalizing a delayed applicability date for the revised notice to align with the delayed applicability date finalized in these final rules for new STLDI coverage. Specifically, the revised notice specified in these final rules must be provided for new STLDI policies sold or issued on or after September 1, 2024, and with respect to existing coverage, upon renewal or extension that occurs on or after September 1, 2024. B. Independent, Noncoordinated Excepted Benefits Coverage In the group market, for hospital indemnity or other fixed indemnity insurance to qualify as an excepted benefit, among other criteria, the insurance must pay a fixed dollar amount per day (or per other period) of hospitalization or illness (for example, $100/day), regardless of the amount of expenses incurred. In contrast, under the current individual market regulations, fixed indemnity insurance can pay on a per-period and/or per-service basis and be considered an excepted benefit. In the 2023 proposed rules, HHS proposed to realign the individual market regulations with the group market regulations, which would require hospital indemnity or other fixed indemnity insurance to pay a fixed dollar amount per day (or per other period) of hospitalization or illness to be considered an excepted benefit in the individual market, consistent with the group market rules. The Departments also proposed additional payment standards for hospital indemnity or other fixed indemnity insurance to be considered an excepted benefit in the group market. HHS proposed parallel payment standards for fixed indemnity excepted benefits coverage in the individual market. Under the 2023 proposed rules, fixed indemnity excepted benefits would be required to be paid regardless of the items or services received, actual or estimated amount of expenses incurred, severity of illness or injury experienced, or any other characteristics particular to a course of treatment received by a covered participant, beneficiary, or enrollee. The preamble to the 2023 proposed rules also explained that the Departments are aware that some employers offer employees a "package" of coverage options that include a non-excepted benefit group health plan that provides minimal coverage (for example, coverage of preventive services only) with fixed indemnity insurance that provides benefits associated with receiving a broad category of other services for which coverage is excluded from the non-excepted benefit group health plan. The Departments explained they are concerned that some employers are attempting to circumvent the Federal consumer protections and requirements for comprehensive coverage that otherwise apply to group health plans by offering most benefits associated with receiving health care services under fixed indemnity insurance labeled as an excepted benefit, potentially leaving employees without crucial Federal consumer protections. To address this concern and clarify the Departments' interpretation of the requirement that hospital indemnity and other fixed indemnity insurance must offer "noncoordinated" benefits to be considered an excepted benefit, the Departments proposed to add a new example to the group market regulations to reflect that the prohibition on coordination of benefits is not limited to only those situations involving a formal coordination-of-benefits arrangement. The proposed example illustrated a scenario with a fixed indemnity insurance policy and a group health plan maintained by the same plan sponsor in which a formal coordination-of-benefits arrangement was not present but there was nonetheless coordination between the provision of benefits under the fixed indemnity insurance policy and an exclusion of benefits under the group health plan. HHS proposed to apply the same interpretation of the noncoordination requirement to individual market fixed indemnity excepted benefits coverage. 232 232 Consistent with the interpretation and application of the statutory requirement that fixed indemnity excepted benefits coverage in the individual market must be offered on a noncoordinated basis, HHS proposed to modify the requirement at current 45 CFR 148.220(b)(4)(ii) to specify that benefits under fixed indemnity excepted benefits coverage must be paid with respect to an event without regard to whether benefits are provided with respect to such an event under any other health coverage "maintained by the same issuer.". HHS is not finalizing this proposed modification to the individual market noncoordination standard at this time. The Departments proposed a consumer notice for group market fixed indemnity benefits coverage. HHS also proposed amendments to the existing consumer notice for individual market fixed indemnity excepted benefits coverage. These proposals would ensure that fixed indemnity excepted benefits coverage is properly identified in marketing, application, and enrollment (or reenrollment) materials as fixed indemnity excepted benefits coverage, rather than comprehensive health insurance that is subject to Federal consumer protections, which would help a prospective enrollee distinguish between fixed indemnity excepted benefits coverage and comprehensive coverage options. With these proposals, the Departments aimed to support informed consumer choice by promoting consumer awareness of the limitations of fixed indemnity excepted benefits coverage and to help prevent consumers from mistakenly purchasing such coverage as an alternative to or replacement for comprehensive coverage. The Departments received many comments in response to all of these proposals. These final rules adopt the new notice for fixed indemnity excepted benefits coverage offered in the group market and update the existing notice for such coverage offered in the individual market. In response to comments and consumer testing, the Departments have modified the content and applicability date of the notice, as discussed in more detail later in sections III.B.1 and III.B.3 of this preamble. However, to provide more time to study the issues and concerns raised in comments, these final rules do not address any other provision of the 2023 proposed rules relating to fixed indemnity excepted benefits coverage (with the exception of certain technical amendments to the HHS individual market regulation proposed in the 2023 proposed rules, as discussed in more detail later in section III.B.2 of this preamble). The Departments remain concerned with practices that appear to circumvent Federal consumer protections and requirements and intend to address the other proposals for hospital indemnity or other fixed indemnity insurance in future rulemaking, taking into account comments received on these issues. No inference should be drawn from the decision not to finalize the proposed payment standards or noncoordination example as part of these final rules, and plans and issuers should not assume that current market practices that are inconsistent with the 2023 proposed payment standards or noncoordination example comply with the existing Federal regulations that apply to fixed indemnity excepted benefits coverage. To the contrary, many comments received in response to the 2023 proposed rules underscored the Departments' concerns that hospital indemnity or other fixed indemnity insurance is being used by some issuers, plan sponsors, plans, agents, and brokers to circumvent the Federal consumer protections and requirements applicable to comprehensive coverage, while offering products that blur the lines between the two types of coverage. The Departments remain concerned about the deceptive marketing and sale of hospital indemnity and other fixed indemnity insurance, including the creation of hospital indemnity or other fixed indemnity insurance with detailed fee schedules. These types of fixed indemnity insurance products are not consistent with the traditional role of hospital or other fixed indemnity insurance serving as a form of income or wage replacement that the statutory exception was intended to cover. Instead, they mimic comprehensive coverage, without providing the Federal consumer protections or meeting the requirements applicable to comprehensive coverage. This leaves individuals who mistakenly purchase such coverage in lieu of comprehensive coverage without critical consumer protections, exposing them to significant health and financial risk. Similarly, the Departments remain concerned about the practice of offering a "package" of coverage options that includes a non-excepted benefit plan that provides minimal coverage (such as coverage only for preventive services) 233 plus a fixed indemnity insurance policy that provides benefits associated with a broad range of items and services for which the other coverage maintained by the employer (or, in the individual market, maintained by the same issuer) excludes benefits. The Departments remain concerned that these plan designs are structured as coordinated arrangements to circumvent the Federal consumer protections and requirements for comprehensive coverage that otherwise would apply. This is particularly concerning if the employers, employees, or individuals are under the impression or are misled to believe that their two coverages, when combined, provide comprehensive coverage, and they therefore forgo pursuing other available options that would provide comprehensive coverage. 233 The Departments note that such an arrangement would not be treated as providing minimum value if it failed to provide substantial coverage of inpatient hospital services and physician services. 26 CFR 1.36B-6; 45 CFR 156.145. The Departments intend to address these issues in future rulemaking. The Departments emphasize that, to be considered fixed indemnity excepted benefits coverage under the current Federal group market regulations, the benefits must be paid only on a per-period basis. Under this standard, the Departments expect that fixed indemnity excepted benefit coverage would not be designed with fee schedules that, in effect, provide benefits for specific items and services, such as wellness screening exams or prescription drugs, rather than wage or income replacement. The Departments are aware that some issuers merely affix a "per day" term to benefits for specific items and services, such as $50 per blood test per day. As stated in the preamble to the 2023 proposed rules, when analyzing whether a policy, certificate, or contract of insurance is subject to the Federal consumer protections and requirements for comprehensive coverage, the Departments will look past the label used to examine whether the policy, certificate, or contract of insurance qualifies as an excepted benefit or whether it is comprehensive coverage that is subject to the Federal consumer protections and requirements applicable to such coverage. The Departments encourage State regulators to take a similar approach and intend to work with States to ensure that issuers comply with relevant requirements. 1. Notices To ensure that consumers purchasing fixed indemnity excepted benefits coverage are aware of the type of coverage they are purchasing, including the limitations of the coverage, and that it is not mistakenly purchased as an alternative or replacement for comprehensive coverage, the Departments proposed to require a consumer notice be prominently displayed when offering fixed indemnity excepted benefits coverage in the group market, in alignment with the existing requirement to provide such a notice when offering fixed indemnity excepted benefits coverage in the individual market. The Departments proposed that if a plan or issuer provides the required group market notice in accordance with the provisions in the 2023 proposed rules, the obligation to provide the notice would be satisfied for both the plan and issuer. In developing the proposed notice for the group market and revising the notice for the individual market, the Departments sought to balance two goals. One goal was to combat potential sources of misinformation by directing consumers to appropriate resources to learn more about comprehensive coverage and understand how that coverage differs from fixed indemnity excepted benefits coverage. The other goal was to provide a concise, understandable notice that would be meaningful to, and actionable by, consumers. HHS also proposed technical amendments reorganizing the regulatory text to move the provision regarding the placement and materials on which the notice must appear for fixed indemnity excepted benefits coverage in the individual market, as well as amendments to the content and formatting for the notice itself, to align with the proposal to adopt a notice for the group market. Many commenters supported requiring prominent display of the proposed consumer notice in both markets to help consumers distinguish fixed indemnity excepted benefits coverage from comprehensive coverage, make individuals aware of opportunities to purchase comprehensive coverage, and inform them of possible eligibility for subsidies to purchase comprehensive coverage. Commenters strongly supported disclosures to explain the limited nature of fixed indemnity excepted benefits coverage. One commenter stated that there is a need for a model consumer notice that is succinct, clear, and prominent, especially because prior efforts have not stopped abusive marketing tactics. One commenter stated that clear, consistent, and consumer-friendly disclosures are the best mechanism to ensure fixed indemnity policies are marketed in a clear and appropriate manner, particularly if consumers are purchasing coverage online. Another commenter stated that the proposed notice language was consistent with current industry standards and expressed support for even stronger disclosure language. The Departments agree with these commenters. By requiring a prominent disclosure notice to consumers who are considering enrolling or reenrolling in individual or group market fixed indemnity excepted benefits coverage, the Departments aim to ensure that consumers are informed about the type of coverage they are purchasing, and thereby reduce the potential for consumers to mistakenly enroll in such coverage as their primary source of coverage and to increase consumer understanding of the differences between fixed indemnity excepted benefits coverage and comprehensive coverage. The Departments also agree with commenters that the notices should provide information to consumers in a clear and concise manner regarding opportunities to purchase comprehensive coverage, especially regarding their possible eligibility for subsidies. As noted in the preamble to the 2023 proposed rules and in section III.A.1 of this preamble, individuals belonging to underserved populations often experience greater health challenges, as well as greater challenges accessing and using health care services, compared to the general population, including worse health outcomes, higher rates of chronic conditions, lower access to health care, and more frequent experiences of discrimination in health care settings. 234 Members of these populations may be particularly vulnerable to misinformation or misleading or aggressive sales tactics. A notice can help combat misinformation and misleading or aggressive sales practices by helping consumers distinguish between comprehensive coverage and fixed indemnity excepted benefits coverage. 234 See CMS Office of Minority Health (2022). "The Path Forward: Improving Data to Advance Health Equity Solutions," available at: https://www.cms.gov/files/document/path-forwardhe-data-paper.pdf. For these reasons, as well as research identifying disparities in health insurance literacy among underserved populations and people with incomes below the FPL, 235 the Departments proposed, and are finalizing in these rules, the adoption of a consumer notice that must be provided when offering fixed indemnity excepted benefits coverage in the group market. HHS is also finalizing revisions to the existing consumer notice that must be provided when offering fixed indemnity excepted benefits coverage in the individual market. In the Departments' view, these notices will help ensure that all consumers, including those in underserved communities, have the necessary information to make an informed choice after considering and comparing the full range of health coverage options available to them. 235 Edward, Jean, Amanda Wiggins, Malea Hoepf Young, and Mary Kay Rayens (2019). "Significant Disparities Exist in Consumer Health Insurance Literacy: Implications for Health Care Reform," Health Literacy Research and Practice, available at: https://pubmed.ncbi.nlm.nih.gov/31768496/. See also Villagra, Victor and Bhumika Bhuva (2019). "Health Insurance Literacy: Disparities by Race, Ethnicity, and Language Preference," The American Journal of Managed Care, available at: https://www.ajmc.com/view/health-insurance-literacy-disparities-by-race-ethnicity-and-language-preference. Some commenters stated that changes or additional notices were not necessary because existing notice provisions are sufficient. One commenter stated that although they agree that consumers need to understand what they are buying, the proposed notice provisions are not necessary since State-required consumer warnings already exist, and a Federal notice is not the proper mechanism to promote consumer education or awareness. Some commenters suggested that existing fixed indemnity insurance policies should be exempt from any notice requirement since the consumer has already enrolled and presumably knows what they purchased. The Departments disagree with commenters that stated that existing notice provisions are sufficient, that the proposed notice provisions are unnecessary because State-required notices exist, and that a Federal notice is not the proper mechanism to promote consumer education or awareness. The existing Federal notice provision only applies to the individual market, leaving consumers in the group market potentially uninformed about the limited nature of their fixed indemnity excepted benefit coverage and unaware of resources to learn more about other coverage options. In addition, while some State-required notices may exist, they are not mandated nationwide. In the Departments' view, a Federal notice provision is the proper mechanism to promote consumer education or awareness by conveying a consistent message at or before the time a consumer has an opportunity to enroll in the fixed indemnity excepted benefit coverage in the individual and group markets. Without such a notice consumers may be left unaware or uninformed, because notices may not be provided at all, or would be provided at the plan's or issuer's discretion. Other mechanisms, such as public service announcements, would not ensure that information has been provided to every prospective consumer. Additionally, the Departments are of the view that requiring issuers to provide the consumer notice contemporaneously with marketing, application, and enrollment materials that are provided to participants at or before the time participants are given the opportunity to enroll in the coverage (rather than separately from the application process or after a product has already been purchased) will ensure that consumers are made aware of the type of coverage they are considering, are made aware of information resources at their State Department of Insurance, and are provided with options for purchasing comprehensive coverage at the time when they most need this information to support their decision-making process. The Departments also do not agree that existing policies should be exempt from the applicable notice. Although a consumer may have already purchased fixed indemnity excepted benefit coverage in the past, the consumer may not have been aware of the limitations of such coverage or available comprehensive coverage options and may wish to evaluate all of their options before reenrolling. Therefore, the Departments are finalizing the proposal to provide the group market notice at or before the time participants are given the opportunity to enroll or reenroll in coverage prominently on the first page (in either paper or electronic form, including on a website) of any marketing, application, and enrollment (or reenrollment) materials, and decline to provide an exemption for existing group market fixed indemnity excepted benefit coverage. HHS is similarly finalizing the individual market proposal to prominently display the notice on the first page of any marketing, application, and enrollment or reenrollment materials that are provided at or before the time an individual has the opportunity to apply, enroll or reenroll in coverage, and on the first page of the policy, certificate, or contract of insurance, and also declines to provide an exemption for existing individual market fixed indemnity excepted benefit coverage. These changes will ensure that fixed indemnity excepted benefit coverage is clearly identified as fixed indemnity coverage and not comprehensive coverage when marketed and sold in both the group and individual markets. Some commenters opposed the adoption of a notice requirement in the group market and questioned its permissibility in the individual market. These commenters argued the Departments have no legal authority to require group health plans and issuers offering fixed indemnity excepted benefits coverage in the group market to provide such a notice. One commenter, while recognizing that the existing individual market notice was not at issue in Central United Life Ins. Co. v. Burwell, argued that requiring a notice was akin to the type of additional criterion that the D.C. Circuit found impermissible in the case. 236 236 827 F.3d 70 (D.C.Cir. 2016). The Departments disagree with commenters that question the Departments' legal authority to adopt a consumer notice for fixed indemnity excepted benefits coverage in the group and individual markets. Through the enactment of the Federal excepted benefits statutes, 237 Congress generally preserved Federal authority to interpret and implement the statutory provisions governing these insurance products. Congress also provided the Departments with explicit authority to promulgate regulations as the Secretaries determine may be necessary or appropriate to carry out the provisions of the Code, ERISA, and the PHS Act. 238 These statutes collectively provide the Departments authority to interpret and implement the requirements for hospital indemnity or other fixed indemnity insurance to qualify as excepted benefits coverage under the Federal framework, and to adopt a consumer disclosure notice in regulation to ensure that the statutes themselves function as Congress intended. As explained in the 2023 proposed rules 239 and in section I.D. and this section III.B of the preamble of these final rules, fixed indemnity excepted benefits coverage is not an adequate substitute for comprehensive coverage, in part because it is not subject to Federal consumer protections and requirements that apply to comprehensive coverage. Consumers who purchase fixed indemnity excepted benefits coverage under the mistaken impression that such coverage is subject to Federal consumer protections and requirements for comprehensive coverage are at significant risk of financial and health hardships that may not become clear to the consumer until the occurrence of a costly health event. 240 237 See section 9831 of the Code, section 732 of ERISA, and sections 2722(b)-(c), 2763, and 2791(c) of the PHS Act. 238 See section 9833 of the Code, section 734 of ERISA, and section 2792 of the PHS Act. 239 See, for example, 88 FR 44596 at 44619, 44620, 44645-44646 (July 12, 2023) 240 See id. at 44605, 44606 (citing Appleby, Julie (2017). "Brokers Tout Mix-And-Match Coverage To Avoid High-Cost ACA Plans," KFF, available at: https://kffhealthnews.org/news/brokers-tout-mix-and-match-coverage-to-avoid-high-cost-aca-plans), 44608 (citing Avila, Jaie (2019). "Show Me Your Bill Helps Wipe Out $70K in Charges After Heart Attack," News 4 San Antonio, available at: https://news4sanantonio.com/news/trouble-shooters/show-me-your-bill-helps-wipe-out-70k-in-charges-after-heart-attack) (July 12, 2023). Consumers cannot adequately access Federal consumer protections to which they are entitled when it is unclear to which products they apply, and the effects of these protections are diluted when consumers are unclear what type of product they are purchasing and how and when they are protected by Federal law. Therefore, a consumer notice that clearly identifies a product as fixed indemnity excepted benefits coverage and distinguishes such a product from comprehensive coverage, clarifies and strengthens these protections for consumers. In addition, the notice prevents plans and issuers from marketing products that have been approved as an excepted benefit as comprehensive coverage to which Federal protections apply. Therefore, the Departments are of the view that it is necessary and appropriate for plans and issuers to provide consumers with a consumer notice that clearly labels fixed indemnity excepted benefits coverage and provides consumers with information sufficient to notify the consumer that such coverage is not subject to the Federal consumer protections and requirements for comprehensive coverage. The Departments also disagree with the commenter who stated requiring a notice was akin to the type of additional criterion that the D.C. Circuit found impermissible in Central United Life Ins. Co. v. Burwell. Adoption of the Federal consumer notice is not an impermissible requirement being added to the statutory criteria for fixed indemnity excepted benefits coverage. To ensure that the Code, ERISA, and the PHS Act function as intended, the notice ensures that fixed indemnity excepted benefits coverage is marketed and labeled as such, rather than as comprehensive coverage. As discussed in this section III.B.1 of this preamble, the rules do not require the provision of a notice, but instead simply provide that insurance offered without such a notice would not qualify as fixed indemnity excepted benefits coverage and would be subject to the Federal consumer protections and requirements applicable to comprehensive coverage. Plans and issuers will not be prohibited from selling hospital indemnity and other fixed indemnity insurance, and consumers may continue to choose to purchase it, but unless the coverage includes the requisite notice identifying it as coverage not subject to the Federal consumer protections and requirements subject to comprehensive coverage, it would be subject to such protections and requirements. Additionally, the notice is being adopted to further the Departments' interest in ensuring that consumers are fully aware that they are purchasing fixed indemnity excepted benefits coverage rather than comprehensive coverage, are aware of their options to purchase comprehensive coverage, and have access to information resources that support informed consumer decision-making with regard to health coverage. Further, the changes to the individual market consumer notice and the adoption of a notice in the group market are reflective and responsive to changes observed by the Departments in market conditions and the legal landscape. As discussed in section II.A of this preamble, market conditions have changed and increased the availability of affordable options for comprehensive coverage. As discussed in section II.D of this preamble, the legal landscape has also changed. The decision in Central United Life Ins. Co. v. Burwell and the passage of the Tax Cuts and Jobs Act increase the likelihood that individuals would purchase fixed indemnity excepted benefits coverage as a substitute for comprehensive coverage. As a result of those changes, the Departments are of the view that notices will help combat deceptive marketing practices and potential sources of misinformation by clearly identifying fixed indemnity excepted benefits coverage and distinguishing such coverage from comprehensive coverage, directing consumers to appropriate resources to learn more about comprehensive coverage, and identifying key differences between that coverage and fixed indemnity excepted benefits coverage. Many commenters stated that the proposals regarding notices in the 2023 proposed rules usurp States' authority. Several commenters pointed to the McCarran-Ferguson Act, stating that only Congress may infringe on the States' exercise of their authority to regulate insurance. Several commenters stated that Federal regulatory changes are not necessary because States and the NAIC have been working on the NAIC Models 40, 170, 171 and 880 that address these coverage options, 241 and when those are adopted by States, they will adequately address the Departments' concerns. Several commenters stated that amendments to the Federal regulations are not necessary because States have enforcement authority to discipline agents, discipline issuers, limit marketing practices, and limit product features if there are instances of fixed indemnity excepted benefits coverage being sold as a replacement for comprehensive coverage. 241 NAIC model laws are available at: https://content.naic.org/model-laws. The Departments agree that the States play an important role in regulating fixed indemnity excepted benefits coverage and acknowledge the federalism implications of the proposed rules and these final rules. 242 As noted by commenters, the McCarran-Ferguson Act generally affirms the preeminence of State regulation, and also explicitly allows for Federal regulation when an act of Congress specifically relates to the business of insurance. As discussed in section III.A.1 of this preamble, the McCarran-Ferguson Act balances State and Federal interests in regulating the business of insurance. Section 1012(a) of the McCarran-Ferguson Act maintained State regulatory authority by enabling State preemption of some Federal law, and section 1012(b) of the McCarran-Ferguson Act limited Federal regulatory authority by generally exempting the "business of insurance" from Federal law. Although Congress allowed for State preemption of Federal law in this way, Congress also preserved Federal authority to regulate insurance provided that, to overcome the State preemption, congressional action must specifically relate to the business of insurance. As previously noted, HIPAA, the ACA, and the other Acts of Congress specifically relate to the business of insurance. Given that Congress defined and set forth criteria for fixed indemnity excepted benefits coverage to be exempt from the Federal consumer protections and requirements for comprehensive coverage, 243 there is clear congressional action specifically addressing the business of insurance, thereby preserving Federal regulatory authority to interpret and implement the Federal statutory provisions governing these insurance products. 242 For further discussion of the Federalism implications of these final rules, see section V.H of this preamble. 243 See sections 9831 and 9832 of the Code, sections 732 and 733 of ERISA, and sections 2722, 2763, and 2791 of the PHS Act. In addition, as previously noted, Congress also provided the Secretaries of the Treasury, Labor, and HHS with explicit authority to promulgate regulations as may be necessary or appropriate to carry out the provisions of the Code, ERISA, and the PHS Act. 244 This includes the authority for the Departments to interpret and implement the requirements for hospital indemnity or other fixed indemnity insurance to qualify as excepted benefits coverage under Federal law, and also provides the authority to adopt a consumer notice. The Code, ERISA, and the PHS Act impose certain requirements on comprehensive coverage and do not impose those same requirements on fixed indemnity excepted benefits coverage. The Departments believe it is necessary and appropriate that plans and issuers provide consumers considering the purchase (or renewal) of fixed indemnity excepted benefits coverage, and those actually purchasing such insurance, a notice that clearly identifies the insurance as fixed indemnity excepted benefits coverage and is sufficient to put consumers on notice that such coverage is not subject to the Federal consumer protections and requirements for comprehensive coverage. The notices also direct consumers to resources where they can learn about the range of available coverage options, and the notices are designed to help combat the misinformation and deceptive tactics that can lead to consumers mistakenly enrolling in fixed indemnity excepted benefits coverage in lieu of comprehensive coverage. This will help ensure that consumers who purchase fixed indemnity excepted benefits coverage are doing so based on an informed decision and not in error. 244 See section 9833 of the Code, section 734 of ERISA, and section 2792 of the PHS Act. The notice provisions being finalized in these final rules do not infringe on States' authority to regulate insurance. States retain authority to regulate fixed indemnity excepted benefits coverage. States may impose standards or requirements on hospital indemnity or other fixed indemnity insurance for purposes of State law, such as a requirement to provide a State-specific notice in relation to fixed indemnity excepted benefits coverage offered by issuers in their State, including any notice developed as part of an NAIC Model Act or Regulation. However, hospital indemnity or other fixed indemnity insurance that does not include the language in the revised notice under these final rules would not be considered fixed indemnity excepted benefits coverage for purposes of Federal law and thus would be subject to the Federal consumer protections and requirements applicable to comprehensive coverage. The Departments are of the view that these final rules appropriately balance States' interests in regulating health insurance issuers and their health insurance markets with Congress' intent to establish a general Federal framework for health insurance coverage, including the provision of certain key protections to consumers enrolled in comprehensive coverage and the creation of an exemption for insurance products that meet the requirements to be considered excepted benefits coverage. The Departments recognize that States have been working with the NAIC to revise several model acts and regulations related to marketing and sales practices and those models might address some of the Departments' concerns. However, those models establish minimum standards and States' adoption of any NAIC model is optional. States may choose to codify some or none of the standards set forth in the NAIC models, which have yet to be finalized. The Departments will engage with States and the NAIC as they revise several NAIC Model Acts and regulations to update the minimum standards for non-comprehensive coverage products, including fixed indemnity excepted benefits coverage. The Departments look forward to reviewing the information and data collected on such products from the NAIC data call that is currently underway. A few commenters stated that the notice provisions in the individual and group markets raised First Amendment concerns, alleging that the Departments did not articulate a compelling governmental interest because the 2023 proposed rules failed to provide any substantial evidence that consumer confusion is widespread. Those commenters further asserted that the notice provisions for the group and individual markets are not narrowly tailored, and that requiring display on the first page of marketing and enrollment materials (in addition to application materials) is not justified. The Departments disagree that the proposed notice provisions for fixed indemnity excepted benefits coverage raise First Amendment concerns. The rules do not require the provision of a notice, but instead simply provide that hospital indemnity or other fixed indemnity insurance offered without such a notice would not qualify as fixed indemnity excepted benefits coverage and would be subject to the Federal consumer protections and requirements applicable to comprehensive coverage. Moreover, as the United States Supreme Court recognized in Zauderer v. Office of Disciplinary Counsel, 245 and later reiterated in National Institute of Family and Life Advocates v. Becerra, 246 required disclosures of factual, uncontroversial information in commercial speech are subject to more deferential First Amendment scrutiny. Under the approach articulated in Zauderer, courts have upheld required disclosures of factual information in the realm of commercial speech where the disclosure reasonably relates to a substantial government interest and is not unjustified or unduly burdensome such that it would chill protected speech. Regardless, the Departments believe that the revised notice standard would pass muster under any form of First Amendment scrutiny. 247 245 471 U.S. 626 (1985). 246 585 U.S. 755 (2018). 247 See also Pharmaceutical Care Management Association v. Rowe, 429 F.3d 294, 316 (1st Cir. 2005) The language on the Federal notices for fixed indemnity excepted benefits coverage includes factual, uncontroversial information, reasonably relates to a government interest, and is not unjustified or unduly burdensome. In addition, the Departments have reviewed and responded to public comments that raised concerns about proposed text. For example, certain language that appeared in the proposed rules that commenters deemed controversial, such as "Warning," are not being finalized. HHS conducted consumer testing to ensure the language in the required notice was not misinterpreted to deliver any untrue messages. The Departments have a substantial, and even compelling, government interest in ensuring consumers are aware of the type of product they are considering purchasing, are informed about key differences between fixed indemnity excepted benefits coverage and comprehensive coverage, are aware of their option to purchase comprehensive coverage, and have access to resources for additional information about the range of available health coverage options so consumers can make informed choices. As discussed in section II.B of this preamble, this is of particular importance at present due to the changing legal landscape and low health literacy, as well as the increased reports of deceptive marketing practices that play on consumer confusion about the benefits and limitations of fixed indemnity excepted benefits coverage. The notices clearly label products as fixed indemnity excepted benefits coverage and communicate factual information to consumers about the differences between fixed indemnity excepted benefits coverage and comprehensive coverage and explain how consumers can find resources when they have questions about the different coverage options. As stated in the preamble to the 2023 proposed rules, the Departments are concerned about consumers who mistakenly enroll in fixed indemnity excepted benefits coverage in lieu of comprehensive coverage and are therefore at risk of significant financial liability because their health care costs may greatly exceed the fixed cash benefit to which they may be entitled--if benefits are even provided for their health-related event. 248 Accordingly, the notices adopted in these final rules serve a legitimate government interest, are justified, and are reasonably related to these government interests. 248 88 FR 44596 at 44606 (July 12, 2023). Furthermore, these notices do not unduly burden plan or issuer speech because nothing in the final rules would "drown out" a plan's or issuer's own message or "effectively rule out" any mode of communication. 249 Plans and issuers remain free to communicate with consumers using methods and media they have always used or may choose to use in the future. The burden associated with displaying the applicable notice should be low since the Departments have adopted static language, meaning that the plan or issuer does not have to tailor or modify the Federal notice. For the reasons discussed previously, the Departments are of the view that informing consumers prior to purchase or reenrollment of fixed indemnity excepted benefits coverage and directing them to resources to learn more about the range of available coverage options is highly related to the government's aforementioned interest in ensuring that consumers make informed decisions. 249 See NIFLA, 138 S.Ct. at 2378. The Departments are aware of some complex fixed indemnity policies in the individual market that pay benefits based on extensive variable schedules and other policies that promote a certain network of providers. Such plan designs mimic comprehensive coverage and can skew a consumer's understanding of the nature and extent of the fixed indemnity excepted benefits coverage. The Departments provided examples of consumer confusion regarding the limitations and exclusions associated with fixed indemnity excepted benefits coverage in the preamble to the 2023 proposed rules 250 and received additional examples from commenters. Some commenters provided examples of benefit designs that are modeled after comprehensive coverage and may cause confusion, including products requiring that enrollees meet a deductible before benefits are paid, making payments directly to providers, or using provider networks that purport to give the member a reduced or discounted medical bill for using an in-network provider. The preamble to the 2023 proposed rules also described certain arrangements in the group market that the Departments are concerned can mislead enrollees into believing they have comprehensive coverage when that is not the case. 250 88 FR 44596 at 44621-22 (July 12, 2023). Both the draft notice that was proposed for the group and individual markets in the 2023 proposed rules and the version being finalized in these rules are reasonably related and narrowly tailored to the government's interest in informing consumers about the limitations of fixed indemnity excepted benefits coverage, and combating deceptive marketing practices and potential sources of misinformation, by directing consumers to appropriate resources to learn more about the range of available health coverage options. 251 The notices do not include irrelevant or superfluous information unrelated to these interests. 251 88 FR 44625 "[T]he Departments aim to reduce the potential for consumers to mistakenly enroll in hospital indemnity or other fixed indemnity insurance as their primary source of coverage and increase consumer understanding of the differences between fixed indemnity excepted benefits coverage and comprehensive coverage." As the Departments explained in the preamble to the 2023 proposed rules, requiring plans and issuers to display a notice on the first page of marketing, application, and enrollment materials in both markets plus on the first page of the policy, certificate, or contract of insurance in the individual market is justified to ensure that the notice is provided on documents that consumers are most likely to have the opportunity to review before application, enrollment, or reenrollment. In the Departments' view, requiring the notice only on the first page of the application is insufficient, as evidenced by ongoing consumer confusion. The Departments proposed to require that plans and issuers prominently display the notice (in either paper or electronic form, including on a website) in at least 14-point font on the first page of any marketing, application, and enrollment materials that are provided to participants at or before the time participants are given the opportunity to enroll in the group market fixed indemnity excepted benefit coverage. In addition, if participants are required to reenroll (in either paper or electronic form) for purposes of renewal or reissuance of group market fixed indemnity excepted benefits coverage, the Departments proposed that the notice must be displayed in all reenrollment materials that are provided to participants at or before the time participants are given the opportunity to reenroll in coverage. The Departments explained that they consider marketing materials to include any documents or website pages that advertise the benefits or offer an opportunity to enroll (or reenroll) in group market fixed indemnity excepted benefits coverage. The Departments are finalizing the proposed requirements related to the placement of the group market consumer notice as proposed. HHS proposed slightly different placement standards for the individual market consumer notice. The requirements reflect the differences between the types of documents that consumers typically receive when considering enrolling or reenrolling in fixed indemnity excepted benefits coverage in the individual market compared to participants in the group market. With respect to individual market fixed indemnity excepted benefits coverage, HHS proposed that issuers must also prominently display the notice (in either paper or electronic form) in at least 14-point font on the first page of the policy, certificate, or contract of insurance, including renewals or extensions, because individual market consumers are likely to receive those documents upon enrollment. This is in addition to prominently displaying the notice on the first page (in either paper or electronic form) of any marketing, application, and enrollment (or reenrollment) materials for individual market fixed indemnity excepted benefit coverage, and prominently displaying the notice on websites that advertise or offer an opportunity to enroll (or reenroll) in such coverage. HHS proposed the additional locations for display, rather than just application materials as required in the 2014 final rule, due to concern of ongoing consumer confusion. These proposals related to notice placement were intended to ensure that the notice is provided on documents that consumers are most likely to have the opportunity to review before application, enrollment, or reenrollment, based on the Departments' understanding of how consumers receive information related to group market versus individual market fixed indemnity excepted benefits coverage. HHS is finalizing the proposed requirements related to placement of the individual market consumer notice as proposed. Many commenters supported the proposed placement of the notices in marketing, application, and enrollment and reenrollment materials, including websites and materials shared electronically. Some commenters also generally stated that the notices should be provided early and often so that consumers are not confronted with notice or warning language only after selecting a plan for purchase. Some commenters expressed opposition to including the applicable notice with all marketing, application, and enrollment materials, suggesting such requirements are excessive and may reduce the impact of the notice. These commenters recommended the notice be provided in only the enrollment materials or using the existing individual market standard, which requires placement in the application materials only. The Departments are finalizing the proposed standards regarding the placement and applicable materials on which the group market notice must appear without modification. HHS is similarly finalizing the proposed standards regarding the placement and applicable materials on which the revised individual market notice must appear without modification. The Departments disagree with the commenters who stated that including the notice on all of these materials is excessive and may reduce the impact of the notice itself. Including the notice on the first page (in either paper or electronic form, including on a website) of any marketing, application, and enrollment (or reenrollment) materials (as well as, in the individual market, the policy, certificate, or contract of insurance) is intended to ensure that the notice is provided on documents that consumers are most likely to have the opportunity to review before application, enrollment or reenrollment. To achieve this, as some commenters pointed out, it is important that the notice be available both early in the enrollment (or reenrollment) process and often. Therefore, it is the Departments' view that requiring the notice in several locations - rather than just the enrollment materials or only in the application - is not excessive due to the goal of maximizing consumers' opportunity to review the notice throughout their decision-making process, which is likely to increase the impact of the notice. The repetition will also help mitigate the potential for consumers to mistakenly enroll in fixed indemnity excepted benefits coverage as a substitute for comprehensive coverage and will help combat deceptive marketing practices and potential sources of misinformation by directing consumers to appropriate resources to learn more about the range of available health coverage options. The Departments recognize that providing notices imposes costs on plans and issuers and identified other scenarios where the benefits to consumers would be minimal and do not justify the administrative burden on plans and issuers to provide the notice. Specifically, these final rules do not require plans and issuers to provide the notice to beneficiaries, as well as participants, in the group market. In the Departments' view, requiring plans and issuers offering fixed indemnity excepted benefits coverage in the group market to provide notice to participants (rather than to both participants and any beneficiaries) appropriately balances the need to ensure that participants who are considering whether to enroll themselves and their beneficiaries in such coverage are sufficiently informed of their health coverage options with the administrative burden on plans and issuers to provide the notice. In addition, because the group policy, certificate, or contract of insurance in the group market is often provided to the plan sponsor or the group health plan administrator, these final rules do not require that plans and issuers include the consumer notice in those documents for group market fixed indemnity excepted benefits coverage because doing so would not support the goal of ensuring that the consumers themselves receive the information so they can make an informed decision before enrolling (or reenrolling) in coverage. Similarly, in the individual market, HHS did not propose and is not finalizing a requirement for the notice to be provided to dependents of the individual enrolling in coverage. Instead, the individual market notice must be provided only to the policyholder. The Departments proposed and are finalizing that the group market notice must be prominently displayed in at least 14-point font on the first page of any applicable marketing, application or enrollment materials. 252 Consistent with the approach outlined in the 2023 proposed rules, under these final rules, the Departments consider a notice to be prominently displayed if it is easily noticeable to a typical consumer within the context of the page (either paper or electronic) on which it is displayed (for example, using a font color that contrasts with the background of the document; ensuring the notice is not obscured by any other written or graphic content on the page; and, when displayed on a website, ensuring the notice is visible without requiring the viewer to click on a link to view the notice). HHS proposed, and is finalizing, the same prominent display requirements for the individual market notices that must appear on the first page of any applicable materials. 253 252 As previously discussed in this section III.B.1 of this preamble, the Departments are finalizing the proposed requirements regarding the placement and materials on which the group market notice must appear without modification. As such, the group market notice must be prominently displayed on all marketing, application, and enrollment (or reenrollment) materials. The notice must also be prominently displayed on websites that advertise or offer an opportunity to enroll (or reenroll) in group market fixed indemnity excepted benefits coverage. 253 As previously discussed in this section III.B.1 of this preamble, HHS is finalizing the proposed requirements regarding the placement and materials on which the individual market notice must appear without modification. As such, the revised individual market notice must be prominently displayed on the first page of the policy, certificate, or contract of insurance, as well as on all marketing, application, and enrollment (or reenrollment) materials. The notice must also be prominently displayed on websites that advertise or offer an opportunity to enroll (or reenroll) in individual market fixed indemnity excepted benefits coverage. Some commenters supported the proposal that the notices be prominently displayed on the first page of applicable materials in at least 14-point font. Another commenter suggested that instead of the 14-point font standard, the Departments should require that the notices are "easily noticeable to a typical consumer within the context of the page." One commenter recommended that when fixed indemnity excepted benefits coverage is sold as part of a bundled package, the applicable notice should be displayed on the front page of the bundled package, not just on the first page of fixed indemnity material, to help consumers see the notice instead of having it be embedded among many pages of material. One commenter stated that State regulators will often require pre-approval of any materials if the issuer adds any language to a previously approved insurance document, and that commenter requested that issuers have the flexibility to provide the required consumer notice on a separate document rather than the first page of the marketing, application, or enrollment (or reenrollment) materials. The Departments agree with commenters who supported the prominent display of the notice on the first page of applicable materials in at least 14-point font. The Departments are of the view that this will help ensure that the notice is displayed in a location and font size that consumers are likely to see and will do so more effectively than a less subjective standard like an "easily noticeable" standard. The individual market regulations have required the prominent display of the notice in at least 14-point font and the Departments maintain that standard for simplicity and consistency. The Departments appreciate the suggestion that when fixed indemnity excepted benefits coverage is sold as part of a bundled package, the notice should be displayed on the front page of the bundled package, not just on the first page of fixed indemnity material, to help consumers see the notice instead of having it be embedded among many pages of material. However, in some cases, placing the notice on the front of such a bundle may lead to increased consumer confusion if, for example, the consumer is unclear as to which insurance sold as part of the bundle is described in the notice. Therefore, the Departments decline to adopt a standard that requires the notice be displayed on the front page of a bundled package. Likewise, the Departments decline to specify the manner in which materials must be presented to States for review and approval including approval of new language in a previously approved document. Issuers should work with States to determine which pages that include the notice must be submitted to the State for review and approval, the manner of submission, and how to verify that the submission is the first page of the material. The Departments are finalizing the proposal that the group market notice must be prominently displayed in at least 14-point font on the first page of the applicable materials, and HHS is finalizing the parallel proposal for prominent display of the individual market notice on the first page of the applicable materials. The existing notice requirement, which currently applies only in the individual market, requires that the following language be provided in application materials in at least 14-point type: THIS IS A SUPPLEMENT TO HEALTH INSURANCE AND IS NOT A SUBSTITUTE FOR MAJOR MEDICAL COVERAGE. LACK OF MAJOR MEDICAL COVERAGE (OR OTHER MINIMUM ESSENTIAL COVERAGE) MAY RESULT IN AN ADDITIONAL PAYMENT WITH YOUR TAXES. To align the notice with the changes made by the Tax Cuts and Jobs Act to section 5000A of the Code (reducing the individual shared responsibility payment to $0), and to clarify the message to consumers, the 2023 proposed rule proposed revisions to the individual market notice and solicited comments on two options for the notice. As previously discussed, the Departments also proposed to adopt a new notice provision for the group market and solicited comments on the same two options for the group market notice. The first option (Format A) was as follows: Notice to Consumers About Fixed Indemnity Insurance IMPORTANT: This is fixed indemnity insurance. This isn't comprehensive health insurance and doesn't have to include most Federal consumer protections for health insurance. Visit HealthCare.gov online or call 1-800-318-2596 (TTY: 1-855-889-4325) to review your options for comprehensive health insurance. If you're eligible for coverage through your employer or a family member's employer, contact the employer for more information. Contact your State department of insurance if you have questions or complaints about this policy. The second option (Format B) was as follows: WARNING This is not comprehensive health insurance. This is fixed indemnity insurance. This may provide a cash benefit when you are sick or hospitalized. It is not intended to cover the cost of your care. Contact your State department of insurance if you have questions or complaints about this policy. For info on comprehensive health insurance coverage options: - Visit HealthCare.gov online or call 1-800-318-2596 (TTY: 1-855-889-4325) - Contact your employer or family member's employer One commenter stated that the general promise of a cash benefit on Format B could be read too broadly by a consumer with low health insurance literacy. Another commenter suggested that the phrase "Important Notice - Please Read Carefully" should appear at the top of the notice because that phrase would better catch the attention of consumers and inform them that this is important information that they should consider prior to making a decision. Another commenter suggested the notice should include the words "by law" before the phrase "does not have to include" most Federal consumer protections on Format A to make it clear that this coverage, by law, is not subject to the ACA or other Federal health coverage mandates. Several commenters indicated that information on the notice should be provided in a bulleted format to ensure that all factors are clearly listed. Some commenters recommended adopting Format B for greater accessibility and stated that version is written more concisely and in plain language. One commenter suggested Format B provides clarity to the reader about the nature of the insurance product by using the term "WARNING" instead of "IMPORTANT." Other commenters opposed the use of Format B, stating that this option was misleading, confusing, and inaccurate. Several commenters suggested that the use of the term "WARNING" inappropriately implies that the coverage is inherently dangerous, noting that in other Federal labeling requirements, the use of the term "WARNING" is limited to extreme situations where the product itself is inherently unsafe. These commenters stated that hospital indemnity or other fixed indemnity insurance is not inherently hazardous or harmful, and the term "IMPORTANT" would be more appropriate and accurate. Some commenters stated that Format B included language regarding covering the cost of care, which is not entirely accurate, and that the language suggests the policy is subject to, but avoiding, Federal coverage mandates. Those commenters stated that Format B may therefore exacerbate consumer confusion. In response to the comments on the proposed content for the notices and the different formats outlined in the 2023 proposed rules, HHS performed consumer testing to evaluate commenters' suggestions and better understand how the different formats for the notice could be interpreted by consumers. This consumer testing found that some consumers were unclear on the meaning of the phrase "cash benefit" within the context of the notice in Format B. Consumers also reported they were confused by the phrase "it is not intended to cover the cost of your care" in Format B of the proposed notice; some consumers noted that phrase only referred to their out-of-pocket costs that may be associated with the policy, such as a deductible or copay. The consumer testing also revealed that consumers prefer "IMPORTANT" and viewed "WARNING" as too strong. They stated that "IMPORTANT" was sufficient to draw their attention to the notice, and that adding the words "by law" before the phrase regarding Federal consumer protections was superfluous and not necessary. In response to comments stating that Format B was written more concisely and in plain language, as well as the results of the consumer testing and feedback from plain language experts, the Departments are finalizing a modified version of Format B. The modified version provides information using a bulleted format to ensure all information is clearly listed, as commenters recommended. The Departments modified Format B to address comments that claimed that format was misleading, confusing, and inaccurate. The finalized notice does not include the phrase "cash benefit" or "by law" or the word "Warning." HHS is similarly not including these same phrases in the individual market notice that is finalized in these final rules. The Departments also decline to add "Important Notice - Please Read Carefully" because consumer testing revealed that including the word "IMPORTANT" in all uppercase was sufficient to identify the applicable notice as a document that should be read. The Departments have revised the group market notice language to include "You're still responsible for paying the cost of your care" because consumers who were tested understood that terminology better than the proposed phrase "It is not intended to cover the cost of your care" included in Format B of the proposed notice. In addition to that phrase, the Departments are also adding the statement "The payment you get isn't based on the size of your medical bill" to highlight that the fixed indemnity excepted benefit is a fixed payment amount and not related to the billed amount. For the same reason, the Departments have also revised the group market notice language to state "Since this policy isn't health insurance, it doesn't have to include most [F]ederal consumer protections that apply to health insurance," rather than the proposed statement in Format B of the proposed notice that the policy "doesn't have to include most Federal consumer protections for health insurance." The revised phrasing avoids suggesting that the policy is subject to, but avoiding, the Federal consumer protections and requirements applicable to comprehensive coverage. HHS is adopting the same revisions to the language in the revised individual market consumer notice. The Departments welcomed comments on any benefits or burdens that would be associated with including information to direct consumers to State-specific resources as part of the notice, including identifying the applicable State Exchange if the fixed indemnity excepted benefits coverage is filed in a State that does not use HealthCare.gov. The Departments also welcomed comments on any burdens that would be created by providing State-specific contact information for the State agency responsible for regulating fixed indemnity excepted benefits coverage in the State where the coverage is filed, rather than a generic reference to the consumer's State department of insurance, as proposed in both Format A and Format B. For products that are filed in multiple States, the Departments solicited comments on whether the notice should include the name and phone number for the State department of insurance of the State in which the individual to whom the fixed indemnity excepted benefits coverage is sold or marketed resides, unless the product is not filed in that State. Under this approach, if the product is not filed in the State in which the individual to whom the fixed indemnity excepted benefits coverage is sold or marketed resides, the notice would need to include the name and phone number for the department of insurance of the State in which the fixed indemnity excepted benefits coverage policy is filed. Several commenters supported including State-specific details in the notice, including contact information for the State's Exchange and department of insurance. One commenter strongly supported including State-specific contact information in the notice, to ensure that consumers have access to the resources they need to understand their hospital indemnity and other fixed indemnity insurance policy. Other commenters opposed customization of the notice to include State-specific resources, stating customization would increase administrative burden and cost and potentially create consumer confusion. One commenter noted that some companies that make fixed indemnity excepted benefits products available in multiple States often use universally applicable brochures for those products, and those issuers would be required to stop longstanding, efficient marketing and enrollment processes with little benefit to consumers, who can easily obtain State-specific contact information elsewhere. One commenter did not support the inclusion of contact information for each State department of insurance but recommended that the Departments consider directing consumers to the NAIC's online directory, available at naic.org. The Departments did not receive comments regarding which State agency's contact information should be included for products that are filed in multiple States. In developing the notice language, the Departments sought to balance the goals of distinguishing fixed indemnity excepted benefits coverage from comprehensive coverage, combatting deceptive marketing practices, and reducing misinformation by directing consumers to appropriate resources to learn about the range of available coverage options, with the need to provide a concise, understandable notice that would be meaningful and useful to consumers. The Departments understand commenters' concerns regarding the burden associated with customizing notices to include State-specific information. However, the Departments also recognize the value of including State-specific information, such as appropriate contact information if the consumer has questions or wants more information about available coverage options. After consideration of comments and the results of consumer testing, the Departments are finalizing changes to the notice to incorporate uniform language as part of the required content for the Federal notices that directs individuals to an NAIC webpage where they can find the contact information for the applicable State regulatory agency. As discussed in section III.A.4 of this preamble, the inclusion of the NAIC link in the notice does not constitute an endorsement by the Departments. Since the Departments are not requiring State-specific contact information on the Federal notice, the Departments decline to specify a certain agency's contact information that should be included for products that are filed in multiple States. The Departments are also incorporating static language as part of the content for the group market notice in these final rules that direct individuals to HealthCare.gov, where individuals can navigate to their State's Exchange, whether a Federally-facilitated Exchange, State Exchange on the Federal platform or a State Exchange. HHS is adopting similar static language for the individual market notice. This approach is intended to balance the desire to ensure individuals can access State-specific information with not increasing the burden on plans and issuers associated with the development of customized notices that provide State-specific information. The Departments also solicited comments on whether it would be beneficial to consumers to require plans and issuers to include language on the notice that clearly informs consumers that the notice is an officially required document, such as "This notice is required by Federal law." The Departments did not receive comments regarding inclusion of that phrase on the required notice for fixed indemnity excepted benefits coverage but performed consumer testing on notices that included the phrase. Consumer testing revealed that some consumers stated that including that phrase at the bottom of the notice was helpful and that it made the information on the notice seem more legitimate, while other consumers stated the phrase meant the fixed indemnity excepted benefits policy itself was endorsed by the Federal Government. Given the potential for consumer confusion, the Departments are not including a statement that the notice is required by Federal law. In response to comments and after consideration of the results from the consumer testing, to enhance readability, the Departments made several changes to incorporate a combination of the language from both Format A and Format B in the 2023 proposed rules and are finalizing the following content for the group market notice: IMPORTANT: This is a fixed indemnity policy, NOT health insurance This fixed indemnity policy may pay you a limited dollar amount if you're sick or hospitalized. You're still responsible for paying the cost of your care. - The payment you get isn't based on the size of your medical bill. - There might be a limit on how much this policy will pay each year. - This policy isn't a substitute for comprehensive health insurance. - Since this policy isn't health insurance, it doesn't have to include most Federal consumer protections that apply to health insurance. Looking for comprehensive health insurance? - Visit HealthCare.gov or call 1-800-318-2596 (TTY: 1-855-889-4325) to find health coverage options. - To find out if you can get health insurance through your job, or a family member's job, contact the employer. Questions about this policy? - For questions or complaints about this policy, contact your State Department of Insurance. Find their number on the National Association of Insurance Commissioners' website ( naic.org ) under "Insurance Departments." - If you have this policy through your job, or a family member's job, contact the employer. HHS is finalizing the same content for the revised individual market notice for fixed indemnity excepted benefits coverage. Some commenters recommended requiring that the formatting of the notice be accessible to people with a range of disabilities and that it be made available in the most commonly spoken languages in each State. The Departments agree that it is important that the notices are accessible and understandable to individuals with disabilities, as well as to individuals with limited English proficiency. The Departments are mindful of the challenges faced by individuals with physical, sensory, or cognitive disabilities, including but not limited to individuals who use screen readers and other assistive technology. While the Departments did not propose and are not finalizing accessibility or language access standards specific to these notices as part of this rulemaking, the Departments remind plans and issuers that they are required to comply with other State and Federal laws establishing accessibility and language access standards to the extent applicable. For example, recipients of Federal financial assistance must comply with Federal civil rights laws that prohibit discrimination. These laws may include section 1557 of the Affordable Care Act, 254 title VI of the Civil Rights Act of 1964, 255 section 504 of the Rehabilitation Act of 1973, 256 and the Americans with Disabilities Act of 1990. 257 Section 1557 and title VI require covered entities to take reasonable steps to ensure meaningful access to individuals with limited English proficiency, which may include provision of language assistance services such as written translation of written content, in paper or electronic form into languages other than English. Sections 1557 and 504 require covered entities to take appropriate steps to ensure effective communication with individuals with disabilities, including provision of appropriate auxiliary aids and services at no cost to the individual. Auxiliary aids and services may include interpreters, large print materials, accessible information and communication technology, open and closed captioning, and other aids or services for persons who are blind or have low vision, or who are deaf or hard of hearing. Additionally, section 508 of the Rehabilitation Act of 1973 requires that information provided through information and communication technology also must be accessible to individuals with disabilities unless certain exceptions apply. 254 42 U.S.C. 18116. 255 42 U.S.C. 2000d et seq. 256 29 U.S.C. 794. 257 42 U.S.C. 12101 et seq. 2. Technical Amendment HHS proposed a technical amendment to the individual market excepted benefits rules to remove the existing requirement at 45 CFR 148.220(b)(4)(i) that fixed indemnity excepted benefits coverage must be provided only to individuals who attest, in their fixed indemnity insurance application, that they have other health coverage that is MEC, or that they are treated as having MEC due to their status as a bona fide resident of any possession of the United States pursuant to section 5000A(f)(4)(B) of the Code. This proposal would strike from the regulatory text the provision that was vacated in Central United Life Ins. Co. v. Burwell. 258 HHS did not receive any comments regarding this proposed technical amendment and is finalizing as proposed. HHS is also finalizing the proposed conforming amendments to 45 CFR 148.220 to redesignate paragraphs (b)(4)(ii) through (iv) as paragraphs (b)(4)(i) through (iii). 259 258 827 F.3d 70 (D.C. Cir. 2016). 259 These provisions are being redesignated without any changes to the regulatory text. 3. Applicability Dates The Departments proposed that the new group market notice provisions would apply to both new and existing group market fixed indemnity excepted benefits coverage for plan years beginning on or after the effective date of the final rules. HHS proposed a similar applicability date for the revised individual market fixed indemnity excepted benefits coverage notice. After consideration of comments, the Departments are finalizing delayed applicability dates for the notices, such that plans and issuers will be required to comply with the notice provisions finalized in these rules for plan years (in the individual market, coverage periods) (including renewals) beginning on or after January 1, 2025. To streamline the regulatory text, the Departments are finalizing the applicability date for the notice provision for fixed indemnity excepted benefits coverage in the group market at 26 CFR 54.9831-1(c)(4)(ii)(D), 29 CFR 2590.732(c)(4)(ii)(D), and 45 CFR 146.145(b)(4)(ii)(D) rather than at 26 CFR 54.9831-1(c)(4)(iv), 29 CFR 2590.732(c)(4)(iv), and 146.145(b)(4)(iv), as proposed. HHS is finalizing the applicability date for the notice provisions for fixed indemnity excepted benefit coverage in the individual market at 45 CFR 148.220(b)(4)(iii), 260 rather than at 148.220(b)(4)(iv). 260 Under 45 CFR 148.220(b)(4)(iii)(B) of these final rules, the notice in§ 148.220(b)(4)(iv) contained in 45 CFR part 148, revised as of October 1, 2023, continues to apply to individual market fixed indemnity excepted benefits coverage for coverage periods beginning before January 1, 2025. However, HHS will not consider insurance to fail to be fixed indemnity excepted benefits coverage in the individual market under the Federal framework if an issuer adopts the revised notice in these final rules for coverage periods beginning before January 1, 2025. HHS encourages States to adopt a similar approach if their issuers elect to adopt the revised notice for coverage periods that begin before January 1, 2025. Several commenters supported issuing updated notices to existing policyholders by applying the notice provisions finalized in these rules to coverage periods (including renewals) beginning on or after January 1, 2025. Other commenters stated the notice provisions should not apply before January 1, 2027, for all individual and group coverage, regardless of when the coverage is issued or sold. Some commenters urged the Departments to apply the notice provisions only to new coverage sold after the effective date of the final rules, alleging that the application to existing coverage would be impermissibly retroactive. Those commenters stated that applying the notice to existing policies would inappropriately interfere with a covered individual's current contract and their choice to continue the policy. Some commenters asserted that imposing the notice provision on existing policies would be confusing and impractical. Another commenter recommended the applicability date for the notice provision for new coverage should be at least 24 months after publication of the final rules, to allow issuers time to update and refile products and marketing materials to reflect the necessary changes and provide State regulators with the time necessary to review and approve products and updated marketing materials. The commenters stated that it would be extremely difficult or impossible for issuers of group market coverage to make the required changes for notices to all marketing and enrollment materials for hospital indemnity and other fixed indemnity products before the effective date of these final rules. One commenter stated that it would be impossible for issuers of individual market coverage to comply with the proposed applicability dates because of the length of time necessary to obtain State-level approval for revised individual insurance contracts. The Departments decline to extend the applicability date to January 1, 2027, as suggested by some commenters. In the Departments' view the benefits of providing the notice to consumers at an earlier time outweighs the burden on plans and issuers to incorporate the notice by the delayed applicability date for plan years (in the individual market, coverage periods) (including renewals) beginning on or after January 1, 2025. To minimize the burden, the Departments are finalizing notices that cannot be modified or customized; therefore, plans and issuers will not have to spend time or resources to develop their own notices to comply with the Federal notice standard. Plans and issuers may need to modify their website or other marketing materials to comply with the Federal notice standard and may need to submit materials for State review, but the Departments do not agree with commenters that those modifications require 24 months or more. The Departments also disagree with commenters who stated that applying the notice to existing policies would inappropriately interfere with a covered individual's current contract. The notice does not change the terms of the contract to which the issuer and policyholder agreed. The notice will be provided to a currently covered individual at the time of renewal; therefore, there is no interference with a current contract, and the notice does not prevent an individual from renewing or reenrolling in fixed indemnity excepted benefits coverage. The Departments therefore disagree that the application of the notice provisions to existing enrollees at the time of renewal or reenrollment is impermissibly retroactive because it applies to future coverage periods and does not take away or impair vested rights or create new obligations or duties with respect to past transactions. The Departments also disagree that applying the notice provisions to existing policies would be confusing and impractical. The Departments are of the view that consumers should have information about the range of available coverage options and have an opportunity to reconsider their coverage options. The notice standard under these final rules allows consumer to make an informed decision whether to maintain their existing fixed indemnity excepted benefits coverage and whether to also pursue or maintain comprehensive coverage. The Departments are not persuaded by comments suggesting it would be extremely difficult or impossible for plans and issuers to make changes to incorporate the applicable notice in all applicable materials for hospital indemnity and other fixed indemnity products before the proposed applicability date, which was the effective date of these final rules. Nevertheless, after consideration of the comments requesting additional time to modify marketing materials and plan documents, the Departments are finalizing an applicability date for the notices adopted under these final rules to apply in the group and individual markets of plan years (in the individual market, coverage periods) (including renewals) beginning on or after January 1, 2025. 261 261 HHS reminds issuers that the existing individual market notice for fixed indemnity excepted benefits coverage, codified in 45 CFR 148.220(b)(4)(iv), revised as of October 1, 2023, continues to apply for coverage periods beginning before January 1, 2025. However, HHS will not consider insurance to fail to be fixed indemnity excepted benefits coverage in the individual market under the Federal framework if an issuer adopts the revised notice in these final rules for coverage periods beginning before January 1, 2025. HHS encourages States to adopt a similar approach if their issuers elect to adopt the revised notice for coverage periods that begin before January 1, 2025. The Departments proposed that the severability provisions described in section IV of this preamble would apply to both new and existing group market fixed indemnity excepted benefits coverage beginning on the effective date of these final rules. HHS proposed that the technical amendment described in section III.B.2 of this preamble and the severability provisions described in section IV of this preamble would apply to both new and existing individual market fixed indemnity excepted benefits coverage on the effective date of these final rules. HHS is only finalizing the technical amendment to remove the language in existing 45 CFR 148.220(b)(4)(i) and make conforming amendments to redesignate paragraphs (b)(4)(ii) through (iv) as paragraphs (b)(4)(i) through (iii). HHS did not receive comments related to the applicability date for the technical amendments it is finalizing in these final rules or severability provision in the individual market regulations and is finalizing them as proposed. The Departments are also finalizing as proposed the applicability date for the group market severability provisions. IV. Severability The Departments are finalizing amendments to the Federal definition of "short-term, limited-duration insurance" and certain regulatory provisions regarding the requirements for hospital indemnity and other fixed indemnity insurance to qualify as an excepted benefit in the group or individual market, for the purpose of distinguishing STLDI and fixed indemnity excepted benefits coverage from comprehensive coverage. The Departments' authority to finalize and adopt these amendments is well-established in law and practice and should be upheld in any legal challenge. However, in the event that any portion of these final rules is declared invalid, the Departments intend that the other provisions, which could still function sensibly, would be severable. Specifically, if any provision finalized in these final rules related to STLDI is held to be invalid or unenforceable by its terms, or as applied to any person or circumstance, or stayed pending further agency action, it shall be considered severable from its section and other sections of these rules; and it shall not affect the remainder thereof or the application of the provision to other entities not similarly situated or to dissimilar conditions. Thus, if a court were to find the portion of the STLDI definition that limits stacking, the portion of the STLDI definition that establishes a Federal consumer notice, or any other aspect of the revised Federal STLDI definition to be unlawful, the Departments intend the remaining aspects of these final rules related to STLDI to stand. Similarly, if any finalized provision in this rulemaking related to group or individual market fixed indemnity excepted benefits coverage is held to be invalid or unenforceable by its terms, or as applied to any person or circumstance, or stayed pending further agency action, it shall be considered severable from its section and other sections of these rules; and such invalidation shall not affect the remainder thereof or the application of the provision to other entities not similarly situated or to dissimilar conditions. The Departments also intend for the STLDI amendments in this rulemaking to be severable from the fixed indemnity excepted benefits coverage amendments, and vice versa. The Departments did not receive any comments on the proposed group market severability provisions and are finalizing the proposed severability provisions as proposed. HHS also did not receive any comments on the proposed individual market severability provision and is finalizing that provision as proposed. V. Regulatory Impact Analysis A. Summary - Departments of Health and Human Services and Labor These final rules revise the Federal definition of STLDI for new policies, certificates, or contracts of insurance sold or issued on or after September 1, 2024, to provide that the coverage must have an expiration date specified in the policy, certificate, or contract of insurance that is no more than 3 months after the original effective date. These final rules also revise the Federal definition of STLDI so that the maximum total coverage duration, taking into account any renewals or extensions, is no longer than 4 months. For purposes of this definition, a renewal or extension includes the term of a new STLDI policy, certificate, or contract of insurance issued by the same issuer or, if the issuer is a member of a controlled group, any other issuer that is a member of such controlled group, to the same policyholder within the 12-month period beginning on the original effective date of the initial policy, certificate, or contract of insurance. For new STLDI - meaning policies, certificates, or contracts of STLDI sold or issued on or after September 1, 2024 - the amendments to the definition of STLDI addressing maximum term and duration in these final rules apply for coverage periods beginning on or after September 1, 2024. Under these final rules, existing STLDI - meaning policies, certificates, or contracts of STLDI sold or issued before September 1, 2024 (including any subsequent renewals or extensions consistent with applicable law) - may continue to have an initial contract term of less than 12 months and a maximum duration of up to 36 months (taking into account any renewals or extensions), subject to any limits under applicable State law. These final rules further revise the Federal definition of STLDI to provide that a revised notice must be prominently displayed (in either paper or electronic form) in at least 14-point font on the first page of the policy, certificate, or contract of insurance and in any marketing, application, and enrollment materials, including for renewals or extensions (including on websites that advertise or enroll individuals in STLDI). These notice provisions apply for both new and existing STLDI for coverage periods beginning on or after September 1, 2024. Additionally, these final rules amend the regulations regarding fixed indemnity excepted benefits coverage in the individual market to provide that a revised notice must be prominently displayed (in either paper or electronic form) on the first page of the policy, certificate, or contract of insurance, and any marketing, application, and enrollment (or reenrollment) materials that are provided at or before the time an individual has the opportunity to apply, enroll, or reenroll in coverage. These final rules also amend the regulations regarding fixed indemnity excepted benefits coverage in the group market to provide that a notice must be prominently displayed (in either paper or electronic form) on the first page of any marketing, application, and enrollment (or reenrollment) materials that are provided to participants at or before the time participants are given the opportunity to enroll (or reenroll) in the coverage. These notice provisions for group and individual market fixed indemnity excepted benefits coverage are applicable to both new and existing coverage with respect to plan years (in the individual market, coverage periods) beginning on or after January 1, 2025. The Departments are finalizing the proposed severability provisions and HHS is also finalizing technical and conforming amendments to the individual market regulation regarding fixed indemnity excepted benefits coverage, which are not expected to have a material impact. The Departments have examined the effects of these final rules as required by Executive Order 12866 on Regulatory Planning and Review (September 30, 1993), 262 Executive Order 13563 on Improving Regulation and Regulatory Review (January 18, 2011), 263 Executive Order 14094 (April 6, 2023), 264 the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96- 354), section 1102(b) of the Social Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 1995, Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999), 265 and the Congressional Review Act (5 U.S.C. 804(2)). 262 Executive Order 12866 of September 30, 1993, 58 FR 51735 (October 4, 1993). 263 Executive Order 13563 of January 18, 2011, 76 FR 3821 (January 21, 2011). 264 Executive Order 14094 of April 6, 2023, 88 FR 21879 (April 11, 2023). 265 Executive Order 13132 of August 4, 1999, 64 FR 43255 (August 10, 1999). B. Executive Orders 12866, 13563, and 14094 - Departments of Health and Human Services and Labor Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). The Executive Order 14094 entitled "Modernizing Regulatory Review" amends section 3(f)(1) of Executive Order 12866 (Regulatory Planning and Review). The amended section 3(f) of Executive Order 12866 defines a "significant regulatory action" as an action that is likely to result in a rule: (1) having an annual effect on the economy of $200 million or more in any 1 year (adjusted every 3 years by the Administrator of the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget (OMB) for changes in gross domestic product), or adversely affecting in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, Territorial, or Tribal governments or communities; (2) creating a serious inconsistency or otherwise interfering with an action taken or planned by another agency; (3) materially altering the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raising legal or policy issues for which centralized review would meaningfully further the President's priorities or the principles set forth in Executive Order 12866, as specifically authorized in a timely manner by the Administrator of OIRA in each case. 266 266 Executive Order 14094 of April 6, 2023, 88 FR 21879 at 21879 (April 11, 2023). A regulatory impact analysis (RIA) must be prepared for significant rules. Based on the Departments' estimates, OMB's OIRA has determined this rulemaking is significant under section 3(f)(1) as measured by the $200 million threshold in any 1 year. Therefore, OMB has reviewed these rules, and the Departments have provided the following assessment of their impact. With respect to Subtitle E of the Small Business Regulatory Enforcement Fairness Act of 1996, also known as the Congressional Review Act, OMB's OIRA has also determined that these rules fall within the definition provided by 5 U.S.C. 804(2). 1. Need for Regulatory Action The 2018 final rules permit enrollment in an STLDI policy with a total duration that could extend up to 36 months (including renewals or extensions). This insurance might therefore be viewed as (and, in some cases, has been deceptively marketed as) a substitute for comprehensive coverage, rather than as a way to bridge a temporary gap in comprehensive coverage. 267 Evidence shows that the number of consumers buying STLDI increased following the effective date of the 2018 final rules. Data from the NAIC indicate that the number of individuals covered by STLDI in the individual market more than doubled between 2018 and 2019, from approximately 87,000 to 188,000, and further increased to approximately 238,000 in 2020, before declining to approximately 173,000 in 2021 following the expansion of PTC subsidies provided through the ARP. 268 The number of individuals covered by STLDI sold to individuals (not enrolled as members of an association) rose once again in 2022, however, to approximately 236,000. 269 While these figures do not capture the total number of individuals covered by STLDI throughout each year (rather, only at the end of the calendar year), and do not include individuals covered by STLDI sold to or through associations, they do show the trend of increased enrollment in STLDI following the implementation of the 2018 final rules. Projections by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) suggest that 1.5 million people could currently be enrolled in STLDI, 270 and CMS previously estimated that 1.9 million individuals would enroll in STLDI by 2023. 271 However, as noted in section V.B.2.b of this preamble, these projections were developed prior to the expansion of PTC subsidies provided through the ARP and the IRA. 267 For one example of deceptive marketing practices, see Federal Trade Commission (2022). "FTC Action Against Benefytt Results in $100 Million in Refunds for Consumers Tricked into Sham Health Plans and Charged Exorbitant Junk Fees," available at: https://www.ftc.gov/news-events/news/press-releases/2022/08/ftc-action-against-benefytt-results-100-million-refunds-consumers-tricked-sham-health-plans- charged. 268 National Association of Insurance Commissioners (2022). Accident and Health Policy Experience Reports for 2018-2021, available at: https://naic.soutronglobal.net/portal/Public/en-US/Search/SimpleSearch. 269 National Association of Insurance Commissioners (2023). "2022 Accident and Health Policy Experience Report," available at: https://content.naic.org/sites/default/files/publication-ahp-lr-accident-health-report.pdf. 270 Congressional Budget Office (2020). "CBO's Estimates of Enrollment in Short-Term, Limited-Duration Insurance," available at: https://www.cbo.gov/publication/56622. CBO and JCT projected that enrollment in STLDI would reach 1.6 million by 2028. See Congressional Budget Office (2019). "How CBO and JCT Analyzed Coverage Effects of New Rules for Association Health Plans and Short-Term Plans," available at: https://www.cbo.gov/publication/54915. 271 CMS Office of the Actuary (2018). "Estimated Financial Effects of the Short-Term, Limited-Duration Policy Proposed Rule," available at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/Downloads/STLD20180406.pdf. Given that STLDI generally is not subject to the Federal consumer protections and requirements for comprehensive coverage applicable to individual health insurance coverage, STLDI policies tend to offer limited benefit coverage and have relatively low actuarial values. 272 These plans therefore expose enrollees to the risk of high out-of-pocket health expenses and medical debt. 273 272 See, for example, Dieguez, Gabriela and Dane Hansen (2020). "The Impact of Short-Term Limited-Duration Policy Expansion on Patients and the ACA Individual Market," Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market. 273 See, for example, Deam, Jenny (2021). "He Bought Health Insurance for Emergencies. Then He Fell Into a $33,601 Trap," ProPublica, available at: https://www.propublica.org/article/junk-insurance. In recent years, fixed indemnity insurance is increasingly being designed to resemble comprehensive coverage, and consumers might therefore mistakenly view it as a substitute for comprehensive coverage rather than as an insurance policy that provides independent, noncoordinated income replacement benefits that is distinct from comprehensive coverage. 274 274 See, for example, Young, Christen Linke and Kathleen Hannick (2020). "Fixed Indemnity Health Coverage Is a Problematic Form of 'Junk Insurance,'" USC-Brookings Schaeffer Initiative for Health Policy, available at: https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/08/04/fixed-indemnity-health-coverage-is-a-problematic-form-of-junk-insurance. In addition, because STLDI and fixed indemnity insurance are sold outside of the Exchanges and are generally not subject to the Federal consumer protections and requirements for comprehensive coverage, consumers may have limited information about the limitations, value, and quality of the coverage being sold. 275 Recent evidence of consumer confusion and improper marketing regarding STLDI 276 and fixed indemnity insurance 277 support the need to improve consumer understanding of these types of insurance (and their coverage limitations) compared to comprehensive coverage. The provisions finalized in these final rules will help ensure that consumers can better understand and properly distinguish STLDI and fixed indemnity excepted benefits coverage from comprehensive coverage, and access resources to learn more about their health coverage options. 275 See Williams, Jackson (2022). "Addressing Low-Value Insurance Products With Improved Consumer Information: The Case of Ancillary Health Products," National Association of Insurance Commissioners, Journal of Insurance Regulation, available at: https://content.naic.org/sites/default/files/cipr-jir-2022-9.pdf. 276 See, for example, Deam, Jenny (2021). "He Bought Health Insurance for Emergencies. Then He Fell Into a $33,601 Trap," ProPublica, available at: https://www.propublica.org/article/junk-insurance. See also Palanker, Dania and Kevin Lucia (2021). "Limited Plans with Minimal Coverage Are Being Sold as Primary Coverage, Leaving Consumers at Risk," Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2021/limited-plans-minimal-coverage-are-being-sold-primary-coverage-leaving-consumers-risk. See also Schwab, Rachel and Maanasa Kona (2018). "State Insurance Department Consumer Alerts on Short-Term Plans Come Up Short," Center on Health Insurance Reforms, available at: https://chirblog.org/state-insurance-department-consumer-alerts-short-term-plans-come-short/. See also Corlette, Sabrina, Kevin Lucia, Dania Palanker, and Olivia Hoppe (2019). "The Marketing of Short-Term Health Plans: An Assessment of Industry Practices and State Regulatory Responses," Urban Institute, available at: https://www.urban.org/research/publication/marketing-short-term-health-plans-assessment-industry-practices-and-state-regulatory-responses. 277 See, for example, Young, Christen Linke and Kathleen Hannick (2020). "Fixed Indemnity Health Coverage Is a Problematic Form of "Junk Insurance," USC-Brookings Schaeffer Initiative for Health Policy, available at: https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/08/04/fixed-indemnity-health-coverage-is-a-problematic-form-of- junk-insurance. See also Government Accountability Office (2020). "Private Health Coverage: Results of Covert Testing for Selected Offerings," available at: https://www.gao.gov/products/gao-20-634r. These final rules will encourage enrollment in comprehensive coverage and lower the risk that STLDI and fixed indemnity excepted benefits coverage are viewed or marketed as a substitute for comprehensive coverage. 278 278 As discussed in section I.B of this preamble, these final rules build on Executive Order 14009, "Strengthening Medicaid and the Affordable Care Act," and Executive Order 14070, "Continuing to Strengthen Americans' Access to Affordable, Quality Health Coverage," by encouraging enrollment in high-quality, comprehensive coverage. The Departments also note that the affordability of comprehensive coverage offered in the individual market has increased for many consumers in recent years, due in part to the expanded PTC subsidies provided through the ARP and the IRA, as discussed in section II of this preamble. Further, as discussed in section II of this preamble, the COVID-19 PHE has highlighted the importance of encouraging enrollment in comprehensive coverage. 2. Summary of Impacts The expected benefits, costs, and transfers associated with these final rules are summarized in Table 1 and discussed in detail later in this section V.B.2 of this preamble. TABLE 1: Accounting Table Table 2 presents the estimated effects of the provisions regarding STLDI on enrollment in and gross premiums for individual health insurance coverage purchased on an Exchange, and on Federal spending on the PTC (by calendar year), as discussed further in sections V.B.2.c and V.B.2.e of this preamble. The Departments estimate that, starting in 2026, total enrollment in individual health insurance coverage purchased on an Exchange will be higher by 60,000 individuals each year, premiums for this coverage will be lower by 0.5 percent each year, and Federal spending on the PTC will be lower by $120 million each year, relative to the current status quo. The cumulative reduction in Federal spending on the PTC will be (an undiscounted) $360 million from 2026 to 2028. TABLE 2: Estimated Effects of the Provisions Regarding STLDI on Enrollment in and Gross Premiums for Individual Health Insurance Coverage Purchased on an Exchange and on Federal Spending on the PTC a. Background STLDI and fixed indemnity excepted benefits coverage generally are not subject to the Federal consumer protections and requirements for comprehensive coverage, as discussed in more detail in section I.A of this preamble. When used as a long-term substitute for comprehensive coverage, STLDI and fixed indemnity insurance expose enrollees to financial and health risks, as discussed in this section and section II.B of this preamble. STLDI and fixed indemnity insurance typically do not cover all essential health benefits (including, for example, prescription drugs, maternity services, and mental health and substance use disorder services), and typically do not cover preexisting conditions. 279 STLDI may offer fewer benefits overall. 280 Fixed indemnity insurance is designed to provide a source of income replacement or financial support following a qualifying health-related event, and benefits are often far below a covered individual's incurred costs related to a medical event. 281 STLDI and fixed indemnity insurance typically have lower loss ratios or actuarial values than coverage subject to the Federal consumer protections and requirements for comprehensive coverage. In one study of the medical claims of approximately 47 million enrollees in commercial plans in 2016, for example, the implied actuarial value of the STLDI coverage in the study was 49 percent, compared to an implied actuarial value of approximately 74 percent for off-Exchange comprehensive coverage plans and an implied actuarial value of 87 percent for on-Exchange plans. 282 Additionally, according to an NAIC report, across 28 issuers of STLDI in the individual market in 2021, the nationwide loss ratio was approximately 70 percent. 283 The same report stated that across 95 issuers of "other medical (non-comprehensive)" coverage in the individual market, which includes fixed indemnity insurance, the nationwide loss ratio was approximately 40 percent in 2021. 284 By contrast, according to data from medical loss ratio (MLR) annual reports for the 2021 MLR reporting year, the average MLR in the individual market for comprehensive coverage was approximately 87 percent in 2021. 285 279 See, for example, Dieguez, Gabriela and Dane Hansen (2020). "The Impact of Short-Term Limited-Duration Policy Expansion on Patients and the ACA Individual Market," Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market. See also Pollitz, Karen, Michelle Long, Ashley Semanskee, and Rabah Kamal (2018). "Understanding Short-Term Limited Duration Health Insurance," KFF, available at: https://www.kff.org/health-reform/issue-brief/understanding-short-term-limited-duration-health-insurance/. See also Sanger-Katz, Margot (2018). "What to Know Before You Buy Short-Term Health Insurance," The New York Times, available at: https://www.nytimes.com/2018/08/01/upshot/buying-short-term-health-insurance-what-to-know.html. See also Partnership to Protect Coverage (2021). "Under-Covered: How 'Insurance-Like' Products are Leaving Patients Exposed," available at: https://www.nami.org/NAMI/media/NAMI-Media/Public%20Policy/Undercovered_Report_03252021.pdf. See also Young, Christen Linke and Kathleen Hannick (2020). "Fixed Indemnity Health Coverage Is a Problematic Form of "Junk Insurance" USC-Brookings Schaeffer Initiative for Health Policy, available at: https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/08/04/fixed-indemnity-health-coverage-is-a-problematic-form-of-junk-insurance. 280 See, for example, Dieguez, Gabriela and Dane Hansen (2020). "The Impact of Short-Term Limited-Duration Policy Expansion on Patients and the ACA Individual Market," Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market. 281 See Williams, Jackson (2022). "Addressing Low-Value Insurance Products With Improved Consumer Information: The Case of Ancillary Health Products," National Association of Insurance Commissioners, Journal of Insurance Regulation, available at: https://content.naic.org/sites/default/files/cipr-jir-2022-9.pdf. 282 Pelech, Daria and Karen Stockley (2022). "How Price and Quantity Factors Drive Spending in Nongroup and Employer Health Plans," Health Services Research, available at: https://onlinelibrary.wiley.com/doi/10.1111/1475-6773.13962. 283 The loss ratio is calculated as ((Incurred Claims Amount + Change in Contract Reserves) / Premiums Earned). Data regarding issuers of STLDI and "other non-comprehensive coverage" are only available for the individual market. See National Association of Insurance Commissioners (2022). "2021 Accident and Health Policy Experience Report," available at: https://naic.soutronglobal.net/portal/Public/en-US/Search/AdvancedSearch. 284 National Association of Insurance Commissioners (2022). "2021 Accident and Health Policy Experience Report," available at: https://naic.soutronglobal.net/portal/Public/en-US/Search/AdvancedSearch. Data regarding issuers of non-comprehensive coverage are only available for the individual market. 285 Based on internal calculations. Source: CMS, Medical Loss Ratio Data and System Resources, available at: https://www.cms.gov/CCIIO/Resources/Data-Resources/mlr. A few commenters also noted that STLDI and fixed indemnity insurance have low average loss ratios as compared to comprehensive coverage. These comments and the previously-mentioned statistics suggest that relative to issuers of comprehensive coverage, issuers of STLDI tend to spend a lower percentage of premium dollars on health care items and services, and issuers of fixed indemnity insurance tend to spend a lower percentage of premium dollars on payment of benefits. STLDI and fixed indemnity insurance can therefore be highly profitable for issuers, 286 depending on the extent to which issuers incur costs related to marketing (including agent/broker compensation 287 ), policy underwriting, and overhead. 286 See Appleby, Julie (2018). "Short-Term Health Plans Boost Profits For Brokers And Insurers," NPR, available at: https://www.npr.org/sections/health-shots/2018/12/21/678605152/short-term-health-plans-boost-profits-for-brokers-and-insurers. See also Pear, Robert (2018). "'Short Term' Health Insurance? Up to 3 Years Under New Trump Policy," The New York Times, available at: https://www.nytimes.com/2018/08/01/us/politics/trump-short-term-health-insurance.html. 287 Compensation includes commissions, fees, or other incentives (for example, rewards or bonuses) as established in the relevant contract between an issuer and the agent or broker. Low average loss ratios for STLDI and fixed indemnity insurance, along with relatively high commission rates for agents and brokers of those policies, reduce the value of STLDI and fixed indemnity insurance for consumers. Agents and brokers act as intermediaries between consumers and issuers. Their income is primarily derived from commissions, which tend to be a percentage of premiums paid by the consumer to the issuer. The commissions are incorporated into the cost of an insurance plan, and therefore indirectly affect the total price paid by the consumer for the coverage purchased. There is limited data available on commission rates paid by issuers to agents and brokers. Agent and broker commission rates tend to vary significantly between health insurance coverage options, though issuers of STLDI and fixed indemnity insurance tend to pay higher commissions. 288 The Departments received several comments indicating that agents and brokers receive a higher percentage of the plan's premium as a commission for selling STLDI or fixed indemnity insurance as compared to individual health insurance coverage. This was also confirmed in the Departments' review of some broker compensation disclosures. 289 The Departments acknowledge that lower cost alternatives to comprehensive coverage may not result in higher total compensation for agents and brokers, since the premiums for comprehensive coverage might be higher than the premiums for STLDI and fixed indemnity insurance. However, higher commission rates for agents and brokers from sales of STLDI and fixed indemnity insurance can incentivize aggressive and/or deceptive marketing tactics that may mislead customers into enrolling in STLDI or fixed indemnity insurance instead of comprehensive coverage. 290, 291, 292 One study suggests that commissions for STLDI are up to 10 times higher than those obtained for enrollment in individual health insurance coverage (averaging approximately 23 percent of premiums for STLDI, compared to 2 percent of premiums for individual health insurance coverage). 293 Another source corroborates this finding by noting that issuers of STLDI pay commissions close to 20 percent of premiums. 294 288 See Lucia, Kevin, Sabrina Corlette, Dania Palanker, and Olivia Hoppe (2018). "Views From the Market: Insurance Brokers' Perspectives on Changes to Individual Health Insurance," Urban Institute, available at: https://www.urban.org/research/publication/views-market-insurance-brokers-perspectives-changes-individual-health-insurance. 289 The Departments reviewed information detailing broker compensation from an agent/broker, two large issuers, and a health insurance agency. 290 See, for example., Appleby, Julie (2018). "Short-Term Health Plans Boost Profits For Brokers And Insurers," NPR, available at: https://www.npr.org/sections/health-shots/2018/12/21/678605152/short-term-health-plans-boost-profits-for-brokers-and-insurers. 291 Government Accountability Office (2020). "Private Health Coverage: Results of Covert Testing for Selected Offerings," available at: https://www.gao.gov/products/gao-20-634r. 292 However, even as some issuers offer higher compensation for STLDI, many brokers continue to refuse to sell products they view as overly risky for consumers, like STLDI. See, for example, Corlette, Sabrina, Erik Wengle, Ian Hill, and Olivia Hoppe (2020). "Perspective from Brokers: The Individual Market Stabilizes While Short-Term and Other Alternative Products Pose Risks," Urban Institute, available at: https://www.urban.org/research/publication/perspective-brokers-individual-market-stabilizes-while-short-term-and-other-alternative-products-pose-risks. 293 U.S. House of Representatives Committee on Energy and Commerce (2020). "Shortchanged: How the Trump Administration's Expansion of Junk Short-Term Health Insurance Plans is Putting Americans at Risk," available at: https://democrats-energycommerce.house.gov/newsroom/press-releases/ec-investigation-finds-millions-of-americans-enrolled-in-junk-health. 294 Sanger-Katz, Margot (2018). "What to Know Before You Buy Short-Term Health Insurance," The New York Times, available at: https://www.nytimes.com/2018/08/01/upshot/buying-short-term-health-insurance-what-to-know.html. In the 2023 proposed rules, the Departments stated that the limited coverage provided through most STLDI and fixed indemnity excepted benefits coverage exposes individuals enrolled in these policies to health and financial risks, including the risk of high medical bills and high out-of-pocket expenses. The Departments further noted that these high out-of-pocket expenses, in turn, could contribute to an increased risk of medical debt and bankruptcy, which is particularly problematic given the extent of medical debt already present in the United States. 295 As discussed in section II.B of this preamble, commenters provided the Departments with examples of how enrollment in fixed indemnity insurance, when used as a substitute for comprehensive coverage, could expose individuals to financial risk. However, many commenters also noted that fixed indemnity insurance can reduce financial risk for individuals, given that it provides payments for unexpected expenses associated with a health-related event. The Departments acknowledge that fixed indemnity insurance can reduce financial risk when used as a supplement to comprehensive coverage but remain concerned about the financial risk for individuals when it is used as a substitute for comprehensive coverage. 295 See, for example, Consumer Financial Protection Bureau (2022). "Medical Debt Burden in the United States," available at: https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-states_report_2022-03.pdf. Misleading marketing of STLDI and fixed indemnity insurance is reported to have taken place during annual individual market open enrollment and special enrollment periods (including during the 2021 COVID-19 special enrollment period, when Exchanges using the Federal platform made available a 6-month special enrollment period on HealthCare.gov to allow qualified individuals to enroll in individual health insurance coverage during the COVID-19 PHE). 296 For example, one study showed that enrollment in STLDI policies through brokers increased by approximately 60 percent in December 2018 and by more than 120 percent in January 2019, suggesting that overall enrollment in STLDI spiked during the annual individual market open enrollment period. 297 One survey suggests that lead-generating websites direct consumers to insurance brokers selling both STLDI and other types of non-comprehensive coverage, including fixed indemnity insurance, and that these types of coverage are often marketed to resemble comprehensive coverage. 298 296 See Palanker, Dania and JoAnn Volk. (2021). "Misleading Marketing of Non-ACA Health Plans Continued During COVID-19 Special Enrollment Period," Center on Health Insurance Reforms, available at: https://georgetown.app.box.com/s/mn7kgnhibn4kapb46tqmv6i7putry9gt. See also Corlette, Sabrina, Kevin Lucia, Dania Palanker, and Olivia Hoppe (2019). "The Marketing of Short-Term Health Plans: An Assessment of Industry Practices and State Regulatory Responses," Urban Institute, available at: https://www.urban.org/research/publication/marketing-short-term-health-plans-assessment-industry-practices-and-state-regulatory-responses. Regarding the establishment of the COVID-19 special enrollment period, see E.O. 14009; see also CMS (2021). "2021 Special Enrollment Period in Response to the COVID-19 Emergency," available at: https://www.cms.gov/newsroom/fact-sheets/2021-special-enrollment-period-response-covid-19-emergency. Regarding the extension of the COVID-19 special enrollment period (to the 6-month period between February 15, 2021, and August 15, 2021), see CMS (2021). "Extended Access Opportunity to Enroll in More Affordable Coverage Through HealthCare.gov," available at: https://www.cms.gov/newsroom/fact-sheets/extended-access-opportunity-enroll-more-affordable-coverage-through-healthcaregov. 297 U.S. House of Representatives Committee on Energy and Commerce (2020). "Shortchanged: How the Trump Administration's Expansion of Junk Short-Term Health Insurance Plans Is Putting Americans at Risk," available at: https://democrats-energycommerce.house.gov/newsroom/press-releases/ec-investigation-finds-millions-of-americans-enrolled-in-junk-health. 298 Corlette, Sabrina, Kevin Lucia, Dania Palanker, and Olivia Hoppe (2019). "The Marketing of Short-Term Health Plans: An Assessment of Industry Practices and State Regulatory Responses," Urban Institute, available at: https://www.urban.org/research/publication/marketing-short-term-health-plans-assessment-industry-practices-and-state-regulatory-responses. A number of States and the District of Columbia enacted legislation or issued regulations regarding STLDI after the 2018 final rules were published. State regulatory actions regarding STLDI have been wide-ranging. For example, according to one report, as of September 2023, four States prohibited STLDI, seven States and the District of Columbia limited the total duration of enrollment in STLDI (including renewals or extensions) to less than 3 months, and eight States have limited the initial contract terms for enrollment in STLDI to less than 6 months. 299 Other State regulatory actions on STLDI have included banning coverage rescissions (except in cases of fraud on the part of the enrollee), adding preexisting condition protections, and requiring a certain MLR, among other restrictions. 300 Lastly, some States have largely aligned their regulations regarding STLDI with the 2018 final rules. 301 In some States that allow sales of STLDI, but have additional consumer protections in place (for example, prohibitions on renewals of STLDI coverage), issuers do not offer STLDI. 302 299 See Healthinsurance.org (2023). "Duration and Renewals of 2023 Short-Term Medical Plans by State," available at: https://www.healthinsurance.org/wp-content/uploads/2023/09/state-by-state-short-term-health-insurance.pdf. 300 Palanker, Dania, Maanasa Kona, and Emily Curran (2019). "States Step Up to Protect Insurance Markets and Consumers from Short-Term Health Plans," Commonwealth Fund, available at: https://www.commonwealthfund.org/publications/issue-briefs/2019/may/states-step-up-protect-markets-consumers-short-term-plans. 301 See Healthinsurance.org (2023). "Duration and Renewals of 2023 Short-Term Medical Plans by State," available at: https://www.healthinsurance.org/wp-content/uploads/2023/09/state-by-state-short-term-health-insurance.pdf. 302 See Dieguez, Gabriela and Dane Hansen (2020). "The Impact of Short-Term Limited-Duration Policy Expansion on Patients and the ACA Individual Market," Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market. Recent analysis has found that States that allow the initial contract term of STLDI to last up to 364 days have seen a 27 percent reduction in enrollment, on average, in non-Exchange plans that are subject to the Federal consumer protections and requirements for comprehensive coverage from 2018 to 2020, compared with a 4 percent reduction in enrollment, on average, in those plans in States that banned STLDI or limited its duration to 6 months or less. 303 This analysis also found that market-wide risk scores (a measure of relative expected health care costs for a population) declined more in States that banned or limited STLDI (-11.8 percent) than in States with less restrictions on STLDI (-8.3 percent), suggesting that the less restrictive States saw more healthier individuals enroll in STLDI policies in lieu of comprehensive coverage, which put upward pressure on the average expected health care costs among those with comprehensive coverage. 303 See Hall, Mark and Michael McCue (2022). "Short-Term Health Insurance and the ACA Market," Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2022/short-term-health-insurance-and-aca-market. b. Number of Affected Entities The provisions in these final rules will affect consumers enrolled in STLDI or fixed indemnity excepted benefits coverage, issuers of STLDI, issuers offering fixed indemnity excepted benefits coverage, and agents and brokers selling STLDI or fixed indemnity excepted benefits coverage. The provisions in these rules will also affect States if they enact or implement new legislation in response to these final rules. State departments of insurance will also be impacted to the extent they need to review amended marketing materials and plan documents filed by issuers. With respect to consumers, individuals who are currently enrolled in STLDI or who may consider purchasing or choose to purchase STLDI in the future will be impacted by these final rules. Data from the NAIC indicate that 235,775 individuals were covered by STLDI sold to individuals at the end of 2022. 304 As noted in section V.B.1 of this preamble, this figure does not capture the total number of individuals covered by STLDI throughout the year and does not include individuals covered by STLDI sold to or through associations, through which most policies appear to be sold. 305 As noted in section V.B.1 of this preamble, projections by CBO and JCT suggest that 1.5 million people could currently be enrolled in STLDI, 306 and CMS previously estimated that 1.9 million individuals would enroll in STLDI by 2023. 307 However, the CBO and JCT and CMS estimates were developed prior to the expansion of PTC subsidies provided through the ARP and the IRA, which likely supported increased enrollment in individual health insurance coverage purchased on an Exchange in lieu of STLDI and other forms of health insurance not subject to the Federal consumer protections and requirements for comprehensive coverage, if only temporarily. 308, 309 The number of enrollees in STLDI also might have been affected by changes in State law or regulation that have occurred since the 2018 final rules were issued. The Departments received a comment that also noted that the NAIC figure was likely an underestimate given that not all issuers report complete data to the NAIC. Another commenter-- a State department of insurance--provided information about the number of individuals who had enrolled in STLDI in their State as of mid-2023. The Departments acknowledge that the NAIC figure likely underestimates the number of enrollees in STLDI, yet commenters did not offer additional data or information on the total number of consumers enrolled in STLDI across the country, and the Departments are not aware of another available source for these data. 304 National Association of Insurance Commissioners (2023). "2022 Accident and Health Policy Experience Report," available at: https://content.naic.org/sites/default/files/publication-ahp-lr-accident-health-report.pdf. 305 Pollitz, Karen, Michelle Long, Ashley Semanskee, and Rabah Kamal (2018). "Understanding Short-Term Limited Duration Health Insurance," KFF, available at: https://www.kff.org/health-reform/issue-brief/understanding-short-term-limited-duration-health-insurance/. 306 Congressional Budget Office (2020). "CBO's Estimates of Enrollment in Short-Term, Limited-Duration Insurance," available at: https://www.cbo.gov/publication/56622. CBO and JCT projected that enrollment in STLDI would reach 1.6 million by 2028. See Congressional Budget Office (2019). "How CBO and JCT Analyzed Coverage Effects of New Rules for Association Health Plans and Short-Term Plans," available at: https://www.cbo.gov/publication/54915. 307 CMS Office of the Actuary (2018). "Estimated Financial Effects of the Short-Term, Limited-Duration Policy Proposed Rule," available at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/Downloads/STLD20180406.pdf. 308 See, for example, Ortaliza, Jared, Krutika Amin, and Cynthia Cox (2022). "As ACA Marketplace Enrollment Reaches Record High, Fewer Are Buying Individual Market Coverage Elsewhere," KFF, available at: https://www.kff.org/policy-watch/as-aca-marketplace-enrollment-reaches-record-high-fewer-are-buying-individual-market-coverage-elsewhere/. 309 Based on data from the NAIC, the number of individuals covered by STLDI rose from around 173,000 in 2021 to 236,000 in 2022, reversing the downward trend from 2020 to 2021. See National Association of Insurance Commissioners (2023). "2022 Accident and Health Policy Experience Report," available at: https://content.naic.org/sites/default/files/publication-ahp-lr-accident-health-report.pdf. Additionally, individuals who are currently enrolled in fixed indemnity excepted benefits coverage or who may choose to purchase or consider purchasing such coverage in the future will be affected by these final rules. Although the Departments are unaware of a definitive source for the number of fixed indemnity policies sold nationwide, the NAIC reports the total number of "other non-comprehensive coverage" policies 310 sold in the individual market. These nearly 2.6 million policies or certificates, covering approximately 4 million individuals, include fixed indemnity products along with other insurance products, and provide a potential estimate of the number of potential fixed indemnity policies or certificates and number of covered lives in the individual market. The Departments sought comments on the number of consumers who would be affected by the fixed indemnity excepted benefits coverage provisions in the proposed rules. Some commenters referenced a survey of 39 issuers of fixed indemnity or specified disease products. The survey indicated that approximately 3.4 million individuals are currently covered by fixed indemnity products in the individual market and approximately 4.7 million individuals are currently covered by fixed indemnity products in the group market. 311 Several issuers that commented on the proposed rules also provided information on the number of consumers currently enrolled in their fixed indemnity or other supplemental insurance products, with one issuer indicating that 47,900 of its customers were enrolled in fixed indemnity insurance without being enrolled in comprehensive coverage. One association commenting on the rules estimated that the number of supplemental policies in force for school employees "is in the multi-millions." 310 See National Association of Insurance Commissioners (2023). "2022 Accident and Health Policy Experience Report," available at: https://content.naic.org/sites/default/files/publication-ahp-lr-accident-health-report.pdf ("Other medical (non-comprehensive) coverage" includes "policies such as hospital only, hospital confinement, surgical, outpatient indemnity, intensive care, mental health/substance abuse, and organ and tissue transplant (including scheduled type policies), etc." It is further noted that "expense reimbursement and indemnity plans should be included" in this definition, but that "this category does not include TRICARE/CHAMPUS Supplement, Medicare Supplement, or FEHB Program coverage." Data from the NAIC regarding issuers of "other non-comprehensive coverage" are only available for the individual market. 311 See AHIP-ACLI-BCBSA 2023 Survey: Fixed Indemnity and Specified Disease Plans, September 7, 2023, available at: https://www.ahip.org/resources/ahip-acli-bcbsa-2023-survey. Based on the NAIC and industry estimates, the number of individuals with individual market fixed indemnity excepted benefits coverage who could be affected by these final rules could be up to 4 million, and the number of individuals with group market fixed indemnity excepted benefits coverage who could be affected by these final rules could be up to 4.7 million. However, because it is not clear what percentages of the NAIC and industry estimates are specific to fixed indemnity excepted benefits coverage rather than fixed indemnity insurance in general, the number of individuals affected by the provisions for fixed indemnity excepted benefits coverage in these final rules is likely to be lower than these estimates. These final rules may also indirectly impact consumers enrolled in comprehensive coverage because of the potential impact of increased enrollment in comprehensive coverage on individual and group market risk pools, premiums, plan offerings, or issuer participation. While the Departments are unable to estimate whether or how these final rules will impact plan offerings or issuer participation in the individual and group markets for comprehensive coverage, in sections V.B.2.c and V.B.2.e of this preamble, the Departments discuss the estimated effects of the provisions regarding STLDI included in these final rules on enrollment in and premiums for individual health insurance coverage purchased on an Exchange. Issuers of STLDI and fixed indemnity excepted benefits coverage will be directly impacted by these final rules. The NAIC reported that there were at least 28 issuers of STLDI in the individual market across the U.S. in 2022 and at least 93 issuers of "other non-comprehensive coverage" (including fixed indemnity insurance) in the individual market across the U.S. in 2022. 312 Data regarding issuers of STLDI and "other medical (non-comprehensive)" coverage are only available for the individual market. The Departments anticipate that many of these issuers also offer coverage in the group market. The Departments sought comments on the number of entities that would be affected by the proposed rules, including the number of issuers and associations offering STLDI and fixed indemnity excepted benefits coverage, but did not receive any data from commenters on the number of issuers in the STLDI or fixed indemnity excepted benefits coverage market that would be affected. Based on the NAIC data, and assuming some overlap between issuers in the individual and group market, the Departments anticipate that at least 28 issuers of STLDI and at least 93 issuers of fixed indemnity excepted benefits coverage could be affected by the provisions being finalized in these final rules. 312 National Association of Insurance Commissioners (2023). "2022 Accident and Health Policy Experience Report," available at: https://content.naic.org/sites/default/files/publication-ahp-lr-accident-health-report.pdf. However, the Departments note that this might overestimate the number of issuers of fixed indemnity excepted benefits coverage, given that the NAIC figure captures issuers of other forms of non-comprehensive medical coverage in addition to fixed indemnity insurance, and that even for those issuers of fixed indemnity insurance that are included in this figure, it is not clear what percentage of those issuers offer fixed indemnity excepted benefits coverage in particular. Agents and brokers selling STLDI or fixed indemnity excepted benefits coverage will be impacted by these final rules. The Bureau of Labor Statistics estimates that there are 445,540 insurance agents nationwide, which includes agents and brokers that sell health insurance products in addition to other types of insurance (for example, life and property). 313 One professional association, which is estimated to represent one-third of active health insurance agents and brokers, 314 has approximately 100,000 members. 315 However, the Departments lack data about the number of agents and brokers that currently enroll individuals in STLDI or fixed indemnity excepted benefits coverage and did not receive any additional data from commenters. 313 Bureau of Labor Statistics (2022). "National Occupational Employment and Wage Estimates," available at: https://www.bls.gov/oes/current/oes413021.htm. 314 Karaca-Mandic, Pinar, Feldman, Roger, and Peter Graven (2016). "The Role of Agents and Brokers in the Market for Health Insurance," Journal of Risk and Insurance, available at: https://onlinelibrary.wiley.com/doi/full/10.1111/jori.12139. 315 National Association of Benefits and Insurance Professionals (2023). "Who We Are," available at: https://nabip.org/who-we-are. c. Benefits Increase in consumer awareness. These final rules are expected to reduce the harm caused to consumers who are misled into enrolling in STLDI or fixed indemnity excepted benefits coverage as an alternative to or replacement for comprehensive coverage. The notice provisions being finalized in these final rules will improve consumer understanding of STLDI and fixed indemnity excepted benefits coverage in relation to comprehensive coverage. The Departments received some comments noting that STLDI policies are often marketed as a more affordable alternative to comprehensive coverage, and received many comments stating that STLDI policies exclude critically important health care services, as discussed in section III.A.1 of this preamble. Many commenters stated that the 2023 proposed rules would help consumers differentiate STLDI and fixed indemnity excepted benefits coverage from comprehensive coverage when shopping for health insurance. Some commenters also stated that the notice provisions for STLDI and fixed indemnity excepted benefits coverage would help combat deceptive marketing practices and would improve consumer understanding of the different options available when shopping for insurance. One commenter stated that enrollees in STLDI policies are functionally uninsured due to the narrow benefits and design limitations that are often poorly understood by consumers. Although several commenters expressed concern about the improper marketing of fixed indemnity insurance, some commenters suggested that such improper marketing practices are limited to a few "bad actors" in the market. One commenter stated that concerns over widespread consumer confusion are unsupported, and that consumer confusion could be addressed by policy alternatives like increased enforcement of deceptive marketing laws or enhanced consumer awareness campaigns, rather than the provisions proposed in the 2023 proposed rules. The Departments agree that the notice provisions will help ensure individuals are made aware that STLDI and fixed indemnity excepted benefits policies are not comprehensive coverage. The Departments are of the view that the provisions finalized in these final rules will reduce the level of deceptive marketing of STLDI and fixed indemnity excepted benefits policies, reduce the harm from such deceptive marketing practices, and increase the overall awareness of coverage options that include the full range of Federal consumer protections. These provisions will also help consumers more easily distinguish between STLDI or fixed indemnity excepted benefits coverage and individual health insurance coverage, thereby mitigating the risk that they mistakenly enroll in STLDI or fixed indemnity excepted benefits coverage in lieu of comprehensive coverage. The Departments appreciate the suggestions related to increased enforcement of deceptive marketing laws, and enhanced consumer awareness campaigns, but are of the view that these actions alone would not sufficiently address consumer confusion related to the current structure of STLDI and fixed indemnity excepted benefit coverage. Better health outcomes. Consumers who switch from STLDI or fixed indemnity excepted benefits coverage (when used as a substitute for comprehensive coverage) to comprehensive coverage are expected to have better access to health care, better consumer protections, and more robust benefits, and are therefore expected to experience better health outcomes. Several commenters stated that STLDI policies can limit access to health care and lead to negative health outcomes given the insufficient coverage of STLDI policies. Commenters stated that the inadequate coverage, particularly for individuals with chronic conditions, could lead to the use of high-cost services, such as emergency department visits or hospitalizations that could have been prevented if adequate care were accessible through their STLDI coverage. On the other hand, some commenters stated that enrollees in STLDI and fixed indemnity excepted benefits policies can benefit from receiving services provided by any provider and are not limited by provider networks established by issuers offering comprehensive coverage. 316 Some commenters suggested that the STLDI provisions could restrict patients' access to certain providers or reduce access to care in general. Other commenters suggested that the STLDI provisions could influence the composition of health care utilization and spending--because of the limited benefits or high cost-sharing requirements of most STLDI policies, enrollees in STLDI policies may underutilize preventive care and overutilize higher-cost care. 316 Issuers of STLDI and fixed indemnity excepted benefits coverage may also have provider networks, and one commenter (an issuer of STLDI) noted that their provider network has 1.5 million physicians and other health care professionals and approximately 7,000 hospitals and other facilities. The Departments acknowledge that there may be individuals whose provider may not be in-network with an issuer offering comprehensive coverage, and that individuals may experience changes in access to certain providers if they switch from STLDI or fixed indemnity excepted benefits coverage (when used as a substitute for comprehensive coverage) to comprehensive coverage. However, given the limited benefits, limited consumer protections, and financial exposure associated with most STLDI and fixed indemnity excepted benefits coverage (when used as a substitute for comprehensive coverage), the Departments are of the view that individuals' overall financial risk would decrease and their overall access to health care would increase if they enrolled in comprehensive coverage. Furthermore, the Departments are of the view that overall health outcomes will improve for individuals who enroll in comprehensive coverage in lieu of STLDI or fixed indemnity excepted benefits coverage (when used as a substitute for comprehensive coverage). For example, studies 317 that examined the potential impacts of State policies regulating STLDI found that individuals in States that prohibited or restricted the sale of STLDI policies had more favorable cancer diagnoses when compared to individuals in States that did not prohibit or restrict STLDI policies. In summary, if individuals enroll in comprehensive coverage instead of STLDI or fixed indemnity excepted benefits coverage, the Departments expect that they will have increased access to care, decreased exposure to major medical expenses, and improved health outcomes. 317 See Barnes, Justin, Anne Kirchhoff, Robin Yabroff, and Fumiko Chino (2023). "State Policies Regulating Short-Term Limited Duration Insurance Plans and Cancer Stage at Diagnosis," JNCI Cancer Spectrum, Volume 7, Issue 5, available at: https://doi.org/10.1093/jncics/pkad060. See also Yang, Nuo Nova Nova, Jingxuan Zhao, Justin Michael Potential increase in enrollment in comprehensive coverage. The Departments anticipate that these final rules will lead to an increase in enrollment in comprehensive coverage. The Departments expect that individuals will be less likely to wait until they have incurred major medical expenses or developed a medical condition to look for opportunities to switch from STLDI or fixed indemnity excepted benefits coverage (when used as a substitute for comprehensive coverage) to comprehensive coverage. Increased enrollment in comprehensive coverage in lieu of enrollment in STLDI is also expected to reduce the number of coverage rescissions, claims denials, and coverage exclusions associated with STLDI. However, as noted earlier in this section V.B.b of this preamble, the expanded PTC subsidies provided through the ARP and the IRA have likely already resulted in increased enrollment in individual health insurance coverage purchased on an Exchange in lieu of STLDI or fixed indemnity excepted benefits coverage (when used as a substitute for comprehensive coverage), so the immediate overall effects of these final rules on enrollment in, market stability of, and risk pools for comprehensive coverage are expected to be limited in 2024 and 2025. 318 The CMS Office of the Actuary (OACT) estimates that, relative to current law, the provisions regarding STLDI being 318 See, for example, Ortaliza, Jared, Krutika Amin, and Cynthia Cox (2022). "As ACA Marketplace Enrollment Reaches Record High, Fewer Are Buying Individual Market Coverage Elsewhere," KFF, available at: https://www.kff.org/policy-watch/as-aca-marketplace-enrollment-reaches-record-high-fewer-are-buying-individual-market-coverage-elsewhere/. See also Ortaliza, Jared, Krutika Amin, and Cynthia Cox (2024). "Another Year of Record ACA Marketplace Signups, Driven in Part by Medicaid Unwinding and Enhanced Subsidies," KFF, available at: https://www.kff.org/policy-watch/another-year-of-record-aca-marketplace-signups-driven-in-part-by-medicaid-unwinding-and-enhanced-subsidies/. Barnes, Anne C. Kirchhoff, Fumiko Chino, Robin Yabroff, and Xuesong Han (2023). "Association of Federal and State Policies Regulating Short-term Limited Duration Insurance (STLD) Plans and Later Cancer Stage at Diagnosis." JCO Oncology Practice, Volume 19, Issue 11, available at: https://ascopubs.org/doi/abs/10.1200/OP.2023.19.11_suppl.197. finalized in these final rules will not affect enrollment in individual health insurance coverage purchased on an Exchange in 2024 and 2025, but will increase enrollment by approximately 60,000 people in 2026, 2027, and 2028. 319 Many commenters indicated that the STLDI provisions are likely to reduce premiums for individual health insurance coverage. Many commenters also pointed to the potential shift in enrollment from STLDI to individual health insurance coverage as having a potential impact on the risk pools for individual health insurance coverage. 320 The Departments agree with these comments and are of the view that the provisions for STLDI and fixed indemnity excepted benefits coverage being finalized in these final rules will lead to more stable markets and improved market risk pools for comprehensive coverage. 319 In developing these estimates, OACT assumed that STLDI would be significantly less expensive than individual health insurance coverage purchased on an Exchange (where available) and would be an attractive option for individuals and families with relatively low health care costs and little to no subsidies. Using their health reform model, OACT estimated that, under current law, about 60,000 people would move from individual health insurance coverage purchased on an Exchange to STLDI in 2026, when the additional PTC subsidies available through 2025 through the IRA expire. In addition, since those switching to STLDI are assumed to be healthier than average, the average premium for individual health insurance coverage purchased on an Exchange would increase by roughly 0.5 percent. Changing the maximum duration of an STLDI policy, certificate, or contract of insurance to no more than 4 months is expected to negate these effects. 320 The Departments received an analysis from a commenter that estimated the potential impact of the STLDI provisions on enrollment and premiums in the individual market for comprehensive coverage. The analysis found that the STLDI provisions are likely to increase enrollment and lower premiums in the individual market for comprehensive coverage. The analysis utilized upper bound estimates of existing STLDI enrollment and analyzed varying scenarios of transition from STLDI coverage to individual health insurance coverage to estimate that such transitions could result in a 0.5 to 2 percent reduction in premiums. The commenter acknowledged that these impacts would vary by State given the different levels of STLDI regulations in States. Overall, the analysis notes that the net result is positive for consumers should there be a significant transition from STLDI coverage to individual health insurance coverage. Reduction in financial risk for consumers. To the extent that these final rules lead to an increase in enrollment in individual health insurance coverage subject to the Federal consumer protections and requirements for comprehensive coverage in lieu of STLDI or fixed indemnity excepted benefits coverage (when used as a substitute for comprehensive coverage), the Departments are of the view that these final rules will result in a reduction in out-of-pocket expenses, medical debt, and risk of medical bankruptcy for consumers switching to comprehensive coverage. These final rules could also lead to a reduction in potentially devastating surprise bills from out-of-network providers in emergency and certain other circumstances to the extent the rules lead to an increase in enrollment in individual health insurance coverage, which is subject to the surprise billing protections for consumers under the No Surprises Act. Many commenters agreed that the proposals being finalized in these final rules will support consumer protections. Many commenters also indicated that these final rules are critical to ensuring consumers' financial well-being and reducing their financial risk. Several commenters agreed that the proposed STLDI notice would ensure that consumers understand the type of coverage that they would be enrolling in and its limitations. Many commenters stated that STLDI policies expose enrollees to the risk of high out-of-pocket costs when an illness or injury occurs, and some commenters stated that this could lead to increased medical debt. One commenter indicated that families without comprehensive care are at risk of delaying care or going into debt. One commenter indicated that consumers may not realize how limited their STLDI coverage is until they are faced with high out-of-pocket costs for services commonly covered under comprehensive coverage. Commenters pointed to rehabilitation services, prescription drug costs, and cancer treatments as resulting in significantly higher out-of-pocket costs for consumers enrolled in STLDI when compared to comprehensive coverage. For example, the Departments reviewed a scenario study 321 that assessed the cost implications of a hypothetical consumer who enrolls in a typical STLDI policy and is later diagnosed with breast cancer. The study found that this hypothetical consumer would incur between $40,000 to $63,000 in out-of-pocket expenses, compared to less than $8,000 in a comprehensive coverage plan. While many commenters argued that fixed indemnity excepted benefits coverage reduces financial risk, other commenters argued that fixed indemnity excepted benefits coverage exposes individuals to financial risk when it is used as a substitute for comprehensive coverage. Lastly, some commenters specifically noted that the provisions regarding stacking of STLDI policies would benefit consumers by limiting circumvention of the provisions related to maximum duration, as discussed in section III.A.2 of this preamble. The Departments agree with these comments and are of the view that to the extent that consumers obtain comprehensive coverage in lieu of STLDI or fixed indemnity excepted benefits coverage, they are likely to experience lower out-of-pocket costs for their care. As noted in section V.B.2.a of this preamble, the Departments acknowledge that fixed indemnity excepted benefits coverage can reduce financial risk when used as a supplement to comprehensive coverage but remain concerned about the financial risk for individuals when it is used as a substitute for comprehensive coverage. 321 American Cancer Society Cancer Action Network (2019). "Inadequate Coverage: An ACS CAN Examination of Short-Term Health Plans," available at: https://www.fightcancer.org/sites/default/files/ACS%20CAN%20Short%20Term%20Paper%20FINAL.pdf. d. Costs Increase in premiums. The Departments recognize that some individuals with STLDI or fixed indemnity excepted benefits coverage who switch to individual health insurance coverage might incur higher premium costs depending on their choice of available Exchange and off- Exchange plans, their PTC eligibility (if applicable), and the amount of APTC they receive (if any). 322 Several commenters noted that the STLDI provisions could lead to higher premium costs for individuals if they switch to comprehensive coverage, and several commenters noted the low monthly premiums for STLDI relative to comprehensive coverage. One commenter acknowledged that STLDI has lower premiums because the Federal consumer protections and requirements for comprehensive coverage do not apply to this form of coverage. Some commenters stated that STLDI policies cover the select benefits certain consumers want. The Departments acknowledge that premiums for comprehensive coverage are generally higher than premiums for STLDI, but note that this is largely because comprehensive coverage offers more benefits with lower out-of-pocket costs. Further, as noted in section II.A of this preamble, comprehensive coverage for individuals has generally become more accessible and affordable in recent years, due in part to the expansion of PTC subsidies under the ARP and the IRA, and the provisions for STLDI finalized in these final rules are expected to put further downward pressure on gross premiums for individuals enrolled in individual health insurance coverage purchased on an Exchange. The Departments are of the view that any increase in costs is outweighed by the meaningful increase in benefits and consumer protections afforded to individuals enrolled in comprehensive coverage. 322 This might occur if premiums for STLDI are lower than premiums for individual health insurance coverage. One study, for example, showed that by screening out individuals with pre-existing conditions and providing fewer comprehensive benefits, issuers may be able to offer STLDI at rates 54 percent below those for (unsubsidized) comprehensive coverage. See Levitt, Larry, Rachel Fehr, Gary Claxton, Cynthia Cox, and Karen Pollitz (2018). "Why do Short-Term Health Insurance Plans Have Lower Premiums than Plans that Comply with the ACA?" KFF, available at: https://files.kff.org/attachment/Issue-Brief-Why-Do-Short-Term-Health-Insurance-Plans-Have-Lower-Premiums-Than-Plans-That-Comply-with-the-ACA. Loss of coverage. These final rules might also lead to an increase in the number of individuals without some form of health insurance coverage, if some individuals with STLDI purchased after the applicability date are no longer able to renew or extend their current policy, choose not to purchase a new policy from another issuer of STLDI, and can only obtain comprehensive coverage during an annual individual market open enrollment period, or choose not to purchase comprehensive coverage. Many commenters agreed with the Departments' analysis and noted that the provisions regarding STLDI coverage may reduce consumers' coverage options or lead to a loss of coverage or a coverage gap. Many commenters argued that restricting access to STLDI would not be appropriate for certain populations given their coverage needs (for seasonal employees working in another State, for example). These commenters noted that specific groups who benefit from STLDI policies are most likely to go without insurance as a result of the STLDI provisions, such as gig-economy workers, contract workers, college students, commercial truck drivers, and travel nurses. Some commenters suggested that the STLDI provisions could lead consumers to seek alternative forms of non-comprehensive coverage, including coverage offered in unregulated markets (for example, through health care sharing ministries). The Departments acknowledge that some individuals who purchase STLDI policies after the applicability date may lose coverage and must wait until the next annual individual market open enrollment period to purchase comprehensive coverage (for example, if an individual with STLDI purchased after the applicability date exhausts their renewal or extension options or is unable to enroll in STLDI offered by a different issuer outside of an open enrollment period) or may choose to become uninsured. Some individuals might also seek coverage in unregulated markets. Those individuals who become uninsured or obtain coverage in unregulated markets could face an increased risk of higher out-of-pocket expenses and medical debt, reduced access to health care, and potentially worse health outcomes. The Departments are of the view, however, that the overall risk that some individuals may become uninsured or lose coverage because of the above circumstances is outweighed by the fact that a substantial number of individuals will likely benefit as a result of the final rules' STLDI provisions. Overall, the Departments are of the view that STLDI serves better as a bridge between different sources of comprehensive coverage than as an alternative to comprehensive coverage. Increase in health care spending. To the extent that these final rules lead to an increase in enrollment in comprehensive coverage, they might result in an increase in overall health care utilization and spending, given that comprehensive coverage tends to have higher loss ratios and actuarial values and generally offers lower cost-sharing requirements and more generous benefits. 323 323 As noted earlier in this RIA, many STLDI and fixed indemnity excepted benefits policies offer limited benefits coverage and have relatively low actuarial values. Many STLDI and fixed indemnity excepted benefit coverage issuers spend a relatively high percentage of premium dollars on administration and overhead See National Association of Insurance Commissioners (2022). "Accident and Health Policy Experience Report for 2021," available at: https://naic.soutronglobal.net/portal/Public/en-US/Search/AdvancedSearch. Regarding the differences in cost-sharing requirements and out-of-pocket expenses between STLDI and individual health insurance coverage, see, for example, Dieguez, Gabriela and Dane Hansen (2020). "The Impact of Short-Term Limited-Duration Policy Expansion on Patients and the ACA Individual Market," Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market. Impact on States. The Departments solicited comments on the magnitude of the costs that States might incur associated with enacting new legislation, implementing new laws, and updating existing regulations regarding STLDI and fixed indemnity excepted benefits coverage. However, the Departments received little information about the potential costs to States associated with the provisions being finalized in these final rules. One commenter generally stated that the STLDI provisions would cause economic harm to States, but the commenter did not quantify or otherwise specify the type or extent of the economic impact on States. While no State is required to enact new legislation or change its regulations under the provisions being finalized in these final rules, the Departments anticipate that some States could incur a one-time cost if they do enact new legislation or update their regulations. Many commenters also stated that the 2023 proposed rules would generate costs for States associated with evaluating and approving redesigned products and policy forms. The Departments acknowledge that some State departments of insurance may incur costs to the extent they need to review amended marketing materials and plan documents filed by issuers. Costs to agents and brokers. The Departments sought information on the number of agents and brokers who sell STLDI, fixed indemnity excepted benefits coverage, and individual health insurance coverage, respectively, and how their compensation might be affected by the provisions proposed in the 2023 proposed rules. Many commenters anticipated that the financial impacts of the proposals on agents and brokers would be significant, particularly given the relatively low commission rates that agents and brokers receive from the sale of Exchange plans as compared to STLDI and fixed indemnity insurance. Another commenter stated that the Departments' analysis lacked sufficient data to account for the potential impacts on agents and brokers. However, commenters did not provide information on the number of agents and brokers that sell STLDI or fixed indemnity excepted benefits coverage or data that would assist in quantifying the impact of the provisions proposed in the 2023 proposed rules on agents and brokers. Nevertheless, the Departments acknowledge that the provisions being finalized in these final rules may affect agents and brokers if there is an impact on enrollment in STLDI or fixed indemnity excepted benefits products. There is the potential for agent and broker compensation associated with the sale of STLDI or fixed indemnity excepted benefits coverage to be negatively affected if there is a reduction in the sale of these types of coverage. There is also the potential for agent and broker compensation associated with the sale of individual health insurance coverage to be positively affected if there is an increase in sales of that coverage. Costs to issuers. In the 2023 proposed rules, the Departments explained they expected that issuers would incur minimal costs associated with the notice provisions. The Departments also expected that since issuers change their policy documents routinely, the costs to issuers to make changes in response to these final rules would be part of issuers' usual business costs. However, many commenters stated that issuers would incur operational costs associated with the provisions for fixed indemnity excepted benefits coverage proposed in the 2023 proposed rules (to make necessary updates to systems and processes, and other administrative tasks, for example). Many commenters noted the costs to refile documents with State departments of insurance, obtain State approvals, and ensure compliance, and the costs associated with new policy issuance, marketing, enrollment, and administration. While one commenter provided an estimate of the overall costs of implementing all of the provisions for fixed indemnity excepted benefits coverage proposed in the 2023 proposed rules, no commenter provided estimates of the costs associated with the provisions for STLDI or estimates specific to the notice provisions for STLDI and fixed indemnity excepted benefits coverage proposed in the 2023 proposed rules. The Departments acknowledge these comments and anticipate that issuers will incur one-time costs to modify their products and plan documents to comply with the provisions for STLDI and fixed indemnity excepted benefits coverage that are being finalized in these final rules, with issuers also incurring costs related to filing amended marketing materials and plan documents with State departments of insurance. These costs are expected to vary by issuer depending on the number of States in which they offer products, State law requirements for STLDI or fixed indemnity excepted benefits coverage, the number of products they offer, and the overall scale of their operations. 324 These costs will include the costs associated with the notice provisions. Using wage information from the Bureau of Labor Statistics to account for median labor costs (including a 100 percent increase for the cost of fringe benefits and other indirect costs), 325 the Departments estimate that, on average for each issuer, a business operations specialist will need 4 hours (at an hourly labor cost of $73.06), an administrative assistant will need 4 hours (at an hourly labor cost of $42.38), and a web developer will need 8 hours (at an hourly labor cost of $75.56) to revise or place the notice that must be displayed in their marketing, application, and enrollment materials (including on websites) and in the individual market also to place the notice in the policy, certificate, or contract of insurance, to come into compliance with these final rules. The average cost per issuer to comply with the notice provisions is estimated to be approximately $1,066. 326 As noted earlier in this RIA, the NAIC estimates that there are currently 28 issuers of STLDI in the individual market and 93 issuers of "other medical (non- comprehensive)" coverage in the individual market, which include fixed indemnity insurance. 324 The Departments do not have enough data or information to quantify these costs. 325 See Bureau of Labor Statistics (2022). "National Occupational Employment and Wage Estimates," available at: https://www.bls.gov/oes/current/oes_nat.htm. 326 (4 business operation specialist hours * $73.06) + (4 administrative assistant hours * $42.38) + (8 web developer hours * $75.56) = $1,066.24. Therefore, using the NAIC estimates, the total one-time cost to issuers of STLDI and fixed indemnity coverage to comply with the notice provisions will be at least approximately $129,015. 327 327 (28 STLDI issuers + 93 issuers of other medical (non-comprehensive) coverage) * [(4 business operation specialist hours * $73.06) + (4 administrative assistant hours * $42.38) + (8 web developer hours * $75.56)] =$129,015.04. e. Transfers Transfers associated with transitions to comprehensive coverage. Individuals currently enrolled in STLDI may be healthier--on average--than individuals enrolled in comprehensive coverage, because comprehensive coverage is subject to Federal consumer protections and requirements for comprehensive coverage that prohibit those plans from excluding individuals or charging higher premiums on the basis of health status, gender, and other factors, whereas STLDI policies do not have to comply with these requirements and are typically subject to medical underwriting. These final rules are expected to cause some individuals with relatively low health care costs to enroll in individual health insurance coverage in lieu of STLDI, which is expected to improve the risk pools for individual health insurance coverage and lead to lower overall average premiums for individual health insurance coverage. CMS previously estimated that gross premiums for individual health insurance coverage purchased on an Exchange in 2022 would be 6 percent higher under the 2018 proposed rules than they would have been in the absence of those rules. 328 CBO and JCT previously estimated that the 2018 final rules for STLDI, in conjunction with changes made through the 2018 Department of Labor rule entitled "Definition of 'Employer' Under Section 3(5) of ERISA--Association Health Plans," 329 would increase premiums in the individual and small group health insurance coverage markets by around 3 percent. 330 An analysis of individual health insurance coverage rate filing materials for 2020 also found that the few issuers that explicitly included a premium adjustment because of the 2018 final rules increased premiums by between 0.5 percent and 2 percent in 2020. 331 These analyses suggest that these final rules should have an effect in the opposite direction, reducing gross premiums for individual health insurance coverage. OACT estimates that the provisions regarding STLDI will not affect gross premiums for individuals with individual health insurance coverage purchased on an Exchange in 2024 and 2025, given the expanded PTC subsidies provided through the IRA, but will reduce gross premiums by approximately 0.5 percent in 2026, 2027, and 2028, after the expanded PTC subsidies have ended. 332 328 CMS Office of the Actuary (2018). "Estimated Financial Effects of the Short-Term, Limited-Duration Policy Proposed Rule," available at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/ActuarialStudies/Downloads/STLD20180406.pdf. 329 83 FR 28912 (June 21, 2018). This rule was vacated by the District Court of D.C. in State of New York, et al. v. United States Department of Labor, et al., 363 F.Supp.3d 109 (D.D.C. 2019). 330 Congressional Budget Office (2019). "How CBO and JCT Analyzed Coverage Effects of New Rules for Association Health Plans and Short-Term Plans," available at: https://www.cbo.gov/publication/54915. 331 Dieguez, Gabriela and Dane Hansen (2020). "The Impact of Short-Term Limited-Duration Policy Expansion on Patients and the ACA Individual Market," Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market. 332 See section V.B.2.c of this preamble for a discussion of the enrollment effects that drive these premium changes. Many commenters agreed with the Departments that enrollment in STLDI adversely affects the risk pools for individual health insurance coverage, leading to higher premiums for individual health insurance coverage. Specifically, one commenter stated that this adverse selection and its effects would particularly disadvantage individuals with preexisting conditions. Furthermore, one study suggests that the 2018 final rules had a negative effect on the risk pools for individual health insurance coverage. 333 As such, the Departments continue to be of the view that access to STLDI has negative effects on the risk pools for individual health insurance coverage. 333 See Dieguez, Gabriela and Dane Hansen (2020). "The Impact of Short-Term Limited-Duration Policy Expansion on Patients and the ACA Individual Market," Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market. Some commenters also noted that enrollment in STLDI in lieu of comprehensive coverage could lead to fewer issuers in the Exchanges or otherwise distort or destabilize the markets for comprehensive coverage, while one commenter stated that the impact of enrollment in STLDI on the markets for comprehensive coverage would be rather limited (as indicated by OACT's impact estimates). A few commenters suggested that the STLDI provisions could potentially harm the market for individual health insurance coverage due to a reduction in competition, for example, with one commenter suggesting that the 2018 final rules promoted issuer competition in the overall market. 334 The Departments disagree with these commenters and note that STLDI and individual health insurance coverage are two very different products that are generally subject to different laws and regulations, and issuers of individual health insurance coverage are unlikely to have changed their product offerings to compete with STLDI. 334 The commenter cited a study that compared the trends in Exchange enrollment, premiums, and issuer participation in States that had additional restrictions on or prohibited STLDI and in States that fully permitted STLDI (in accordance with the 2018 final rules). The study concluded that States that fully permitted STLDI "... have lost fewer enrollees in the individual market, have had far more insurers offer coverage in the market, and have had larger premium reductions since the [2018 final rules] took effect," further noting that "the only States where individual market premiums have increased since 2018 are the five [S]tates that effectively prohibit short-term plans." See Blase, Brian (2021). "Individual Health Insurance Markets Improving in States that Fully Permit Short-Term Plans," Galen Institute, available at: https://galen.org/assets/Individual-Health-Insurance-Markets-Improving-in-States-that-Fully-Permit-Short-Term-Plans.pdf. Some commenters stated that enrollment in fixed indemnity excepted benefits coverage can adversely affect the risk pools for comprehensive coverage. A few commenters stated that the impact of fixed indemnity excepted benefits coverage on the risk pools for individual health insurance coverage purchased on an Exchange is limited or nonexistent. While the Departments expect that the notice provisions being finalized in these final rules will encourage some individuals to enroll in comprehensive coverage instead of fixed indemnity excepted benefits coverage, the Departments do not expect such increased enrollment to have a significant impact on market risk pools and therefore expect a limited impact on premiums for comprehensive coverage, if any. Transfers from the Federal Government to individuals. The provisions regarding STLDI are expected to reduce Federal PTC spending after the end of the expanded PTC subsidies provided through the IRA. Specifically, these provisions are expected to reduce gross premiums for individual health insurance coverage purchased on an Exchange and therefore lower per capita PTC spending. This effect is expected to be partly offset by an increase in the number of individuals enrolling in Exchange coverage that would be eligible to receive the PTC (by approximately 20,000 in 2026, 2027, and 2028). On net, OACT estimates that these provisions will have no impact on Federal spending on PTC in 2024 and 2025 given the expanded PTC subsidies provided through the IRA, but will reduce Federal spending on the PTC by approximately $120 million in 2026, 2027, and 2028. 335 This reduction in Federal spending on the PTC is viewed as a reduction in the amount of the transfer from the Federal Government to individuals. 335 In fiscal year terms, this would be a reduction in Federal spending of $90 million in 2026, $120 million in 2027, and $120 million in 2028. Transfers among issuers, consumers, and providers. These final rules could lead to a transfer in the form of reduced out-of-pocket expenses from issuers to consumers who switch from STLDI or fixed indemnity excepted benefits coverage (when used as a substitute for comprehensive coverage) to comprehensive coverage, since more health care services would be covered under comprehensive coverage and the out-of-pocket expenses (such as cost-sharing requirements) for comprehensive coverage might be lower than out-of-pocket expenses for STLDI or fixed indemnity excepted benefits coverage. 336 336 As noted in the Costs subsection of this RIA, regarding the differences in cost-sharing requirements and out-of-pocket expenses between STLDI and individual health insurance coverage, see, for example, Dieguez, Gabriela and Dane Hansen (2020). "The Impact of Short-Term Limited-Duration Policy Expansion on Patients and the ACA Individual Market," Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market. Some commenters suggested that the STLDI provisions could lead to an increase in uncompensated care provided by providers and facilities, to the extent they lead to an increase in the number of individuals without any form of health insurance coverage who are unable to pay providers and facilities on an out-of-pocket basis, which would be a transfer from providers and facilities to uninsured individuals. However, a few commenters suggested that the STLDI provisions could lead to a decrease in uncompensated care provided by providers and facilities, to the extent that individuals with STLDI enroll in comprehensive coverage (which would generally offer more benefits and lower cost-sharing requirements, and increased access to health care) in lieu of STLDI; this would be a transfer from issuers of comprehensive coverage to providers and facilities. One commenter also suggested that the fixed indemnity excepted benefits coverage proposals in the 2023 proposed rules could generate costs for providers regarding receipt of payments from patients, which would be a transfer from providers to these individuals. The Departments lack data that would allow for a quantification of these effects but acknowledge that there may be a potential increase in uncompensated care provided by providers and facilities given the previously-mentioned impact of these final rules on out-of-pocket expenditures discussed in section V.B.2.d of this preamble. f. Uncertainty As noted throughout this preamble, due to a lack of data and information, there are several areas of uncertainty regarding the potential impacts of these final rules. The Departments are unable to forecast how all of the provisions of these final rules will affect enrollment in STLDI and fixed indemnity excepted benefits coverage, as the Departments are uncertain how many individuals are currently enrolled in STLDI or fixed indemnity excepted benefits coverage, how many of those individuals will switch to comprehensive coverage, how many individuals will try to find another issuer of STLDI once their current policy ends, how many individuals will choose to remain enrolled in fixed indemnity excepted benefits coverage, or how many individuals will choose not to purchase any form of coverage. 337 As a result, there is also some uncertainty about the impacts on market risk pools, premiums, Federal expenditures on PTC, and on compensation for agents and brokers selling STLDI, fixed indemnity excepted benefits coverage, and individual health insurance coverage. One commenter noted that the uncertainty in the estimates pertaining to the number of affected entities undermines the Departments' analysis of impacts. 337 Previous studies have estimated the impact of the STLDI definition adopted in the 2018 final rules on enrollment in individual health insurance coverage, but in conjunction with the impact of elimination of the individual shared responsibility payment. See Dieguez, Gabriela and Dane Hansen (2020). "The Impact of Short-Term Limited-Duration Policy Expansion on Patients and the ACA Individual Market," Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy- expansion-on-patients-and-the-aca-individual-market. The Departments sought comments on all of these areas of uncertainty regarding the impacts of the 2023 proposed rules and where possible incorporated data and information received during the comment period in estimating the impacts of these final rules. Despite the uncertainty discussed in this section and throughout this preamble, the Departments have enough data to be confident that the benefits of these final rules outweigh the costs, and that these final rules will help ensure that consumers can clearly distinguish STLDI and fixed indemnity excepted benefits from comprehensive coverage, protect market risk pools and stabilize premiums for comprehensive coverage, and promote access to affordable comprehensive coverage. g. Health Equity Impact The Departments stated in section II.B of the preamble to the 2023 proposed rules that due to the typical underwriting practices and plan eligibility requirements in the market for STLDI, individuals might face higher premiums or might not be able to purchase STLDI because of preexisting health conditions, gender, or other factors. 338 STLDI and fixed indemnity excepted benefits coverage policies typically do not cover certain essential health benefits including prescription drugs, mental health and substance use disorder services, or maternity services, 339 which could contribute to disparities in access to health care and health outcomes (regarding mental health, maternal health, or infant health, for instance). 340 Many commenters stated that issuers of STLDI policies are able to discriminate against individuals on the basis of health status or preexisting conditions, age, or gender. 338 See, for example, Barnes, Justin and Fumiko Chino (2022). "Short-term Health Insurance Plans Come Up Short for Patients with Cancer," JAMA Oncology, Volume 8, Issue 8, available at: https://jamanetwork.com/journals/jamaoncology/article-abstract/2793127. 339 Dieguez, Gabriela and Dane Hansen (2020). "The Impact of Short-Term Limited-Duration Policy Expansion on Patients and the ACA Individual Market," Milliman, available at: https://www.milliman.com/en/insight/the-impact-of-short-term-limited-duration-policy-expansion-on-patients-and-the-aca-individual-market. 340 See, for example, Hill, Latoya, Samantha Artiga, and Usha Ranji (2022). "Racial Disparities in Maternal and Infant Health: Current Status and Efforts to Address Them," KFF, available at: https://www.kff.org/racial-equity-and-health-policy/issue-brief/racial-disparities-in-maternal-and-infant-health-current-status-and-efforts-to-address-them/. Consumers with low health literacy, which disproportionately includes consumers with low incomes, 341 might also be misled into purchasing STLDI or fixed indemnity excepted benefits coverage under the mistaken impression that it would lower their out-of-pocket costs while providing comprehensive coverage with lower premiums. Consumers with low income or who are members of underserved racial and ethnic groups are more likely to be uninsured and face barriers in accessing care. 342 Individuals in these populations arguably face the greatest health and financial consequences if STLDI or fixed indemnity excepted benefits coverage (when used as a substitute for comprehensive coverage) proves inadequate. These individuals are also potentially most vulnerable to practices like post-claims underwriting and rescission that are common in the STLDI market, which could leave them without any coverage in a health crisis. Some commenters shared the Departments' concern over the disproportionate impact that non-comprehensive products may have on consumers with low incomes and consumers of underserved racial and ethnic groups. Some commenters indicated that individuals with low health literacy are disproportionately impacted by misleading and deceptive marketing practices, as discussed in section III.A of this preamble. 341 See, for example, Hill, Latoya, Samantha Artiga, and Usha Ranji (2022). "Racial Disparities in Maternal and Infant Health: Current Status and Efforts to Address Them," KFF, available at: https://www.kff.org/racial-equity-and-health-policy/issue-brief/racial-disparities-in-maternal-and-infant-health-current-status-and-efforts-to-address-them/. 341 See, for example, Rikard, RV, Maxine Thompson, Julie McKinney, and Alison Beauchamp (2016). "Examining Health Literacy Disparities in the United States: A Third Look at the National Assessment of Adult Literacy," BMC Public Health, Volume 16, Issue 1, available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5022195/. See also Davis, Stacy, Jonathan Wischhusen, Steven Sutton, Shannon Christy, Emmanuel Chavarria, Megan Sutter, Siddhartha Roy, Cathy Meade, and Clement Gwede (2020). "Demographic and Psychosocial Factors Associated with Limited Health Literacy in a Community-based Sample of Older Black Americans," Patient Education and Counseling, Volume 103, Issue 2, available at: https://doi.org/10.1016/j.pec.2019.08.026. 342 See Tolbert, Jennifer, Kendal Orgera, and Anthony Damico (2020). "Key Facts about the Uninsured Population," KFF, available at: https://www.kff.org/uninsured/issue-brief/key-facts-about-the-uninsured-population/. See also Artiga, Samantha, Latoya Hill, Kendal Orgera, and Anthony Damico (2021). "Health Coverage by Race and Ethnicity, 2010-2019," KFF, available at: https://www.kff.org/racial-equity-and-health-policy/issue-brief/health-coverage-by-race-and-ethnicity/. See also KFF (2021). "Adults Who Report Not Having a Personal Doctor/Health Care Provider by Race/Ethnicity," available at: https://www.kff.org/other/state-indicator/percent-of-adults-reporting-not-having-a-personal-doctor-by-raceethnicity/. See also KFF (2021). "Adults Who Report Not Seeing a Doctor in the Past 12 Months Because of Cost by Race/Ethnicity," available at: https://www.kff.org/other/state-indicator/percent-of-adults-reporting-not-seeing-a-doctor-in-the-past-12-months-because-of-cost-by-raceethnicity/. These final rules are expected to help address these health inequities by ensuring that consumers can more easily distinguish STLDI and fixed indemnity excepted benefits coverage from comprehensive coverage and thereby encouraging enrollment in comprehensive coverage. h. Regulatory Review Cost Estimation If regulations impose administrative costs on entities (for example, the time needed to read and interpret rules), regulatory agencies should estimate the total cost associated with regulatory review. 343 In the 2023 proposed rules, the Departments assumed that approximately 250 entities would review the 2023 proposed rules. The Departments acknowledged that the number of entities reviewing the 2023 proposed rules could be higher or lower than anticipated. The Departments ultimately received 571 unique comments on the 2023 proposed rules that pertained to the proposals for STLDI and fixed indemnity excepted benefits coverage, of which 247 commenters were identified as entities (for example, issuers, State insurance departments, industry associations, and advocacy organizations). Based on the comments received, the Departments now estimate that the 571 unique commenters that commented on the 2023 proposed rules, along with at least one additional individual from each of the 247 entities commenting on the 2023 proposed rules, will review these final rules. That is, the Departments estimate that at least 818 individuals will read and interpret these final rules. 343 See Office of the Assistant Secretary for Planning and Evaluation (2017). "Guidelines for Regulatory Impact Analysis," available at: https://aspe.hhs.gov/reports/guidelines-regulatory-impact-analysis. Using wage information from the Bureau of Labor Statistics, for Business Operations Specialists (All Other), to account for median labor costs (including a 100 percent increase for the cost of fringe benefits and other indirect costs), the Departments estimate that the cost of reviewing these final rules will be $73.06 per hour. 344 The Departments estimate that it will take each reviewing individual approximately 6 hours on average to review these final rules, with an associated cost of $438.36 (6 hours x $73.06). Therefore, the Departments estimate that the (one-time) total cost of reviewing these final rules will be approximately $358,578 (818 x $438.36). The Departments sought comments on this approach to estimating the total burden and cost for interested parties to read and interpret the rules, and received one comment arguing that reading and understanding the rules would take far longer than the 4 hours estimated in the 2023 proposed rules. The Departments agree that it might take some reviewers longer than the previously estimated 4 hours, or the currently estimated 6 hours, to read and interpret the rules, but that an average estimate is reasonable. 344 See Bureau of Labor Statistics (2022). "National Occupational Employment and Wage Estimates," available at: https://www.bls.gov/oes/current/oes_nat.htm. C. Regulatory Alternatives - Departments of Health and Human Services and Labor In developing the proposed rules, the Departments considered various alternative approaches. The Departments considered leaving in place the duration standards for STLDI established in the 2018 final rules but concluded that the 2018 final rules' duration standards were too lengthy for the reasons described in section III.A.2 of this preamble. The Departments also considered proposing to limit the maximum duration of STLDI policies to a less-than-6-month period to minimize disruption for consumers in some (but not all) States that have implemented a less than-6-month period, to a less than-3-month period as implemented in the 2016 final rules, or otherwise shortening the maximum duration to a time period shorter than allowed under current regulations. However, as further discussed in in section III.A.2 of this preamble, the Departments ultimately decided to propose and finalize a maximum duration of no more than 4 months to align with the rules regarding the 90-day waiting period limitation and the 1-month reasonable and bona fide employment-based orientation period that is permitted under the ACA. The Departments considered proposing to limit stacking of STLDI policies, whether sold by the same or different issuer. However, after considering the potential challenges issuers and State regulators would face in attempting to determine whether an individual had previously enrolled in an STLDI policy with a different issuer, the Departments decided to propose to limit stacking only where STLDI is sold to an individual by the same issuer and sought comments on whether to extend the limit on stacking to STLDI sold to an individual by issuers that are members of the same controlled group. Some commenters suggested limiting stacking of multiple or consecutive STLDI policies sold by issuers that are members of the same controlled group or sold to members of the same household. Other commenters supported the Departments preventing stacking of STLDI policies sold by unaffiliated issuers. The Departments decided that limiting the sale of STLDI policies offered by issuers that are members of the same controlled group would prevent issuers from using their corporate structure to circumvent the rules related to maximum duration, but it is not apparent to the Departments that limiting stacking across unaffiliated issuers or different members of the same household accomplishes any similar goal. For new STLDI sold or issued on or after the effective date of the final rules, the Departments proposed an applicability date for the amendments to the Federal definition of STLDI that would apply for coverage periods beginning on or after the effective date of the final rules. Some commenters expressed concern that issuers of STLDI would need more time to complete a number of administrative tasks - such as evaluating plan designs, updating system processes, and re-filing policy forms with State regulators - and suggested the Departments finalize an applicability date between 90 days and 12 months after the effective date of the final rules. Other commenters were concerned about the potential for consumer confusion when STLDI is marketed and sold during the annual individual market open enrollment period. To provide more time for issuers to come into compliance with these final rules for new STLDI policies and ensure that STLDI with a longer maximum duration is not marketed during the next annual individual market open enrollment period, the Departments decided that for new STLDI sold or issued on or after September 1, 2024, the revised Federal definition of STLDI under these final rules will apply for coverage periods beginning on or after September 1, 2024. This will allow consumers who enroll in a new STLDI policy on or after September 1, 2024, to avoid a gap between the STLDI policy and when comprehensive coverage purchased during the next individual market open enrollment period will begin. The Departments considered proposing a limit on the marketing or sale of STLDI during the annual individual market open enrollment period. The Departments are concerned that aggressive and deceptive marketing practices by some issuers have lured consumers, looking for comprehensive coverage, into enrolling in STLDI, exposing them to financial risk. The Departments appreciated the comments received regarding how the Departments can support State efforts to limit the marketing and/or sale of STLDI during the open enrollment period and will take these comments into consideration as the Departments consider potential actions they can take to address the marketing and sale of STLDI during the individual market open enrollment period. With respect to the proposed amendments to the notices provided to consumers considering enrolling in or purchasing STLDI, the Departments considered including a complete list of Federal protections that apply to consumers enrolled in comprehensive coverage versus STLDI. This approach would more fully distinguish STLDI from comprehensive coverage and highlight in greater detail the risks to consumers of enrolling in STLDI instead of comprehensive coverage. However, after a review of the comments, consulting with plain language experts and conducting consumer testing, the Departments are of the view that providing a complete comparison of protections that a consumer would forgo by enrolling in STLDI rather than comprehensive coverage would result in a lengthy, complex notice that could be difficult for the typical consumer to understand. Increasing the length and complexity of the notice would also increase burden for issuers to provide the notice on policy documents and marketing and application materials as required by these final rules. The Departments solicited comments on all aspects of the revised notice, including whether a different format or presentation would result in a more useful, consumer-friendly notice. For a more detailed discussion of the notices considered, please reference section III.A.4 of this preamble. The Departments considered several options when finalizing the notice requirements for fixed indemnity excepted benefits coverage in the group market. HHS considered the same options when revising the content and standards for the consumer notice in the individual market. As discussed in section III.B.1 of this preamble, consideration was given to changes to the wording, appearance and timing related to the notice provisions. The Departments considered different applicability dates for these notices, including applying the notice to plan years (or in the individual market, coverage periods) (including renewals) beginning on or after the effective date of these final rules (as proposed), September 1, 2024 (which would align with the applicability date finalized in these rules for the STLDI notice provision), January 1, 2025, and later dates such as January 1, 2027. The Departments concluded that applying the notice to plan years (or in the individual market, coverage periods) (including renewals) beginning on or after January 1, 2025, strikes an appropriate balance between providing plans and issuers offering fixed indemnity excepted benefits coverage with additional time to add or update the notice and ensuring that the notices are present for new enrollments and renewals offered on a calendar year basis. The Departments are of view that a large proportion of group market fixed indemnity excepted benefits coverage, for which the notice will be new, are likely to be offered on a calendar year basis, as part of an employer's open enrollment period for their employees. In addition, one commenter suggested that the Departments should require an attestation from whomever sells fixed indemnity excepted benefits coverage, confirming that the risks and limitations were explained during the sale. The Departments are of the view that it would be more effective and efficient to provide all prospective enrollees with consistent messaging on all marketing, application, and enrollment materials (and, in the individual market, also on the first page of the policy, certificate, or contract of insurance). The Departments also declined to impose an attestation requirement based on the associated cost and administrative burden to plans, issuers, plan sponsors, agents, and brokers. One commenter suggested that the Departments should explore additional consumer protection measures, such as requiring plans and issuers to provide prospective consumers with a complete and easily searchable schedule of benefits prior to purchase, as well as a longer free-look period in which an enrollee can cancel the plan for any reason at no cost. The Departments agree that these features would be beneficial and encourage plans and issuers to offer them to the extent feasible. D. Paperwork Reduction Act These final rules revise the Federal definition of STLDI to provide that a revised notice must be prominently displayed (in either paper or electronic form) in at least 14-point font on the first page of the policy, certificate, or contract of insurance and in any marketing, application, and enrollment materials, including for renewals or extensions (including on websites that advertise or enroll in STLDI). These notice provisions apply for both new and existing STLDI for coverage periods beginning on or after September 1, 2024. These final rules also amend the regulations regarding fixed indemnity excepted benefits coverage in the individual market to provide that a revised notice must be prominently displayed (in either paper or electronic form) on the first page of the policy, certificate, or contract of insurance, and in any marketing, application, and enrollment (or reenrollment) materials. These final rules also amend the regulations regarding fixed indemnity excepted benefits coverage in the group market to provide that a notice must be prominently displayed (in either paper or electronic form) on the first page of any marketing, application, and enrollment (or reenrollment) materials. These notice provisions for group and individual market fixed indemnity excepted benefits coverage are applicable to both new and existing coverage with respect to plan years (in the individual market, coverage periods) beginning on or after January 1, 2025. The Departments are providing the exact text for the STLDI and fixed indemnity excepted benefits coverage notices in these final rules, and the language will not need to be customized. The burden associated with these notices is therefore not subject to the Paperwork Reduction Act of 1995 in accordance with 5 CFR 1320.3(c)(2) because these notices do not contain a "collection of information" as defined in 44 U.S.C. 3502(3). Consequently, this document need not be reviewed by OMB under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ). The Departments solicited comments on the potential burden on issuers if the final rules were to include required notices with language that would need to be customized with State-specific information, as discussed in this preamble at section III.A.4 for STLDI and section III.B.1. E. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) (5 U.S.C. 601, et seq.) requires agencies to analyze options for regulatory relief of small entities and to prepare a regulatory flexibility analysis to describe the impact of a rule on small entities, unless the head of the agency can certify that the rule will not have a significant economic impact on a substantial number of small entities. The RFA generally defines a "small entity" as (1) a proprietary firm meeting the size standards of the Small Business Administration (SBA), (2) a not-for-profit organization that is not dominant in its field, or (3) a small government jurisdiction with a population of less than 50,000. States and individuals are not included in the definition of "small entity." The data and conclusions presented in this section amount to the Departments' final regulatory flexibility analysis under the RFA. 1. Need for Regulatory Action, Objectives, and Legal Basis This rulemaking is authorized by section 9833 of the Code, section 734 of ERISA, and section 2792 of the PHS Act, which authorize the Secretaries of the Treasury, Labor, and HHS to issue such regulations as may be necessary or appropriate to carry out the provisions of chapter 100 of the Code, part 7 of subtitle B of title I of ERISA, and title XXVII of the PHS Act. These final rules address specific issues that are critical to ensuring that consumers can clearly distinguish STLDI and fixed indemnity excepted benefits coverage from comprehensive coverage and make better informed decisions about the coverage they chose to purchase. As discussed earlier in this RIA, STLDI and fixed indemnity insurance tend to offer limited benefits and have relatively low actuarial values when compared to comprehensive coverage. Because STLDI and fixed indemnity insurance are sold outside of the Exchanges and are generally not subject to the Federal consumer protections and requirements for comprehensive coverage, consumers may have limited information about the limitations, value, and quality of the coverage being sold, and it might be mistakenly viewed as a substitute for comprehensive coverage. Generally, these final rules revise the Federal definition of STLDI for new policies, certificates, or contracts of insurance to limit their term to 3 months and maximum duration, within a 12-month period, to 4 months. Additionally, these final rules further revise the Federal definition of STLDI and amend the regulations regarding fixed indemnity excepted benefits coverage to provide that a notice for both new and existing STLDI and fixed indemnity excepted benefits coverage must be prominently displayed (in either paper or electronic form) on the first page of any marketing, application, and enrollment (or reenrollment) materials, as described in this preamble at sections III.A.5 and III.B.1. These final rules will support the goals of the ACA by increasing access to affordable and comprehensive health coverage, strengthening health insurance markets, and promote better consumer understanding of coverage options. 2. Number of Affected Small Entities as Defined by the Regulatory Flexibility Act The provisions in these final rules will affect issuers of STLDI, issuers of fixed indemnity excepted benefits coverage, and agents and brokers selling STLDI and fixed indemnity excepted benefits coverage. For purposes of analysis under the RFA, the Departments consider issuers of STLDI and issuers of fixed indemnity excepted benefits coverage that have average annual receipts of $47 million or less as small entities. Health insurance issuers are generally classified under the North American Industry Classification System (NAICS) code 524114 (Direct Health and Medical Insurance Carriers). According to SBA size standards, 345 entities with average annual receipts of $47 million or less are considered small entities for this NAICS code. The Departments expect that few, if any, insurance companies underwriting health insurance policies fall below these size thresholds. Based on data from MLR annual report submissions for the 2021 MLR reporting year, approximately 87 out of 483 issuers of health insurance coverage nationwide had total premium revenue of $47 million or less. 346 However, it should be noted that over 77 percent of these small companies belong to larger holding groups, and many, if not all, of these small companies are likely to have non-health lines of business that will result in their revenues exceeding $47 million. The Departments expect this to be the case for issuers of STLDI and fixed indemnity excepted benefits coverage. As noted earlier in this RIA, the Departments are unable to precisely determine how many small issuers of STLDI and fixed indemnity excepted benefits coverage will be affected by these final rules. Nevertheless, the Departments note that the NAIC reported that there were at least 28 issuers of STLDI in the individual market across the U.S. in 2022 and at least 93 issuers of "other non-comprehensive coverage" (including fixed indemnity insurance) in the individual market across the U.S. in 2022. 347 Data regarding issuers of STLDI and "other medical (non-comprehensive)" coverage are only available for the individual market. The Departments have identified 2 issuers of STLDI and 3 issuers of fixed indemnity insurance that fall below the $47 million threshold and could potentially be impacted by these final rules. 348 These issuers will incur costs associated with the notice provisions and could also incur one-time costs to modify their products to comply with the provisions for STLDI and fixed indemnity excepted benefits coverage that are being finalized in these final rules and to file amended marketing materials and plan documents with State departments of insurance, as discussed further in section V.E.3 of this preamble. The Departments solicited comments on the number of small issuers of STLDI and the number of small issuers of fixed indemnity excepted benefits coverage but did not receive any additional information to inform the analysis. 345 Small Business Administration (2023). "Table of Size Standards (last updated March 2023)," available at: https://www.sba.gov/document/support-table-size-standards. 346 Based on internal calculations. Source: CMS, Medical Loss Ratio Data and System Resources, available at: https://www.cms.gov/CCIIO/Resources/Data-Resources/mlr.html. 347 Id. 348 This was informed by a review of issuers' financial records ranging from 2018-2022. For purposes of analysis under the RFA, the Departments consider agents and brokers that have average annual receipts of $15 million or less as small entities. Agents and brokers are classified under NAICS code 524210 (Insurance Agencies and Brokerages), with a size standard of $15 million or less. These rules may affect agents and brokers if there is an impact on enrollment in STLDI or fixed indemnity excepted benefits products. There is the potential for the agent and broker compensation 349 associated with the sale of STLDI and fixed indemnity excepted benefits coverage to be negatively affected if there is a reduction in sales of that coverage. There is also the potential for agent and broker compensation associated with the sale of individual health insurance coverage to be positively affected if there is an increase in sales of that coverage. However, due to a lack of data, the Departments were unable to precisely estimate how many agents and brokers might be affected by the 2023 proposed rules and the magnitudes of the potential changes in compensation. 350 The Departments solicited comments on the number of agents and brokers who sell STLDI, fixed indemnity excepted benefits coverage, and individual health insurance coverage, respectively, and how their compensation might be affected by the 2023 proposed rules. Many commenters stated that the financial impacts of the proposed Federal definitions for STLDI and fixed indemnity excepted benefits coverage on agents and brokers would be significant, particularly given the relatively low commission rates that agents and brokers receive from the sale of Exchange plans as compared to STLDI and fixed indemnity insurance. Another commenter stated that the regulatory flexibility analysis lacked sufficient data to account for the potential impacts on agents and brokers. Commenters did not provide additional information on the number of agents and brokers that sell STLDI and fixed indemnity insurance or data that would assist in quantifying the impact of these final rules on agents and brokers. As noted throughout this preamble, and discussed in section V.B.2.f of this preamble, due to a lack of data and information, there are several areas of uncertainty regarding the potential market impacts of these final rules. As a result, there is also some uncertainty about the potential impact on the compensation of agents and brokers. 349 Compensation includes commissions, fees, or other incentives (for example, rewards or bonuses) as established in the relevant contract between an issuer and the agent or broker. 350 Previously, in 86 FR 51730, 51756, the Departments noted that a total of 55,541 agents and brokers work with issuers. Many of these agents and brokers are likely to be employed by small entities. To summarize, there is some uncertainty about the impacts of these rules on the revenue of issuers of STLDI and fixed indemnity excepted benefits coverage and the compensation of agents and brokers selling STLDI and fixed indemnity insurance. Nevertheless, the Departments acknowledge that to comply with these final rules, issuers of STLDI fixed indemnity excepted benefits coverage will incur a cost and that agents and brokers may be impacted by these final rules due to the potential impacts on enrollment in STLDI or fixed indemnity excepted benefits products. A brief discussion of the regulatory alternatives is found in section V.E.4 of this preamble and a more detailed discussion of the regulatory alternatives considered is found in section V.C of this preamble. 3. Compliance Requirements and Costs As discussed in section V.B.2.h of this preamble, the Departments estimate the one-time cost to review these final rules will be approximately $438 per entity (6 hours x $73.06). As noted in section V.B.2.d of this preamble, the Departments acknowledge that issuers will also incur one-time costs to modify their products to comply with the provisions for STLDI and fixed indemnity excepted benefits coverage that are being finalized in these rules and filing amended marketing materials and plan documents with State departments of insurance. These costs are expected to vary by issuer depending on the number of States in which they offer products, the number of products they offer, and the overall scale of their operations. 351 Issuers of STLDI and fixed indemnity excepted benefits coverage will incur costs associated with the notice provisions in these final rules, which the Departments estimate to be approximately $1,066 per issuer, 352 as described in section V.B.2.d of this preamble. 351 The Departments do not have enough data or information to quantify these costs. 352 (4 business operation specialist hours * $73.06) + (4 administrative assistant hours * $42.38) + (8 web developer hours * $75.96) = $1,066.24. ******** 4. Duplication, Overlap, and Conflict with Other Rules and Regulations The Departments do not anticipate any duplication, overlap, or conflict with other rules and regulations associated with these rules. These rules revise current regulations to ensure that consumers can clearly distinguish STLDI and fixed indemnity excepted benefits coverage from comprehensive coverage. 5. Significant Alternatives The regulatory alternatives considered in developing these rules are discussed in section V.C of this preamble. The Departments are of the view that none of these alternatives would both achieve the policy objectives and goals of these final rules as previously stated and be less burdensome to small entities. The Departments did receive comments on alternative timelines for issuers to comply with the requirements (including small entities). The Departments decided to delay the applicability dates for certain provisions to provide more time for issuers (including small entities) to modify their products and implement the required changes while still achieving the objectives of these final rules. For a more detailed discussion of the regulatory alternatives considered, please refer to section V.C of this preamble. 6. Impact on Small Rural Hospitals In addition, section 1102(b) of the Social Security Act requires agencies to prepare a regulatory impact analysis if a rule may have a significant economic impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 of the RFA. The Departments welcomed comments on this and did not receive any comments specifically regarding the impact of the provisions proposed in the 2023 proposed rules on small rural hospitals. Many commenters did note that the provisions proposed in the 2023 proposed rules could increase the potential number of uninsured individuals and a few commenters indicated that hospitals may find themselves treating more uninsured patients that are unable to pay for the services rendered. While these final rules are not subject to section 1102 of the Social Security Act, the Departments are of the view that these final rules will not have a significant impact on the operations of a substantial number of small rural hospitals. F. Special Analyses - Department of the Treasury Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required. Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business. G. Unfunded Mandates Reform Act Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a rule that includes any Federal mandate that may result in expenditures in any 1 year by State, local, or Tribal governments, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. That threshold is approximately $183 million in 2024. As detailed in section V.B.2.d of this preamble, the combined impact on State, local, or Tribal governments and the private sector is not expected to be above the $183 million threshold. H. Federalism Executive Order 13132 establishes certain requirements that Federal agencies must meet when they issue rules that impose substantial direct costs on State and local governments, preempt State law, or otherwise have federalism implications. In compliance with the requirement of Executive Order 13132 that agencies examine closely any policies that may have federalism implications or limit the policy-making discretion of the States, the Departments have engaged in efforts to consult with and work cooperatively with affected States, including participating in conference calls with and attending conferences of the NAIC. In the Departments' view, these final rules have Federalism implications because they may have direct effects on the States, the relationship between the National Government and the States, or on the distribution of power and responsibilities among various levels of government. Health insurance issuers offering STLDI and plans and issuers offering fixed indemnity excepted benefits coverage must meet the minimum Federal standards for such coverage not to be subject to the Federal consumer protections and requirements for comprehensive coverage. States with State requirements for STLDI or fixed indemnity excepted benefits coverage that do not follow the minimum Federal standards for such coverage, as amended by these final rules, may therefore choose to update their laws and regulations regarding STLDI or fixed indemnity excepted benefits coverage to align with the minimum Federal standards so that such coverage issued in the State is treated as exempt from the Federal consumer protections and requirements for comprehensive coverage. In general, through section 514, ERISA supersedes State laws to the extent that they relate to any covered employee benefit plan, and preserves State laws that regulate insurance, banking, or securities. While ERISA prohibits States from regulating an employee benefit plan as an insurance or investment company or bank, the preemption provisions of section 731 of ERISA and sections 2724 and 2762 of the PHS Act (implemented in 29 CFR 2590.731(a) and 45 CFR 146.143(a) and 148.210(b)) apply so that the Federal consumer protections and requirements for comprehensive coverage are not to be construed to supersede any provision of State law which establishes, implements, or continues in effect any standard or requirement solely relating to health insurance issuers in connection with individual or group health insurance coverage except to the extent that such standard or requirement prevents the application of a Federal requirement. 353 The conference report accompanying HIPAA, when this Federal preemption standard was first established for the requirements in title XXVII of the PHS Act, indicates that this is intended to be the "narrowest" preemption of State laws. 354 353 A similar preemption provision was established for the Exchange and other Federal health insurance requirements that are codified outside of title XXVII of the PHS Act. See sections 1311(k) and 1321(d) of the ACA. 354 See House Conf. Rep. No. 104-736, at 205, reprinted in 1996 U.S. Code Cong. & Admin. News 2018 and available at: https://www.congress.gov/congressional-report/104th-congress/house-report/736/1. These final rules define STLDI for purposes of the Code, ERISA, and the PHS Act. Insurance coverage that meets the definition of STLDI in these final rules will qualify for the exception to the Federal definition of individual health insurance coverage and be exempt from the Federal consumer protections and requirements applicable to comprehensive coverage. Nothing in these final rules prevents regulation of STLDI for purposes of State law. For example, States may determine whether to permit the sale of STLDI in their insurance markets. If a State law permits or requires an action that is inconsistent with the Federal definition of STLDI, any coverage offered pursuant to that State law that does not meet the standards set forth in these final rules would not qualify as STLDI under Federal law and would be subject to the Federal consumer protections and requirements applicable to comprehensive coverage. For example, if a State were to prohibit policies issued in that State from including the Federal consumer notice, then coverage in that State that did not include the Federal consumer notice language would not qualify for the exclusion from the PHS Act definition of individual health insurance coverage and thus would be subject to the Federal consumer protections and requirements applicable to individual health insurance coverage. Similarly, if a State law were to require the removal of language from the Federal consumer notice for fixed indemnity excepted benefits coverage finalized in these final rules, any policy issued in the State that did not include the Federal notice would not be considered fixed indemnity excepted benefits coverage for purposes of Federal law and thus would be subject to the Federal consumer protections and requirements applicable to comprehensive coverage. Many commenters on the 2023 proposed rules discussed the federalism implications of the proposed provisions for STLDI and fixed indemnity excepted benefits coverage, as discussed in sections III.A.1 and III.B.1, respectively of this preamble. The Departments continue to be of the view that there is a need for action regarding STLDI and fixed indemnity excepted benefits coverage at the Federal level given, among other factors, the need to promote consumer understanding of coverage options and ensure consumers do not mistakenly enroll in STLDI and fixed indemnity excepted benefits coverage as a substitute for comprehensive coverage, the prevalence of aggressive and deceptive sales and marketing practices, reports of increased enrollment in STLDI through out-of-State associations, and the potential inability of States to regulate and collect information about these associations. 355 355 Keith, Katie (2020). "New Congressional Investigation of Short-Term Plans," Health Affairs, available at: https://www.healthaffairs.org/do/10.1377/forefront.20200626.227261/full/. See also Curran, Emily, Dania Palanker, and Sabrina Corlette (2019). "Short-Term Health Plans Sold Through Out-of-State Associations Threaten Consumer Protections," Commonwealth Fund, available at: https://www.commonwealthfund.org/blog/2019/short-term-health-plans-sold-through-out-state-associations-threaten-consumer-protections. While developing these final rules, the Departments have attempted to balance States' interests in regulating health insurance issuers and their health insurance markets with Congress' intent to establish a general Federal framework for health insurance coverage, including the provision of certain key, uniform minimum protections to consumers enrolled in comprehensive coverage in every State. It is the Departments' view that by doing so they have complied with the requirements of Executive Order 13132. I. Congressional Review Act Pursuant to Subtitle E of the Small Business Regulatory Enforcement Fairness Act of 1996 (also known as the Congressional Review Act, 5 U.S.C 801 et seq.), OIRA has determined that this rule meets the criteria set forth in 5 U.S.C. 804(2). Accordingly, this rule has been transmitted to the Congress and the Comptroller General for review. Heather C. Maloy, Acting Deputy Commissioner for Services and Enforcement, Internal Revenue Service. Aviva Aron-Dine, Acting Assistant Secretary (Tax Policy), Department of the Treasury. Lisa M. Gomez, Assistant Secretary, Employee Benefits Security Administration, Department of Labor. Xavier Becerra, Secretary, Department of Health and Human Services. List of Subjects 26 CFR Part 54 Excise taxes, Health care, Pensions, Reporting and recordkeeping requirements. 29 CFR Part 2590 Child support, Employee benefit plans, Health care, Health insurance, Infants and children, Maternal and child health, Penalties, Pensions, Privacy, Reporting and recordkeeping requirements. 45 CFR Parts 144 and 146 Health care, Health insurance, Reporting and recordkeeping requirements. 45 CFR Part 148 Administrative practice and procedure, Health care, Health insurance, Insurance companies, Penalties, Reporting and recordkeeping requirements. DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 54 For the reasons stated in the preamble, the Department of the Treasury and the IRS amend 26 CFR part 54 as set forth below: PART 54--PENSION AND EXCISE TAX 1. The general authority citation for part 54 continues to read as follows: Authority: 26 U.S.C. 7805, unless otherwise noted. 2. Section 54.9801-2 is amended by revising the definition of "Short-term, limited-duration insurance" to read as follows:§ 54.9801-2 Definitions. Short-term, limited-duration insurance means health insurance coverage provided pursuant to a policy, certificate, or contract of insurance with an issuer that meets the conditions of paragraph (1) of this definition. (1) Short-term, limited-duration insurance means health insurance coverage provided pursuant to a policy, certificate, or contract of insurance with an issuer that: (i) Has an expiration date specified in the policy, certificate, or contract of insurance that is no more than 3 months after the original effective date of the policy, certificate, or contract of insurance, and taking into account any renewals or extensions, has a duration no longer than 4 months in total. For purposes of this paragraph (1)(i), a renewal or extension includes the term of a new short-term, limited-duration insurance policy, certificate, or contract of insurance issued by the same issuer, or if the issuer is a member of a controlled group, any other issuer that is a member of such controlled group, to the same policyholder within the 12-month period beginning on the original effective date of the initial policy, certificate, or contract of insurance; and (ii) Displays prominently on the first page (in either paper or electronic form, including on a website) of the policy, certificate, or contract of insurance, and in any marketing, application, and enrollment materials (including reenrollment materials) provided to individuals at or before the time an individual has the opportunity to enroll (or reenroll) in the coverage, in at least 14-point font, the language in the following notice: IMPORTANT: This is a short-term, limited-duration policy, NOT comprehensive health coverage This is a temporary limited policy that has fewer benefits and Federal protections than other types of health insurance options, like those on HealthCare.gov. Looking for comprehensive health insurance? - Visit HealthCare.gov or call 1-800-318-2596 (TTY: 1-855-889-4325) to find health coverage options. - To find out if you can get health insurance through your job, or a family member's job, contact the employer. Questions about this policy? - For questions or complaints about this policy, contact your State Department of Insurance. Find their number on the National Association of Insurance Commissioners' website (naic.org) under "Insurance Departments." (2) For purposes of paragraph (1)(i) of this definition, the term "controlled group" means any group treated as a single employer under section 52(a), 52(b), 414(m), or 414(o) of the Code. (3) If any provision of this definition is held to be invalid or unenforceable by its terms, or as applied to any entity or circumstance, or stayed pending further agency action, the provision shall be construed so as to continue to give the maximum effect to the provision permitted by law, along with other provisions not found invalid or unenforceable, including as applied to entities not similarly situated or to dissimilar circumstances, unless such holding is that the provision is invalid and unenforceable in all circumstances, in which event the provision shall be severable from the remainder of the definition and shall not affect the remainder thereof. 3. Section 54.9831-1 is amended by adding paragraphs (c)(4)(ii)(D) and (c)(4)(iv) to read as follows:§ 54.9831-1 Special rules relating to group health plans. (c) * * * (4) * * * (ii) * * * (D) For plan years beginning on or after January 1, 2025, with respect to hospital indemnity or other fixed indemnity insurance: (1) The plan or issuer displays prominently on the first page (in either paper or electronic form, including on a website) of any marketing, application, and enrollment materials that are provided to participants at or before the time participants are given the opportunity to enroll in the coverage, in at least 14-point font, the language in the following notice: IMPORTANT: This is a fixed indemnity policy, NOT health insurance This fixed indemnity policy may pay you a limited dollar amount if you're sick or hospitalized. You're still responsible for paying the cost of your care. - The payment you get isn't based on the size of your medical bill. - There might be a limit on how much this policy will pay each year. - This policy isn't a substitute for comprehensive health insurance. - Since this policy isn't health insurance, it doesn't have to include most Federal consumer protections that apply to health insurance. Looking for comprehensive health insurance? - Visit HealthCare.gov or call 1-800-318-2596 (TTY: 1-855-889-4325) to find health coverage options. - To find out if you can get health insurance through your job, or a family member's job, contact the employer. Questions about this policy? - For questions or complaints about this policy, contact your State Department of Insurance. Find their number on the National Association of Insurance Commissioners' website (naic.org) under "Insurance Departments." - If you have this policy through your job, or a family member's job, contact the employer. (2) If participants are required to reenroll (in either paper or electronic form) for purposes of renewal or reissuance of the insurance, the notice described in paragraph (c)(4)(ii)(D)( 1 ) of this section is prominently displayed in any marketing and reenrollment materials provided at or before the time participants are given the opportunity to reenroll in coverage. (3) If a plan or issuer provides a notice satisfying the requirements in paragraphs (c)(4)(ii)(D)( 1 ) and ( 2 ) of this section to a participant, the obligation to provide the notice is considered to be satisfied for both the plan and issuer. (iv) Severability. If any provision of this paragraph (c)(4) is held to be invalid or unenforceable by its terms, or as applied to any entity or circumstance, or stayed pending further agency action, the provision shall be construed so as to continue to give the maximum effect to the provision permitted by law, along with other provisions not found invalid or unenforceable, including as applied to entities not similarly situated or to dissimilar circumstances, unless such holding is that the provision is invalid and unenforceable in all circumstances, in which event the provision shall be severable from the remainder of this paragraph (c)(4) and shall not affect the remainder thereof. 4. Section 54.9833-1 is revised to read as follows:§ 54.9833-1 Applicability dates. Sections 54.9801-1 through 54.9801-6, and 54.9831-1 and this section are applicable for plan years beginning on or after July 1, 2005. Notwithstanding the previous sentence, for short-term, limited-duration insurance sold or issued on or after September 1, 2024, the definition of short-term, limited-duration insurance in§ 54.9801-2 applies for coverage periods beginning on or after September 1, 2024. For short-term, limited-duration insurance sold or issued before September 1, 2024 (including any subsequent renewal or extension consistent with applicable law), the definition of short-term, limited-duration insurance in 26 CFR 54.9801-2, revised as of April 1, 2023, continues to apply, except that paragraph (2) of the definition of short-term, limited-duration insurance in§ 54.9801-2 applies for coverage periods beginning on or after September 1, 2024. DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Chapter XXV For the reasons stated in the preamble, the Department of Labor amends 29 CFR part 2590 as set forth below: PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS 5. The authority citation for part 2590 continues to read as follows: Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c; sec. 101(g), Pub. L. 104-191, 110 Stat. 1936; sec. 401(b), Pub. L. 105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), Pub. L. 110-343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Pub. L. 111-148, 124 Stat. 119, as amended by Pub. L. 111-152, 124 Stat. 1029; Division M, Pub. L. 113-235, 128 Stat. 2130; Secretary of Labor's Order 1-2011, 77 FR 1088 (Jan. 9, 2012). 6. Section 2590.701-2 is amended by revising the definition of "Short-term, limited-duration insurance" to read as follows:§ 2590.701-2 Definitions. Short-term, limited-duration insurance means health insurance coverage provided pursuant to a policy, certificate, or contract of insurance with an issuer that meets the conditions of paragraph (1) of this definition. (1) Short-term, limited-duration insurance means health insurance coverage provided pursuant to a policy, certificate, or contract of insurance with an issuer that: (i) Has an expiration date specified in the policy, certificate, or contract of insurance that is no more than 3 months after the original effective date of the policy, certificate, or contract of insurance, and taking into account any renewals or extensions, has a duration no longer than 4 months in total. For purposes of this paragraph (1)(i), a renewal or extension includes the term of a new short-term, limited-duration insurance policy, certificate, or contract of insurance issued by the same issuer, or if the issuer is a member of a controlled group, any other issuer that is a member of such controlled group, to the same policyholder within the 12-month period beginning on the original effective date of the initial policy, certificate, or contract of insurance; and (ii) Displays prominently on the first page (in either paper or electronic form, including on a website) of the policy, certificate, or contract of insurance, and in any marketing, application, and enrollment materials (including reenrollment materials) provided to individuals at or before the time an individual has the opportunity to enroll (or reenroll) in the coverage, in at least 14-point font, the language in the following notice: IMPORTANT: This is a short-term, limited-duration policy, NOT comprehensive health coverage This is a temporary limited policy that has fewer benefits and Federal protections than other types of health insurance options, like those on HealthCare.gov. Looking for comprehensive health insurance? - Visit HealthCare.gov or call 1-800-318-2596 (TTY: 1-855-889-4325) to find health coverage options. - To find out if you can get health insurance through your job, or a family member's job, contact the employer. Questions about this policy? - For questions or complaints about this policy, contact your State Department of Insurance. Find their number on the National Association of Insurance Commissioners' website (naic.org) under "Insurance Departments." (2) For purposes of paragraph (1)(i) of this definition, the term "controlled group" means any group treated as a single employer under section 52(a), 52(b), 414(m), or 414(o) of the Internal Revenue Code of 1986, as amended. (3) If any provision of this definition is held to be invalid or unenforceable by its terms, or as applied to any entity or circumstance, or stayed pending further agency action, the provision shall be construed so as to continue to give the maximum effect to the provision permitted by law, along with other provisions not found invalid or unenforceable, including as applied to entities not similarly situated or to dissimilar circumstances, unless such holding is that the provision is invalid and unenforceable in all circumstances, in which event the provision shall be severable from the remainder of the definition and shall not affect the remainder thereof. 7. Section 2590.732 is amended by adding paragraphs (c)(4)(ii)(D) and (c)(4)(iv) to read as follows:§ 2590.732 Special rules relating to group health plans. (c) * * * (4) * * * (ii) * * * (D) For plan years beginning on or after January 1, 2025, with respect to hospital indemnity or other fixed indemnity insurance: (1) The plan or issuer displays prominently on the first page (in either paper or electronic form, including on a website) of any marketing, application, and enrollment materials that are provided to participants at or before the time participants are given the opportunity to enroll in the coverage, in at least 14-point font, the language in the following notice: IMPORTANT: This is a fixed indemnity policy, NOT health insurance This fixed indemnity policy may pay you a limited dollar amount if you're sick or hospitalized. You're still responsible for paying the cost of your care. - The payment you get isn't based on the size of your medical bill. - There might be a limit on how much this policy will pay each year. - This policy isn't a substitute for comprehensive health insurance. - Since this policy isn't health insurance, it doesn't have to include most Federal consumer protections that apply to health insurance. Looking for comprehensive health insurance? - Visit HealthCare.gov or call 1-800-318-2596 (TTY: 1-855-889-4325) to find health coverage options. - To find out if you can get health insurance through your job, or a family member's job, contact the employer. Questions about this policy? - For questions or complaints about this policy, contact your State Department of Insurance. Find their number on the National Association of Insurance Commissioners' website (naic.org) under "Insurance Departments." - If you have this policy through your job, or a family member's job, contact the employer (2) If participants are required to reenroll (in either paper or electronic form) for purposes of renewal or reissuance of the insurance, the notice described in paragraph (c)(4)(ii)(D)( 1 ) of this section is prominently displayed in any marketing and reenrollment materials provided at or before the time participants are given the opportunity to reenroll in coverage. (3) If a plan or issuer provides a notice satisfying the requirements in paragraphs (c)(4)(ii)(D)( 1 ) and ( 2 ) of this section to a participant, the obligation to provide the notice is considered to be satisfied for both the plan and issuer. (iv) Severability. If any provision of this paragraph (c)(4) is held to be invalid or unenforceable by its terms, or as applied to any entity or circumstance, or stayed pending further agency action, the provision shall be construed so as to continue to give the maximum effect to the provision permitted by law, along with other provisions not found invalid or unenforceable, including as applied to entities not similarly situated or to dissimilar circumstances, unless such holding is that the provision is invalid and unenforceable in all circumstances, in which event the provision shall be severable from the remainder of this paragraph (c)(4) and shall not affect the remainder thereof. 8. Section 2590.736 is revised to read as follows:§ 2590.736 Applicability dates. Sections 2590.701-1 through 2590.701-8 and 2590.731 through 2590.736 are applicable for plan years beginning on or after July 1, 2005. Notwithstanding the previous sentence, for short-term, limited-duration insurance sold or issued on or after September 1, 2024, the definition of short-term, limited-duration insurance in§ 2590.701-2 applies for coverage periods beginning on or after September 1, 2024. For short-term, limited-duration insurance sold or issued before September 1, 2024 (including any subsequent renewal or extension consistent with applicable law), the definition of short-term, limited-duration insurance in 29 CFR 2590.701-2, revised as of July 1, 2023, continues to apply, except that paragraph (1)(ii) of the definition of short-term, limited-duration insurance in§ 2590.701-2 applies for coverage periods beginning on or after September 1, 2024. DEPARTMENT OF HEALTH AND HUMAN SERVICES 45 CFR Subtitle A For the reasons stated in the preamble, the Department of Health and Human Services amends 45 CFR parts 144, 146, and 148 as set forth below: PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE 9. The authority citation for part 144 continues to read as follows: Authority: 42 U.S.C. 300gg through 300gg-63, 300gg-91, 300gg-92, and 300gg-111 through 300gg-139, as amended. 10. Section 144.103 is amended by revising the definition of "Short-term, limited-duration insurance" to read as follows:§ 144.103 Definitions. Short-term, limited-duration insurance means health insurance coverage provided pursuant to a policy, certificate, or contract of insurance with an issuer that meets the conditions of paragraph (1) of this definition. (1) Short-term, limited-duration insurance means health insurance coverage provided pursuant to a policy, certificate, or contract of insurance with an issuer that: (i) Has an expiration date specified in the policy, certificate, or contract of insurance that is no more than 3 months after the original effective date of the policy, certificate, or contract of insurance, and taking into account any renewals or extensions, has a duration no longer than 4 months in total. For purposes of this paragraph (1)(i), a renewal or extension includes the term of a new short-term, limited-duration insurance policy, certificate, or contract of insurance issued by the same issuer, or if the issuer is a member of a controlled group, any other issuer that is a member of such controlled group, to the same policyholder within the 12-month period beginning on the original effective date of the initial policy, certificate, or contract of insurance; and (ii) Displays prominently on the first page (in either paper or electronic form, including on a website) of the policy, certificate, or contract of insurance, and in any marketing, application, and enrollment materials (including reenrollment materials) provided to individuals at or before the time an individual has the opportunity to enroll (or reenroll) in the coverage, in at least 14-point font, the language in the following notice: IMPORTANT: This is a short-term, limited-duration policy, NOT comprehensive health coverage This is a temporary limited policy that has fewer benefits and Federal protections than other types of health insurance options, like those on HealthCare.gov. Looking for comprehensive health insurance? - Visit HealthCare.gov or call 1-800-318-2596 (TTY: 1-855-889-4325) to find health coverage options. - To find out if you can get health insurance through your job, or a family member's job, contact the employer. Questions about this policy? - For questions or complaints about this policy, contact your State Department of Insurance. Find their number on the National Association of Insurance Commissioners' website (naic.org) under "Insurance Departments." (2) For purposes of paragraph (1)(i) of this definition, the term "controlled group" means any group treated as a single employer under section 52(a), 52(b), 414(m), or 414(o) of the Internal Revenue Code of 1986, as amended. (3) If any provision of this definition is held to be invalid or unenforceable by its terms, or as applied to any entity or circumstance, or stayed pending further agency action, the provision shall be construed so as to continue to give the maximum effect to the provision permitted by law, along with other provisions not found invalid or unenforceable, including as applied to entities not similarly situated or to dissimilar circumstances, unless such holding is that the provision is invalid and unenforceable in all circumstances, in which event the provision shall be severable from the remainder of the definition and shall not affect the remainder thereof. PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET 11. The authority citation for part 146 continues to read as follows: Authority: 42 U.S.C. 300gg-1 through 300gg-5, 300gg-11 through 300gg-23, 300gg- 91, and 300gg-92. 12. Section 146.125 is revised to read as follows:§ 146.125 Applicability dates. Section 144.103 of this subchapter and§§ 146.111 through 146.119, 146.143, and 146.145 are applicable for plan years beginning on or after July 1, 2005. Notwithstanding the previous sentence, for short-term, limited-duration insurance sold or issued on or after September 1, 2024, the definition of short-term, limited-duration insurance in§ 144.103 of this subchapter applies for coverage periods beginning on or after September 1, 2024. For short-term, limited-duration insurance sold or issued before September 1, 2024 (including any subsequent renewal or extension consistent with applicable law), the definition of short-term, limited-duration insurance in 45 CFR 144.103, revised as of October 1, 2023, continues to apply, except that paragraph (1)(ii) of the definition of short-term, limited-duration insurance in§ 144.103 applies for coverage periods beginning on or after September 1, 2024. 13. Section 146.145 is amended by adding paragraphs (b)(4)(ii)(D) and (b)(4)(iv) to read as follows:§ 146.145 Special rules relating to group health plans. (b) * * * (4) * * * (ii) * * * (D) For plan years beginning on or after January 1, 2025, with respect to hospital indemnity or other fixed indemnity insurance: (1) The plan or issuer displays prominently on the first page (in either paper or electronic form, including on a website) of any marketing, application, and enrollment materials that are provided to participants at or before the time participants are given the opportunity to enroll in the coverage, in at least 14-point font, the language in the following notice: IMPORTANT: This is a fixed indemnity policy, NOT health insurance This fixed indemnity policy may pay you a limited dollar amount if you're sick or hospitalized. You're still responsible for paying the cost of your care. - The payment you get isn't based on the size of your medical bill. - There might be a limit on how much this policy will pay each year. - This policy isn't a substitute for comprehensive health insurance. - Since this policy isn't health insurance, it doesn't have to include most Federal consumer protections that apply to health insurance. Looking for comprehensive health insurance? - Visit HealthCare.gov or call 1-800-318-2596 (TTY: 1-855-889-4325) to find health coverage options. - To find out if you can get health insurance through your job, or a family member's job, contact the employer. Questions about this policy? - For questions or complaints about this policy, contact your State Department of Insurance. Find their number on the National Association of Insurance Commissioners' website (naic.org) under "Insurance Departments." - If you have this policy through your job, or a family member's job, contact the employer. (2) If participants are required to reenroll (in either paper or electronic form) for purposes of renewal or reissuance of the insurance, the notice described in paragraph (b)(4)(ii)(D)( 1 ) of this section is prominently displayed in any marketing and reenrollment materials provided at or before the time participants are given the opportunity to reenroll in coverage. (3) If a plan or issuer provides a notice satisfying the requirements in paragraphs(b)(4)(ii)(D)( 1 ) and ( 2 ) of this section to a participant, the obligation to provide the notice is considered to be satisfied for both the plan and issuer. (iv) Severability. If any provision of this paragraph (b)(4) is held to be invalid or unenforceable by its terms, or as applied to any entity or circumstance, or stayed pending further agency action, the provision shall be construed so as to continue to give the maximum effect to the provision permitted by law, along with other provisions not found invalid or unenforceable, including as applied to entities not similarly situated or to dissimilar circumstances, unless such holding is that the provision is invalid and unenforceable in all circumstances, in which event the provision shall be severable from the remainder of this paragraph (b)(4) and shall not affect the remainder thereof. PART 148--REQUIREMENTS FOR THE INDIVIDUAL HEALTH INSURANCE MARKET 14. The authority citation for part 148 continues to read as follows: Authority: 42 U.S.C. 300gg through 300gg-63, 300gg-11 300gg-91, and 300-gg92, as amended. 15. Section 148.102 is amended by revising paragraph (b) to read as follows:§ 148.102 Scope and applicability dates. (b) Applicability dates. Except as provided in§§ 148.124, 148.170, and 148.180, the requirements of this part apply to health insurance coverage offered, sold, issued, renewed, in effect, or operated in the individual market after June 30, 1997. Notwithstanding the previous sentence, for short-term, limited-duration insurance sold or issued on or after September 1, 2024, the definition of short-term, limited-duration insurance in§ 144.103 of this subchapter applies for coverage periods beginning on or after September 1, 2024. For short-term, limited-duration insurance sold or issued before September 1, 2024 (including any subsequent renewal or extension consistent with applicable law), the definition of short-term, limited-duration insurance in 45 CFR 144.103, revised as of October 1, 2023, continues to apply, except that paragraph (1)(ii) of the definition of short-term, limited-duration insurance in§ 144.103 applies for coverage periods beginning on or after September 1, 2024. 16. Section 148.220 is amended by revising paragraph (b)(4) to read as follows:§ 148.220 Excepted benefits. (b) * * * (4) Hospital indemnity or other fixed indemnity insurance only if-- (i) There is no coordination between the provision of benefits and an exclusion of benefits under any other health coverage; (ii) The benefits are paid in a fixed dollar amount per period of hospitalization or illness and/or per service (for example, $100/day or $50/visit) regardless of the amount of expenses incurred and without regard to the amount of benefits provided with respect to the event or service under any other health coverage; and (iii)(A) For coverage periods beginning on or after January 1, 2025, the issuer displays prominently on the first page (in either paper or electronic form, including on a website) of any marketing, application, and enrollment or reenrollment materials that are provided at or before the time an individual has the opportunity to apply, enroll or reenroll in coverage, and on the first page of the policy, certificate, or contract of insurance, in at least 14-point font, the language in the following notice: IMPORTANT: This is a fixed indemnity policy, NOT health insurance This fixed indemnity policy may pay you a limited dollar amount if you're sick or hospitalized. You're still responsible for paying the cost of your care. - The payment you get isn't based on the size of your medical bill. - There might be a limit on how much this policy will pay each year. - This policy isn't a substitute for comprehensive health insurance. - Since this policy isn't health insurance, it doesn't have to include most Federal consumer protections that apply to health insurance. Looking for comprehensive health insurance? - Visit HealthCare.gov or call 1-800-318-2596 (TTY: 1-855-889-4325) to find health coverage options. - To find out if you can get health insurance through your job, or a family member's job, contact the employer. Questions about this policy? - For questions or complaints about this policy, contact your State Department of Insurance. Find their number on the National Association of Insurance Commissioners' website (naic.org) under "Insurance Departments." - If you have this policy through your job, or a family member's job, contact the employer. (B) For coverage periods beginning on or after January 1, 2015, and prior to January 1, 2025, the issuer continues to follow the notice provision in 45 CFR 148.220(b)(4)(iv), revised as of October 1, 2023. (iv) If any provision of this paragraph (b)(4) is held to be invalid or unenforceable by its terms, or as applied to any entity or circumstance, or stayed pending further agency action, the provision shall be construed so as to continue to give the maximum effect to the provision permitted by law, along with other provisions not found invalid or unenforceable, including as applied to entities not similarly situated or to dissimilar circumstances, unless such holding is that the provision is invalid and unenforceable in all circumstances, in which event the provision shall be severable from the remainder of this paragraph (b)(4) and shall not affect the remainder thereof. (Filed by the Office of the Federal Register March 28, 2024, 8:45 a.m., and published in the issue of the Federal Register for April 03, 2024, 89 FR 23338)

Announcement 2024-18 Internal Revenue Service 2024-21 I.R.B. 1234 Announcement of Disciplinary Sanctions From the Office of Professional Responsibility Announcement 2024-18 The Office of Professional Responsibility (OPR) announces recent disciplinary sanctions involving attorneys, certified public accountants, enrolled agents, enrolled actuaries, enrolled retirement plan agents, appraisers, and unenrolled/unlicensed return preparers (individuals who are not enrolled to practice and are not licensed as attorneys or certified public accountants). Licensed or enrolled practitioners are subject to the regulations governing practice before the Internal Revenue Service (IRS), which are set out in Title 31, Code of Federal Regulations, Subtitle A, Part 10, and which are released as Treasury Department Circular No. 230. The regulations prescribe the duties and restrictions relating to such practice and prescribe the disciplinary sanctions for violating the regulations. Unenrolled/unlicensed return preparers are subject to Revenue Procedure 81-38 and superseding guidance in Revenue Procedure 2014-42, which govern a preparer's eligibility to represent taxpayers before the IRS in examinations of tax returns the preparer both prepared for the taxpayer and signed as the preparer. Additionally, unenrolled/unlicensed return preparers who voluntarily participate in the Annual Filing Season Program under Revenue Procedure 2014-42 agree to be subject to the duties and restrictions in Circular 230, including the restrictions on incompetent or disreputable conduct. The disciplinary sanctions to be imposed for violation of the applicable standards are: Disbarred from practice before the IRS --An individual who is disbarred is not eligible to practice before the IRS as defined at 31 C.F.R. § 10.2(a)(4) for a minimum period of five (5) years. Suspended from practice before the IRS --An individual who is suspended is not eligible to practice before the IRS as defined at 31 C.F.R. § 10.2(a)(4) during the term of the suspension. Censured in practice before the IRS --Censure is a public reprimand. Unlike disbarment or suspension, censure does not affect an individual's eligibility to practice before the IRS, but OPR may subject the individual's future practice rights to conditions designed to promote high standards of conduct. Monetary penalty --A monetary penalty may be imposed on an individual who engages in conduct subject to sanction, or on an employer, firm, or entity if the individual was acting on its behalf and it knew, or reasonably should have known, of the individual's conduct. Disqualification of appraiser --An appraiser who is disqualified is barred from presenting evidence or testimony in any administrative proceeding before the Department of the Treasury or the IRS. Ineligible for limited practice --An unenrolled/unlicensed return preparer who fails to comply with the requirements in Revenue Procedure 81-38 or to comply with Circular 230 as required by Revenue Procedure 2014-42 may be determined ineligible to engage in limited practice as a representative of any taxpayer. Under the regulations, individuals subject to Circular 230 may not assist, or accept assistance from, individuals who are suspended or disbarred with respect to matters constituting practice ( i.e., representation) before the IRS, and they may not aid or abet suspended or disbarred individuals to practice before the IRS. Disciplinary sanctions are described in these terms: Disbarred by decision, Suspended by decision, Censured by decision, Monetary penalty imposed by decision, and Disqualified after hearing --An administrative law judge (ALJ) issued a decision imposing one of these sanctions after the ALJ either (1) granted the government's summary judgment motion or (2) conducted an evidentiary hearing upon OPR's complaint alleging violation of the regulations. After 30 days from the issuance of the decision, in the absence of an appeal, the ALJ's decision becomes the final agency decision. Disbarred by default decision, Suspended by default decision, Censured by default decision, Monetary penalty imposed by default decision, and Disqualified by default decision --An ALJ, after finding that no answer to OPR's complaint was filed, granted OPR's motion for a default judgment and issued a decision imposing one of these sanctions. Disbarment by decision on appeal, Suspended by decision on appeal, Censured by decision on appeal, Monetary penalty imposed by decision on appeal, and Disqualified by decision on appeal --The decision of the ALJ was appealed to the agency appeal authority, acting as the delegate of the Secretary of the Treasury, and the appeal authority issued a decision imposing one of these sanctions. Disbarred by consent, Suspended by consent, Censured by consent, Monetary penalty imposed by consent, and Disqualified by consent --In lieu of a disciplinary proceeding being instituted or continued, an individual offered a consent to one of these sanctions and OPR accepted the offer. Typically, an offer of consent will provide for: suspension for an indefinite term; conditions that the individual must observe during the suspension; and the individual's opportunity, after a stated number of months, to file with OPR a petition for reinstatement affirming compliance with the terms of the consent and affirming current fitness and eligibility to practice ( i.e., an active professional license or active enrollment status, with no intervening violations of the regulations). Suspended indefinitely by decision in expedited proceeding, Suspended indefinitely by default decision in expedited proceeding, Suspended by consent in expedited proceeding --OPR instituted an expedited proceeding for suspension (based on certain limited grounds, including loss of a professional license for cause, and criminal convictions). Determined ineligible for limited practice ---There has been a final determination that an unenrolled/unlicensed return preparer is not eligible for limited representation of any taxpayer because the preparer violated standards of conduct or failed to comply with any of the requirements to act as a representative. A practitioner who has been disbarred or suspended under 31 C.F.R. § 10.60, or suspended under § 10.82, or a disqualified appraiser may petition for reinstatement before the IRS after the expiration of 5 years following such disbarment, suspension, or disqualification (or immediately following the expiration of the suspension or disqualification period if shorter than 5 years). Reinstatement will not be granted unless the IRS is satisfied that the petitioner is not likely to engage thereafter in conduct contrary to Circular 230, and that granting such reinstatement would not be contrary to the public interest. Reinstatement decisions are published at the individual's request, and described in these terms: Reinstated to practice before the IRS ---The individual's petition for reinstatement has been granted. The agent, and eligible to practice before the IRS, or in the case of an appraiser, the individual is no longer disqualified. Reinstated to engage in limited practice before the IRS ---The individual's petition for reinstatement has been granted. The individual is an unenrolled/unlicensed return preparer and eligible to engage in limited practice before the IRS, subject to requirements the IRS has prescribed for limited practice by tax return preparers. OPR has authority to disclose the grounds for disciplinary sanctions in these situations: (1) an ALJ or the Secretary's delegate on appeal has issued a final decision; (2) the individual has settled a disciplinary case by signing OPR's "consent to sanction" agreement admitting to one or more violations of the regulations and consenting to the disclosure of the admitted violations (for example, failure to file Federal income tax returns, lack of due diligence, conflict of interest, etc.); (3) OPR has issued a decision in an expedited proceeding for indefinite suspension; or (4) OPR has made a final determination (including any decision on appeal) that an unenrolled/unlicensed return preparer is ineligible to represent any taxpayer before the IRS. Announcements of disciplinary sanctions appear in the Internal Revenue Bulletin at the earliest practicable date. The sanctions announced below are alphabetized first by state and second by the last names of the sanctioned individuals.

Notice 2022-28 Internal Revenue Service 2022-23 I.R.B. 1182 Treatment of Amounts Paid to Section 170(c) Organizations under Employer Leave-Based Donation Programs to Aid Victims of the Further Russian Invasion of Ukraine Notice 2022-28 The further invasion of Ukraine by the Russian Federation beginning on February 24, 2022 (further Russian invasion of Ukraine), has caused widespread loss of human life and other loss to the citizens and residents of Ukraine, including loss of shelter, food, medical care, and jobs. On March 2, 2022, the President of the United States announced a continuation of the national emergency with respect to Ukraine, as established in previous executive orders, because certain actions and policies of the Russian Federation further threaten the peace, stability, sovereignty, and territorial integrity of Ukraine. 1 On March 3, 2022, the Department of Homeland Security announced that it has designated Ukraine for Temporary Protected Status. 2 ******** 1 Notice of March 2, 2022: Continuation of the National Emergency With Respect to Ukraine, 87 F.R. 12387 (March 3, 2022). 2 https://www.dhs.gov/news/2022/03/03/secretary-mayorkas-designates-ukraine-temporary-protected-status-18- months. ******** The Department of the Treasury and the Internal Revenue Service are aware that employers may have adopted or may be considering adopting employer leave-based donation programs to aid citizens and residents of Ukraine; individuals working, traveling, or currently present in Ukraine; or refugees from Ukraine, collectively referred to in this notice as "victims of the further Russian invasion of Ukraine." This notice provides guidance under the Internal Revenue Code (Code) on the federal income and employment tax treatment of cash payments made by employers under leave-based donation programs to aid victims of the further Russian invasion of Ukraine. This guidance is similar to the guidance provided in Notice 2001-69, 2001-46 IRB 491, as modified and superseded by Notice 2003-1, 2003-2 IRB 257, regarding charitable relief following the September 11, 2001, terrorist attacks. EMPLOYER LEAVE-BASED DONATION PROGRAMS Under employer leave-based donation programs, employees can elect to forgo vacation, sick, or personal leave in exchange for their employers making cash payments to charitable organizations described in section 170(c) of the Code (section 170(c) organizations). Cash payments made by an employer to section 170(c) organizations under an employer leave-based donation program are referred to as "employer leave-based donation payments." TREATMENT OF QUALIFIED EMPLOYER LEAVE-BASED DONATION PAYMENTS Employer leave-based donation payments made by an employer before January 1, 2023, to section 170(c) organizations to aid victims of the further Russian invasion of Ukraine (qualified employer leave-based donation payments) will not be treated as gross income or wages (or compensation, as applicable) of the employees of the employer. Similarly, employees electing or with an opportunity to elect to forgo leave that funds the qualified employer leave-based donation payments will not be treated as having constructively received gross income or wages (or compensation, as applicable). Employers should not include the amount of qualified employer leave-based donation payments in Box 1, 3 (if applicable), or 5 of the electing employees' Form W-2. Electing employees are not eligible to claim a charitable contribution deduction under section 170 for the value of the forgone leave that funds qualified employer leave-based donation payments. An employer may deduct qualified employer leave-based donation payments under the rules of section 170 or the rules of section 162 if the employer otherwise meets the respective requirements of either section of the Code. DRAFTING INFORMATION For further information, please contact Clara L. Raymond of the Office of Associate Chief Counsel (Income Tax and Accounting) at (202) 317-4718 (not a toll-free call).

Chief Counsel Advice Number: 202323005 Internal Revenue Service May 8, 2023 Office of Chief Counsel Internal Revenue Service memorandum Number: 202323005 Release Date: 6/9/2023 CC:EEE:EOET:ET2:MLeiwant POSTN-109588-23 UILC: 6402.00-00, 6413.00-00 date: May 08, 2023 to: Jeremy H. Fetter Area Counsel (Gulf Coast Area Dallas) (Tax Exempt & Government Entities Division Counsel) from: Mikhail Zhidkov Senior Technician Reviewer Employment Tax Branch 2 (Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes) CC:EEE:EOET:ET2) subject: Refund of Overpayment of Taxes Imposed Under the Federal Insurance Contribution Act in a Subsequent Year Following the Use of Tax Equalization Methods This Chief Counsel Advice responds to your request for assistance. This advice may not be used or cited as precedent. ISSUE Whether an employer is eligible to receive a refund for an overpayment of tax imposed by the Federal Insurance Contributions Act (FICA) paid on behalf of an employee on a foreign assignment in a year after the calendar year in which wages were paid without the employer first repaying or reimbursing the employee the employee's portion of social security tax or securing the employee's consent to the allowance of the claim for refund in a situation where the employer uses a tax equalization program to adjust the employee's pay. CONCLUSION Generally, in order to receive a refund for an overpayment of FICA tax, an employer must repay or reimburse its employee the employee's portion of FICA tax or secure the employee's consent to the allowance of the claim for refund and include the consent together with a claim for the refund of such employee tax in accordance with Rev.Proc. 2017-28, 2017-14 I.R.B. 1061. This is true where an employer uses a tax equalization program to adjust employee's pay because FICA taxes are considered withheld from the employee's wages in this situation. BACKGROUND 1 ******** 1 This section provides a general overview of the tax equalization process as background. The particulars of each tax equalization scheme vary from company to company, but the legal determination detailed in this document is not dependent on the particular facts and circumstances described in this section. ******** Companies with a multinational presence often station employees in countries other than the employee's country of citizenship or residence. When doing so, these companies frequently offer tax equalization programs to employees. Tax equalization programs are agreements entered into between employers and employees and are intended to result in the employee having no economic gain or loss with respect to tax liability because of the international assignment. After all expected taxes are considered, an employee may be better or worse off economically because of the international assignment if an adjustment to salary is not made. The tax equalization program is designed to result in the employee paying approximately the same amount of tax as the employee would have paid had the employee not been placed on an international assignment. Under the tax equalization process, a company will enter into a tax equalization agreement with its employee prior to stationing the employee in a new country. As part of the tax equalization agreement, the company and the employee will calculate what is commonly referred to as a "hypothetical tax." The hypothetical tax calculation made before the beginning of the tax year constitutes an approximation of what the employee's overall tax liability would be for the upcoming year if that employee were to remain in the employee's country of citizenship (approximate hypothetical tax). The employee's previously agreed upon salary for the upcoming year is then reduced by the amount of this approximate hypothetical tax, and the employee is not entitled to receive that portion of the employee's previously agreed upon salary. The company will then usually pay all taxes owed on remuneration the employee receives from that company on behalf of the employee for both the country where the employee is stationed (host country) as well as the employee's country of citizenship. For employees stationed in the United States, or United States employees stationed abroad, the company will generally remit FICA taxes owed on remuneration the employee receives and file quarterly Forms 941. The company will also show the employee's share of FICA tax as Social Security and Medicare tax withheld in boxes 3 and 5 of the employee's Form W-2 it files and furnishes to the employee after the end of the calendar year. FACTS A United States company sends a non-United States citizen employee on international assignment to the United States and pays the employee remuneration subject to FICA taxes under §§ 3101 and 3111. Under the company's tax equalization program, the company agrees in advance of the international assignment to pay the employee a stated amount of remuneration, net of any taxes owed on the remuneration, which is intended to equal the after-tax remuneration the employee would receive if they had remained in the employee's country of citizenship instead of accepting a foreign assignment. The United States company reduces that employee's salary by the approximate hypothetical tax and pays the required FICA taxes throughout the year in which remuneration is paid to the employee. Under the agreement, after the hypothetical tax is subtracted from the employee's pay, the employer purports to be solely responsible for paying taxes, including FICA taxes, on tax equalized pay, without subtracting any additional amount from the agreed upon remuneration or later adjusting such pay. The issue presented is whether the United States company that pays the employee's share of FICA tax withholding in excess of what should have been withheld is entitled to claim a refund of the excess withholding in a year subsequent to the calendar year in which the remuneration that gave rise to the United States tax liability was paid to the employee without first repaying or reimbursing the employee the employee's share of FICA tax or securing the employee's consent to the allowance of the claim for refund. LAW Sections 3101 and 3111 impose taxes under FICA on "wages" as that term is defined in section 3121(a), with respect to "employment" as that term is defined in section 3121(b). The term "wages" is defined in section 3121(a) as all remuneration for employment, with certain specific exceptions. Section 3121(b) defines the term "employment" as any service, of whatever nature, performed by an employee for the person employing him, with certain specific exceptions. Neither the exceptions in section 3121(a) nor (b) are relevant to tax equalization programs. 2 ******** 2 As discussed further below, section 3121(a)(6)(A) excludes from wages an employer's payment of the employee's share of FICA for domestic service in a private home or for agricultural labor. To the extent tax equalization programs include agricultural or household employees, section 3121(a)(6)(A) could apply. This memo does not analyze such situations. ******** Section 3121(a)(6)(A) excludes from wages the payment by an employer (without deduction from the remuneration of the employee) of the tax imposed upon an employee under section 3101 with respect to remuneration paid to an employee for domestic service in a private home of the employer or for agricultural labor. Generally, an employer may correct overpayments of FICA tax after an error has been ascertained using the refund claim process under section 6402 or using the adjustment process under section 6413. An error is ascertained when the employer has sufficient knowledge of the error to be able to correct it. Section 6402 establishes the procedures for filing claims for refund. Section 6402(a) provides, in part, that in the case of any overpayment, the Secretary may credit the amount of such overpayment against any tax liability of the person who made the overpayment and shall refund the balance to such person. Section 31.6402(a)-2 provides rules under which a refund claim for an overpayment of FICA tax may be made. Pursuant to § 31.6402(a)-2(a), no refund or credit for FICA employer tax will be allowed unless the employer has first repaid or reimbursed its employee for the employee FICA tax or has secured the employee's consent to the allowance of the claim for refund and includes a claim for the refund of such employee tax. For refund claims for employee tax overcollected in prior years, the employer must also certify that it has obtained the employee's written statement confirming that the employee has not made any previous claims (or the claims were rejected) and will not make any future claims for refund of the amount of the overcollection. However, this requirement does not apply to the extent that the employee FICA taxes were not withheld from the employee or, after the employer makes reasonable efforts to repay or reimburse the employee or secure the employee's consent, the employer cannot locate the employee or the employee will not provide consent. Section 6413(a)(1) generally provides for interest-free adjustments in such manner and at such times as the Secretary prescribes by regulation if more than the correct amount of tax imposed by §§ 3101, 3111, 3201, 3221, or 3402 is paid with respect to any payment of remuneration. Section 6413(b) generally provides for a refund if an overpayment cannot be adjusted under § 6413(a) in such manner and at such times as the Secretary prescribes by regulation if more than the correct amount of tax imposed by §§ 3101, 3111, 3201, 3221, or 3402 is paid with respect to any payment of remuneration. Section 31.6413(a)-1(a) and Section 31.6413(a)-2 generally provide procedures for the interest-free adjustments of overpayments of FICA tax withheld from wages. Under section 31.6413(a)-1(a) and section 31.6413(a)-2(b) of the Treasury regulations, before making an adjustment of an overpayment of FICA tax with respect to an employee, an employer generally must repay or reimburse the employee in the amount of the over-collection prior to the expiration of the period of limitations on credit or refund, and, for FICA tax overcollected in a prior year, must also secure the employee's written statement confirming that the employee has not made any previous claims (or the claims were rejected) and will not make any future claims for refund or credit of the amount of the overcollected FICA tax. Under § 31.6413(a)-2(c)(2), an employer can correct an overpayment of income tax withholding due to an administrative error. An administrative error involves the inaccurate reporting of the amount withheld due to transposition error or math error on the employment tax returns Under § 3509(a), if any employer fails to deduct and withhold any tax under subchapter A of chapter 21 with respect to any employee by reason of treating such employee as not being an employee for purposes of such subchapter, the amount of the employer's liability for such taxes with respect to such employee shall be determined as if the taxes imposed under such subchapter were 20 percent of the amount imposed under such subchapter without regard to this subparagraph. Section 3509(d)(1)(B) provides that the employer shall not be entitled to recover from the employee any tax determined under this section. In First National Bank of Chicago v. United States, 964 F.2d 1137 (Fed.Cir. 1992), the Court considered whether an employer was required to comply with procedural requirements for claiming a refund of FICA taxes when the taxes were paid by the employer and the payment of the FICA taxes did not itself result in additional FICA wages because of a statutory exception then applicable. The court held that only FICA wages to an employee could be "collected from an employee" for purposes of the regulations. The court then reasoned that because the FICA taxes were paid by the employer on behalf of the employees, and because the payments the employer made on behalf of the employee were exempted from FICA under § 3121(a)(6)(A), 3 the payments were not FICA wages. The court noted that, "[g]enerally, income taxes and FICA taxes are considered to have been 'collected from an employee' even though the employee has not in fact ever received the amount of the tax." However, since the payments in this case were "never income which could have been included in and then deducted from the employees' FICA wages," they could not be "collected from an employee," so no collection occurred, and the employer was not subject to the procedural requirements for claiming a refund of FICA taxes. ******** 3 The Omnibus Reconciliation Act of 1980 amended this exception to cover pay only for domestic services in the employer's home and for agricultural labor. See Omnibus Reconciliation Act of 1980, Pub.L. 96-499. The payments in question in this case were all made before the 1980 amendment became effective. ******** Rev.Rul. 86-14, 1986-5 C.B. 304, determines that FICA tax payments that are made on an employee's behalf are generally additional income to the employee and should be reported as additional wages. 4 The ruling also states that any FICA payments made on an employee's behalf should be reported as "Social Security Tax Withheld" on the Form W-2. Finally, the ruling states that when a tax liability is incurred by an employer on behalf of an employee and those funds are included in the employee's gross income, the funds were, in effect, deducted from the employee's pay. ******** 4 Consistent with the Omnibus Reconciliation Act of 1980, Rev.Rul. 86-14 does not apply to payments that are for domestic service in the employer's private home or for agricultural labor. ******** Rev.Proc. 2017-28 provides guidance to employers on the requirements for employee consent used by an employer to support a claim for refund of overpaid taxes under FICA. It clarifies the basic requirements for both a request for employee consent and for the employee consent and permits employee consent to be requested, furnished, and retained in an electronic format. It also contains guidance concerning what constitutes "reasonable efforts" if employee consent is not secured in order to permit the employer to claim a refund of the employer share of overpaid FICA. ANALYSIS In the tax equalization program described, the United States company contractually agrees to withhold FICA taxes on all wages or payments for services that are paid to the employee by the employer under §§ 3101, including taxes paid on the employee's behalf. The employee similarly agrees to the reduced salary in exchange for the United States company paying all of the employee's taxes owed on remuneration the employee receives from that company in both the United States and in the employee's country of citizenship. Thus, the employer has a prearranged contract to pay an amount of stated wages to the employee net of any tax withholding (and thus, as a matter of internal bookkeeping, pay the tax withholding of the employee out of its own funds rather than deducting the withholding from the employee's stated wages in the year of payment). This prearranged plan results in additional current income and current wages to the employee in addition to the stated wages. See Rev.Rul. 86-14. The amount of taxes paid on behalf of the employee by the United States employer is deemed to have been withheld by the United States company and should be included in income and wages on the employee's Form W-2, unless otherwise excepted. See Rev.Rul. 86-14. To the extent that the employer pays an amount of FICA tax in excess of the sum due under §§ 3101 or 3111, the employer can file a claim for credit or refund for an overpayment. See § 31.6402(a)-2(a)(1)(i). However, an employer may not generally receive a refund of overpaid FICA tax without making reasonable efforts to protect its employees' interests with respect to Old-Age, Survivors, and Disability Insurance. 5 For this reason, the employer must first repay or reimburse its employee or secure the employee's consent to the allowance of the claim for refund before filing a claim for credit or refund for an overpayment. See § 31.6402(a)-2(a)(1)(ii). However, this requirement does not apply to the extent that the taxes were not withheld from the employee, or, after the employer makes reasonable efforts to repay or reimburse the employee or secure the employee's consent, the employer cannot locate the employee or the employee will not provide consent. See § 31.6402(a)-2(a)(1)(ii). ******** 5 This requirement also aids in proper tax administration by preventing a claim for refund by an employee on the same overpayment of FICA taxes claimed by the employer. ******** Generally, the employee's share of FICA taxes is considered to be withheld from the employee in tax equalization arrangements. While there are some limited circumstances when FICA taxes are not withheld from the employee, they are not relevant to the tax equalization agreements being discussed here. For example: - Amounts that are reported as withheld due to administrative error fall into the exception to the requirement that the employer reimburse its employee or secure an employee's consent before receiving a credit or refund for an overpayment of FICA taxes. See § 31.6402(a)-2, 31.6413(a)-2(c)(2). - When the Code explicitly deems FICA taxes paid by an employer to be not withheld from an employee, those payments are not considered to be withheld from the employee. See § 3509(d)(1)(B). - When an employer pays FICA taxes on behalf of an employee but neither the underlying benefits that generated the FICA tax liability nor the tax payments the employer made on behalf of its employees could be included in and then deducted from wages under § 3121, then those FICA tax payments were not withheld from the employee. See First National Bank of Chicago, 964 F.2d at 1140-1. - In cases where an employer makes a payment of the employee's portion of FICA taxes without deduction from the remuneration of the employee or a payment required from an employee under a State unemployment compensation law with respect to remuneration paid to an employee for domestic service in the employer's home or for agricultural labor, the employer's payment of FICA taxes is not considered to be withheld from the employee. See § 3121(a)(6). In the tax equalization agreements being discussed, the tax payments made on behalf of an employee are included in the employee's gross income, even if the accounting processes used by the United States company under its tax equalization program do not identify the payments as being withheld because the employee has agreed to accept a lower salary in advance in exchange for the employer's agreement to pay all taxes on the employee's behalf. For this reason, regardless of any internal accounting, the taxes paid on the employee's behalf are deemed to have been withheld from the employee. See Rev.Rul. 86-14. The United States company therefore does not fall into the exception to the requirement to reimburse its employee or secure an employee's consent before receiving a credit or refund for an overpayment of FICA taxes because the tax liability incurred on behalf of an employee is included in the employee's gross income. See § 31.6402(a)-2(a)(1)(ii). This exception only applies to situations in which taxes were not withheld from the employee. In this case, the payments are deemed to be withheld. Excess FICA taxes withheld by an employer may be recovered through a claim for credit or refund only after the employer first repays or reimburses its employee or secures the employee's consent to the allowance of the claim for refund. See § 31.6402(a)-2(a)(1)(ii). Please call Matthew Leiwant at (202) 317-4774 if you have any further questions.

Internal Revenue Service - Information Release IR-2020-135 IRS unclaimed refunds of $1.5 billion waiting for tax year 2016; taxpayers face July 15 deadline July 1, 2020 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 IRS unclaimed refunds of $1.5 billion waiting for tax year 2016; taxpayers face July 15 deadline IR-2020-135, July 1, 2020 WASHINGTON -- Unclaimed income tax refunds worth more than $1.5 billion await an estimated 1.4 million individual taxpayers who did not file a 2016 federal income tax return, according to the Internal Revenue Service. "The IRS wants to help taxpayers who are owed refunds but haven't filed their 2016 tax returns yet," said IRS Commissioner Chuck Rettig. "Time is quickly running out for these taxpayers. There's only a three-year window to claim these refunds, and the window closes on July 15. To claim the refund, a return for tax year 2016 must be filed by July 15, 2020." In Notice 2020-23 (PDF), the IRS extended the due date for filing tax year 2016 returns and claiming refunds for that year to July 15, 2020, as a result of the COVID-19 pandemic. As the IRS is issuing Economic Impact Payments to Americans, the agency urges taxpayers who haven't filed past due tax returns to file now to claim these valuable refunds. To collect refunds for tax year 2016, taxpayers must file their 2016 tax returns with the IRS no later than this year's extended tax due date of July 15, 2020. The IRS estimates the midpoint for the potential refunds for 2016 to be $861 -- that is, half of the refunds are more than $861 and half are less. In cases where a federal income tax return was not filed, the law provides most taxpayers with a three-year window of opportunity to claim a tax refund. If they do not file a tax return within three years, the money becomes the property of the U.S. Treasury. For 2016 tax returns, the window closes July 15, 2020, for most taxpayers. The law requires taxpayers to properly address, mail and ensure the tax return is postmarked by the July 15 date. The IRS reminds taxpayers that there is no penalty for filing late when a refund is involved. Taxpayers seeking a 2016 tax refund should know that their checks may be held if they have not filed tax returns for 2017 and 2018. In addition, the refund will be applied to any amounts owed to the IRS or a state tax agency and may be used to offset unpaid child support or past due federal debts, such as student loans. By failing to file a tax return, people stand to lose more than just their refund of taxes withheld or paid during 2016. Many low- and moderate-income workers may be eligible for the Earned Income Tax Credit (EITC). For 2016, the credit was worth as much as $6,269. The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2016 were: - $47,955 ($53,505 if married filing jointly) for those with three or more qualifying children; - $44,648 ($50,198 if married filing jointly) for people with two qualifying children; - $39,296 ($44,846 if married filing jointly) for those with one qualifying child, and; - $14,880 ($20,430 if married filing jointly) for people without qualifying children. Current and prior year tax forms (such as the tax year 2016 Form 1040, 1040-A and 1040-EZ) and instructions are available on the IRS.gov Forms and Publications page or by calling toll-free 800-TAX-FORM ( 800-829-3676 ). Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for the years 2016, 2017 or 2018 should request copies from their employer, bank or other payer. Taxpayers who are unable to get missing forms from their employer or other payer can order a free wage and income transcript at IRS.gov using the Get Transcript Online tool. Alternatively, they can mail Form 4506-T to request a wage and income transcript. A wage and income transcript shows data from information returns received by the IRS, such as Forms W-2, 1099, 1098, Form 5498 and IRA contribution information. Taxpayers can use the information from the transcript to file their tax return. State-by-state estimates of individuals who may be due 2016 income tax refunds State or District Estimated Number of Individuals Median Potential Refund Total Potential Refunds * Alabama 23,300 $859 $24,614,400 Alaska 5,500 $979 $6,754,900 Arizona 32,400 $762 $32,281,600 Arkansas 13,400 $822 $13,798,800 California 130,600 $816 $135,981,300 Colorado 27,500 $809 $28,276,500 Connecticut 14,300 $930 $16,213,300 Delaware 5,600 $878 $6,114,500 District of Columbia 3,700 $904 $4,224,600 Florida 99,000 $874 $105,706,400 Georgia 48,600 $792 $49,682,700 Hawaii 7,700 $932 $8,785,600 Idaho 6,200 $727 $5,876,000 Illinois 51,700 $909 $57,312,200 Indiana 32,700 $887 $35,129,700 Iowa 14,700 $908 $15,735,600 Kansas 14,600 $877 $15,706,800 Kentucky 18,700 $869 $19,517,100 Louisiana 24,400 $849 $26,410,100 Maine 5,600 $802 $5,482,200 Maryland 28,200 $873 $31,619,700 Massachusetts 29,900 $956 $34,261,900 Michigan 46,600 $853 $49,591,400 Minnesota 21,000 $803 $21,155,300 Mississippi 12,900 $777 $12,931,600 Missouri 32,400 $828 $33,522,400 Montana 4,600 $781 $4,582,000 Nebraska 7,800 $845 $8,081,700 Nevada 15,900 $859 $16,922,300 New Hampshire 6,500 $965 $7,474,300 New Jersey 36,200 $936 $41,268,900 New Mexico 9,600 $833 $10,219,600 New York 70,300 $958 $80,830,100 North Carolina 44,900 $833 $46,044,500 North Dakota 4,000 $949 $4,539,800 Ohio 52,900 $841 $54,542,900 Oklahoma 21,000 $866 $22,600,000 Oregon 21,400 $762 $21,237,200 Pennsylvania 55,200 $919 $60,505,200 Rhode Island 3,900 $926 $4,410,100 South Carolina 17,200 $769 $17,323,700 South Dakota 3,800 $899 $3,976,100 Tennessee 29,000 $840 $29,834,800 Texas 143,400 $898 $159,809,900 Utah 11,100 $766 $11,037,700 Vermont 2,800 $892 $2,897,400 Virginia 37,900 $827 $39,977,600 Washington 37,200 $918 $42,273,300 West Virginia 7,200 $921 $7,830,000 Wisconsin 19,900 $781 $19,483,100 Wyoming 3,400 $920 $3,766,100 Totals 1,418,300 $861 $1,518,154,900 * Excluding credits.

Private Letter Ruling Number: 202343018 Internal Revenue Service July 27, 2023 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202343018 Release Date: 10/27/2023 Index Number: 2501.00-00, 2601.00-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:04 PLR-102059-23 Date: July 27, 2023 Dear ******: This letter responds to your authorized representative's letter dated December 27, 2022, and subsequent correspondence, requesting rulings concerning the federal gift and generation-skipping transfer tax consequences of a court-approved settlement agreement. FACTS The facts submitted and representations made are as follows. Settlor died testate on Date 1, a date prior to September 25, 1985. Settlor's Will consists of the original instrument dated Date 2, a first codicil dated Date 3, a second codicil dated Date 4, a third codicil dated Date 5, and a fourth codicil dated Date 6 (collectively, Settlor's Will). At his death, Article Fourth of Settlor's Will created separate trusts for the benefit of his three children, Child 1, Child 2, and Child 3 (collectively, Children), their spouses, and their descendants: Trust A for the benefit of Child 1; Trust B for the benefit of Child 2; and Trust C for the benefit of Child 3. In addition to the trusts for the primary benefit of Children, Article Third of Settlor's Will created a marital trust for Settlor's wife, Spouse, which granted Spouse a testamentary general power of appointment over any trust property remaining in the marital trust at the time of her death. Spouse exercised her power of appointment under Article VII of Spouse's Will, dated Date 7, with a first codicil dated Date 8 (collectively, Spouse's Will). Pursuant to Spouse's Will, upon Spouse's death on Date 9, the remaining property of the marital trust was divided into three separate trusts for the benefit of Children, their spouses, and their descendants: Trust D for the benefit of Child 1; Trust E for the benefit of Child 2; and Trust F for the benefit of Child 3. Section 8 of Article VI of Spouse's Will provides that to the extent not specifically stated otherwise, all trusts created by Spouse's Will would be governed by the provisions of Settlor's Will. Child 3 died on Date 10, leaving no surviving spouse or descendants. Upon Child 3's death, the property held in Trust C was divided into two equal shares and each share distributed to Trust A and Trust B. Similarly, the property of Trust F was divided into two equal shares and each share distributed to Trust D and Trust E. On Date 11, pursuant to a State Court order, Trust D for the primary benefit of Child 1 was divided into six separate trusts for the benefit of Child 1's six children and their respective descendants, as well as Child 1 and Child 1's spouse: Trust D1 for the benefit of Grandchild 1; Trust D2 for the benefit of Grandchild 2; Trust D3 for the benefit of Grandchild 3; Trust D4 for the benefit of Grandchild 4; Trust D5 for the benefit of Grandchild 5; and Trust D6 for the benefit of Grandchild 6. On Date 12, pursuant to a State Court order, Trust A for the primary benefit of Child 1 was divided into six separate trusts for the benefit of Child 1's six children and their respective descendants, as well as Child 1 and Child 1's spouse: Trust A1 for the benefit of Grandchild 1; Trust A2 for the benefit of Grandchild 2; Trust A3 for the benefit of Grandchild 3; Trust A4 for the benefit of Grandchild 4; Trust A5 for the benefit of Grandchild 5; and Trust A6 for the benefit of Grandchild 6. In a companion State Court order on the same date, Trust B for the primary benefit of Child 2 and Trust E for the primary benefit of Child 2, were divided into two separate trusts for the benefit of Child 2's two children, Grandchild 7 and Grandchild 8 and their respective descendants, as well as Child 2 and Child 2's spouse. The divided trusts were subsequently merged into two trusts known as Trust BE1 for the benefit of Grandchild 7 and Trust BE2 for the benefit of Grandchild 8. Article Fourth of Settlor's Will governs the distribution provisions of Trust A, Trust B, Trust D, Trust E, Trusts A1 through A6, Trusts D1 through D6, and Trusts BE1 and BE2 (collectively, the Family Trusts). Until a trust for whom a grandchild is named terminates, the Trustee has discretion to make distributions of income from such trust to the grandchild. The portion of income not distributed may be accumulated or may be distributed to the grandchild's spouse, the surviving parents of the grandchild, and the descendants of grandchild, in whole or in part, in the discretion of the Trustee. Trustee has unfettered discretion to make distributions of principal to a grandchild for whom a trust is established. A trust for whom a grandchild is named shall terminate upon the later to occur of the death of the grandchild or the grandchild's spouse, if any, and at such time the share for such grandchild shall be distributed to the descendants of such grandchild, per stirpes. Section 4 of Article Fifth of Settlor's Will provides that any trust established pursuant to Settlor's Will shall cease and terminate upon the expiration of twenty-one years after the death of the last surviving of Settlor's descendants who were in being at the time of Settlor's death, and if at the expiration of this period any property is still held in trust, such property shall immediately be distributed to and among the persons receiving or entitled to have the benefit of the income therefrom in equal shares. Pursuant to Article Fourth of Settlor's Will, if a grandchild of Settlor dies without a living spouse or descendants, the trust principal of such grandchild's trust will be distributed to Settlor's other descendants. Section 3 of Article Fifth of Settlor's Will provides as follows: The words "children" and "descendants" shall be deemed to refer to issue of the body born in lawful wedlock and to children adopted by legal proceedings of public record and to their children and descendants so defined. Of Settlor's eight grandchildren, Grandchild 5 and Grandchild 7 currently have biological descendants. Grandchild 2 adopted Adoptee 1 and Grandchild 3 adopted Adoptee 2 and Adoptee 3. Each adopted individual was adopted after reaching the age of majority (collectively, Adult Adoptees). The Trustee of each Family Trust is Trust Company. On Date 13, Trustee filed a petition with the State Court requesting an order construing the terms "children" and "descendants" under Section 3 of Article Fifth of Settlor's Will to determine whether individuals adopted as adults qualify as "descendants" under Settlor's Will. A controversy exists among the descendants of Settlor as to whether the Adult Adoptees are "descendants" of Settlor under Settlor's Will. If the Adult Adoptees are considered descendants of Settlor, the number of potential remainder beneficiaries increases and affects the per stirpital shares at the time of final distribution of the Family Trusts. On Date 14, State Court issued a memorandum opinion and order for evidentiary hearing to determine whether Grandchild 2 and/or Grandchild 3 functioned as parents to the Adult Adoptees before they reached age 18, based on State Law 1, which was enacted after Settlor's date of death. Grandchild 1, joined by other family members, filed a motion for summary judgment and amendment of the Date 14 order in objection to the State Court's application of State Law 1 rather than the law at the time of Settlor's date of death. State Law 1 provides that in construing a dispositive provision of a transferor who is not the adoptive parent, an adoptee is not considered the child of the adoptive parent unless the adoptive parent functioned as a parent of the adoptee before the adoptee reached 18 years of age. State Law 2 provides that the effective date of the title of State Law 1 is Date 15, a date that is after Settlor's date of death, and applies to any proceedings in court then pending or thereafter commenced regardless of the time of the death of decedent except to the extent that in the opinion of the court the former procedure should be made applicable in a particular case in the interest of justice or because of infeasibility of application of the procedure of the title. Over several years, the interested parties engaged in substantial litigation and other proceedings in preparation for trial, including filing cross motions for summary judgment, extensive discovery, and voluntary mediation. Based on the issue before State Court, the outcome of the litigation would be that the Adult Adoptees are determined to be or not be descendants of Settlor. After several attempts to resolve the contested issues, on Date 16 the parties entered into a Settlement Agreement resolving the litigation regarding the status of the Adult Adoptees as descendants of Settlor. The Settlement Agreement was revised on Date 17 (Revised Settlement Agreement). Both the Settlement Agreement and the Revised Settlement Agreement were approved by order of State Court and contingent upon receipt of a favorable private letter ruling from the Internal Revenue Service (IRS). All parties to the agreement were represented by legal counsel. The Revised Settlement Agreement provides for certain payments to and for the benefit of Adoptee 1. It provides that the amount of $a will be distributed outright and in cash to Adoptee 1 from Trusts A1 through A6 and Trusts D1 through D6 (each trust distributing $b). In addition, the amount of $a will be distributed outright and in cash to Grandchild 2 (adoptive parent of Adoptee 1) from Trust A2 and Trust D2 (each trust for the primary benefit of Grandchild 2 and each distributing $c), whereupon Grandchild 2, as settlor and transferor, will immediately establish (and contribute the $a in cash to) a special needs trust for the primary benefit of Adoptee 1. Finally, the amount of $d will be distributed outright and in cash to Adoptee 1 from Trust A2 and Trust D2 (each trust distributing $e). Upon receipt of cash in the amounts of $a and $d, Adoptee 1, as settlor and transferor, will immediately establish (and contribute the sum of $a and $d in cash to) a revocable trust for his primary benefit. The Revised Settlement Agreement provides for certain payments to and for the benefit of Adoptee 2 and Adoptee 3. It provides that the amount of $a will be distributed outright and in cash to each of Adoptee 2 and Adoptee 3 from Trusts A1 through A6 and Trusts D1 through D6 (each distributing $b). Further, after the cash distributions to Adoptee 2 and Adoptee 3 are made, the assets then making up Trust A3 and Trust D3 (collectively referred to going forward as the Grandchild 3 Settlement Trusts), each for the primary benefit of Grandchild 3 (adoptive parent of Adoptee 2 and Adoptee 3), will be kept separate and segregated from the assets of any other Family Trust. No further additions shall be made to the Grandchild 3 Settlement Trusts from any other Family Trust by reason of the death of any beneficiary of those other Family Trusts. Except for certain excluded property related to agricultural land and business interests in entities whose primary holding is agricultural land (Excluded Property), Adoptee 2 and Adoptee 3 are the named beneficiaries of the Grandchild 3 Settlement Trusts. Upon the death of the survivor of Child 1's spouse, Grandchild 3, and Grandchild 3's spouse, the remaining assets of the Grandchild 3 Settlement Trusts, less the Excluded Property, will be distributed in equal shares to Adoptee 2 and Adoptee 3, or all to the survivor. Adoptee 2 and Adoptee 3 have a testamentary power to appoint such individual's respective share of the Grandchild 3 Settlement Trusts to or for the benefit of such individual's spouse or descendants. If Adoptee 2 or Adoptee 3 does not exercise such power of appointment but has living descendants, the Trustee shall distribute such individual's respective share to such descendants, per stirpes. Any asset appointed under the terms of the Revised Settlement Agreement (including the assets of the Grandchild 3 Settlement Trusts) may not extend the time for vesting of that asset beyond a period of twenty-one years after the death of the last surviving descendant of Settlor who was in being on Date 18. Any remaining assets of the Grandchild 3 Settlement Trusts not otherwise distributed (including the Excluded Property) shall be distributed according to Settlor's Will without regard to any surviving Adult Adoptees or their descendants. Under the Revised Settlement Agreement, all claims by the Adult Adoptees with regard to Settlor and Settlor's Spouse's trusts and estates are resolved and, after obtaining a favorable private letter ruling from the IRS, Trustee will agree to dismiss the petition filed in State Court with prejudice and all parties will agree that State Court can enter the dismissal without awarding costs to any party and without further notice. It is represented that each Family Trust was irrevocable on September 25, 1985, and that there were no additions, constructive or actual, after that date. You have requested the following rulings: 1. The Revised Settlement Agreement, the State Court order approving the Revised Settlement Agreement, and the implementation and distributions made in accordance with the Revised Settlement Agreement, will not cause any of the Family Trusts to lose their status as trusts exempt from GST tax for purposes of chapter 13 of the Code. 2. Entering into the Revised Settlement Agreement will not cause any party to the Settlement Agreement to be treated as having made a gift to any other individual for purposes of chapter 12 of the Code. LAW AND ANALYSIS Ruling 1 Section 2601 imposes a tax on every generation-skipping transfer (GST), which is defined under § 2611 as a taxable distribution, a taxable termination, and a direct skip. Under § 1433(a) of the Tax Reform Act of 1986 (Act) and § 26.2601-1(a) of the Generation-Skipping Transfer Tax Regulations, the GST tax is generally applicable to GSTs made after October 22, 1986. However, under § 1433(b)(2)(A) of the Act and § 26.2601-1(b)(1)(i), the tax does not apply to a transfer under a trust (as defined in § 2652(b)) that was irrevocable on September 25, 1985, but only to the extent that such transfer is not made out of corpus added to the trust after September 25, 1985 (or out of income attributable to corpus so added). Section 26.2601-1(b)(4) provides rules for determining when a modification, judicial construction, settlement agreement, or trustee action with respect to a trust that is exempt from the GST tax under § 26.2601-1(b)(1), (b)(2), or (b)(3) will not cause the trust to lose its exempt status. The rules of § 26.2601-1(b)(4) are applicable only for purposes of determining whether an exempt trust retains its exempt status for GST tax purposes. They do not apply in determining, for example, whether the transaction results in a gift subject to gift tax, or may cause the trust to be included in the gross estate of a beneficiary, or may result in the realization of capital gain for purposes of § 1001. Section 26.2601-1(b)(4)(i)(B) provides that a court-approved settlement of a bona fide issue regarding the administration of a trust or the construction of terms of the governing instrument will not cause an exempt trust to be subject to the provisions of chapter 13, if -- ( 1 ) The settlement is the product of arm's length negotiations; and ( 2 ) The settlement is within the range of reasonable outcomes under the governing instrument and applicable state law addressing the issues resolved by the settlement. A settlement that results in a compromise between the positions of the litigating parties and reflects the parties' assessments of the relative strengths of their positions is a settlement that is within the range of reasonable outcomes. In the present case, each Family Trust was created and was irrevocable before September 25, 1985. It is represented that no additions, constructive or actual, have been made to any of the Family Trusts on or after September 25, 1985. Consequently, each Family Trust is currently exempt from GST tax. In this case, each party was represented by separate legal counsel. The prospective beneficiaries had distinct and adverse economic and administrative interests. The parties were involved in protracted and substantial litigation to resolve the issue of the identity of Settlor's descendants under Settlor's Will. Settlement negotiations were carried out over several years until the Revised Settlement Agreement was reached. The parties have obtained State Court approval of the Revised Settlement Agreement pending the issuance of this private letter ruling. We conclude that the Revised Settlement Agreement constitutes a settlement of a bona fide issue regarding construction of the terms "children" and "descendants" in Settlor's Will. We further conclude that the terms of the Revised Settlement Agreement are the product of arm's length negotiations. Finally, we conclude that the Revised Settlement Agreement represents a compromise between the positions of the interested parties and reflects the assessments of the relative strengths of their positions; therefore, we additionally conclude that the Revised Settlement Agreement is within the range of reasonable outcomes under the governing instrument and the applicable State law addressing the issues resolved by the Revised Settlement Agreement. Accordingly, based on the facts submitted and the representations made, we rule that the Revised Settlement Agreement, the State Court order approving the Revised Settlement Agreement, and the implementation and distributions made in accordance with the Revised Settlement Agreement, will not cause any of the Family Trusts to lose their status as trusts exempt from GST tax for purposes of chapter 13 of the Code. Ruling 2 Section 2501 imposes a tax for each calendar year on the transfer of property by gift during such calendar year by any individual. Section 2511 provides that the tax imposed by § 2501 applies whether the transfer is in trust or otherwise, direct or indirect, and whether the property transferred is real or personal, tangible or intangible. Section 25.2511-1(c)(1) of the Gift Tax Regulations provides that any transaction in which an interest in property is gratuitously passed or conferred upon another, regardless of the means or device employed, constitutes a gift subject to tax. Whether an agreement settling a dispute is effective for gift tax purposes depends on whether the settlement is based on a valid enforceable claim asserted by the parties and, to the extent feasible, produces an economically fair result. See Ahmanson Foundation v. United States, 674 F.2d 761, 774-775 (9 th Cir. 1981). Thus, state law must be examined to ascertain the legitimacy of each party's claim. A settlement that fairly reflects the relative merits and economic values of the various claims asserted by the parties and reaches a settlement that is within a range of reasonable settlements will not result in a transfer for gift tax purposes. As discussed above, the Revised Settlement Agreement represents the resolution of a bona fide controversy among the family members as beneficiaries of Settlor's Will. All interested parties have been represented in the proceedings that culminated in the Court Order approving the Revised Settlement Agreement. Further, based on the facts as presented, the terms of the Revised Settlement Agreement are the product of arm's length negotiations among all the interested parties. We conclude that the Revised Settlement Agreement reflects the rights of the parties under the applicable law of State that would be applied by the highest court of State. Accordingly, based on the facts submitted and representations made, we rule that implementation of the Revised Settlement Agreement will not result in a gift under § 2501 by the parties to the Revised Settlement Agreement. Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative. The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. Sincerely, Karlene M. Lesho Karlene M. Lesho Chief, Branch 4 Office of Associate Chief Counsel (Passthroughs and Special Industries) Enclosures Copy for § 6110 purposes cc:

Internal Revenue Service - Information Release IR-2023-189 For California storm victims, IRS postpones tax-filing and tax-payment deadline to Nov. 16 October 16, 2023 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 For California storm victims, IRS postpones tax-filing and tax-payment deadline to Nov. 16 IR-2023-189, Oct. 16, 2023 WASHINGTON -- The Internal Revenue Service today further postponed tax deadlines for most California taxpayers to Nov. 16, 2023. In the wake of last winter's natural disasters, the normal spring due dates had previously been postponed to Oct. 16. As a result, most individuals and businesses in California will now have until Nov. 16 to file their 2022 returns and pay any tax due. Fifty-five of California's 58 counties--all except Lassen, Modoc and Shasta counties--qualify. IRS relief is based on three different FEMA disaster declarations covering severe winter storms, flooding, landslides, and mudslides over a period of several months. The IRS normally provides relief, including postponing various tax filing and payment deadlines, for any area designated by the Federal Emergency Management Agency (FEMA). As long as their address of record is in a disaster-area locality, individual and business taxpayers automatically get the extra time, without having to ask for it. The current list of eligible localities is always available on the disaster relief page on IRS.gov. What returns and payments qualify for the Nov. 16 deadline? Eligible returns and payments include: - 2022 individual income tax returns and payments normally due on April 18. - For eligible taxpayers, 2022 contributions to IRAs and health savings accounts. - Quarterly estimated tax payments normally due on April 18, June 15 and Sept. 15. - Calendar-year 2022 partnership and S corporation returns normally due on March 15. - Calendar-year 2022 corporate and fiduciary income tax returns and payments normally due on April 18. - Quarterly payroll and excise tax returns normally due on May 1, July 31 and Oct. 31. - Calendar-year 2022 returns filed by tax-exempt organizations normally due on May 15. Other returns, payments and time-sensitive tax-related actions also qualify for the extra time. See the IRS disaster relief page for details. Do taxpayers need to do anything to benefit from this relief? The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. It is possible an affected taxpayer may not have an IRS address of record located in the disaster area, for example, because they moved to the disaster area after filing their return. In these kinds of unique circumstances, the affected taxpayer could receive a late filing or late payment penalty notice from the IRS for the postponement period. The taxpayer should call the number on the notice to have the penalty abated. In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization. Additional tax relief Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2023 return normally filed next year), or the return for the prior year (2022). Taxpayers have extra time - up to six months after the due date of the taxpayer's federal income tax return for the disaster year (without regard to any extension of time to file) - to make the election. See Publication 547, Casualties, Disasters, and Thefts, for details. Qualified disaster relief payments are generally excluded from gross income. In general, this means that affected taxpayers can exclude from their gross income amounts received from a government agency for reasonable and necessary personal, family, living or funeral expenses, as well as for the repair or rehabilitation of their home, or for the repair or replacement of its contents. See Publication 525, Taxable and Nontaxable Income, for details. Additional relief may be available to affected taxpayers who participate in a retirement plan or individual retirement arrangement (IRA). For example, a taxpayer may be eligible to take a special disaster distribution that would not be subject to the additional 10% early distribution tax and allows the taxpayer to spread the income over three years. Taxpayers may also be eligible to make a hardship withdrawal. Each plan or IRA has specific rules and guidance for their participants to follow. The tax relief is part of a coordinated federal response to the damage caused by these disasters and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

Internal Revenue Service - Information Release IR-2020-71 IRS, Security Summit partners warn tax professionals on scams, urge additional security measures to protect taxpayer data April 14, 2020 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 IRS, Security Summit partners warn tax professionals on scams, urge additional security measures to protect taxpayer data IR-2020-71, April 14, 2020 WASHINGTON -- The Internal Revenue Service and its Security Summit partners today urged tax professionals to take additional security steps immediately to protect taxpayer data as more practitioners telework and security risks increase. The IRS, state tax agencies and the nation's tax industry continue to see an upswing in data thefts from tax professionals as cybercriminals try to take advantage of COVID-19 and Economic Impact Payments to create new scams. "Identity thieves view the pandemic as a chance to exploit tax professionals as well as taxpayers," said IRS Commissioner Chuck Rettig. "They are using every trick of their criminal trade to con people as well as steal valuable personal and financial information to help enable tax-related identity theft. In many ways, tax pros are one of the first lines of defense. We urge the entire tax community to take additional steps and protect their sensitive data." The partners in the Security Summit - including the IRS, state tax agencies and private-sector tax industry - continue working closely together to watch for new threats during the coronavirus. In addition, IRS Criminal Investigation is actively working to combat scam artists trying to exploit Economic Impact Payments and other provisions related to coronavirus. So far, the scams CI has already seen look to prey on vulnerable taxpayers who are unaware of how the payments will reach them. IRS CI is prioritizing these types of investigations to help protect taxpayers and the tax system. Tax Pros: Use a Virtual Private Network for extra security All tax professionals who are teleworking should be using an encrypted Virtual Private Network or VPN. A VPN provides a secure, encrypted tunnel to transmit data between a remote user via the internet and the company network. Cybercriminals can exploit various weaknesses, whether by using a phishing email or an unsecured network, to gain control of a tax professional's computer. Once they have remote control, they can either steal data or complete and file client tax returns but change the bank account information for refunds. The government cannot recommend a VPN provider, but tax professionals can ask trusted colleagues or search for "Best VPNs" to find a legitimate vendor. Major technology sites often provide lists of top services. Never fall for "pop-ups" on websites for VPN or any kind of security software. Those generally are all scams. Multi-Factor Authentication helps protect data This year, most tax software providers for tax professionals and for taxpayers are offering the option of multi-factor authentication. Security Summit partners urge the use of this option. Multi-factor authentication means a returning user to the software product must enter not only their credentials (username/password) but also a security code, generally sent as a text to a mobile phone. The idea is the thieves may compromise log-in credentials, but it is unlikely they will have stolen the mobile phone as well. Multi-factor authentication protects the software account from being breached and from client data being stolen. Tax professionals should activate this feature immediately. Avoid phishing scams Identity thieves have stepped up phishing scam efforts to capitalize on COVID-19 and Economic Impact Payments. Crooks are targeting tax professionals as well as taxpayers. Tax professionals should beware of emails from criminals posing as potential clients. As people practice social distancing these days, criminals may exploit this process to try to trick tax practitioners into opening links or attachments. For example, crooks may present themselves as a new client and ask the practitioner to view the wage and income information they have in an attachment. The Security Summit reminds tax professionals of simple steps to remember: Know your customers. Use the phone to confirm identities. And, don't take the bait. Thieves also seek to impersonate tax software providers, cloud storage providers banks and others. Remember, phishing emails generally have an urgent message, i.e. your account password expired, and direct you to a link or attachment. Taxpayers can report suspicious emails posing as the IRS to our *PHISHING mailbox at phishing@irs.gov. Watch out for IRS impersonation scams The IRS will not call, email or text anyone about Economic Impact Payments. These are impersonation scams by thieves seeking to steal bank account or other sensitive data. Do not fall for these scams. Don't forget security software Everyone, especially all tax professionals, should be using broad-based security software that protects not just their computers but mobile phones as well. Security features will help identify and stop potentially dangerous malware that can infect digital networks. For more help, the IRS and the Security Summit partners urge tax practitioners to review the security measures outlined in Publication 4557, Safeguarding Taxpayer Data (PDF).

Private Letter Ruling Number: 202412005 Internal Revenue Service December 20, 2023 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202412005 Release Date: 3/22/2024 Index Number: 1400Z.02-00, 9100.00-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:ITA:B04 PLR-113488-23 Date: December 20, 2023 Dear ******: This letter responds to Taxpayer's request, dated Date 4. Specifically, Taxpayer requests relief, pursuant to sections 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations, for its Form 8996, Qualified Opportunity Fund, filed on Date 5, to be treated as timely for purposes of the election for Taxpayer: (1) to self-certify as a qualified opportunity fund ("QOF") as defined in section 1400Z-2(d) of the Internal Revenue Code (Code); and (2) to be treated as a QOF, effective as of the month Taxpayer was formed, as provided under section 1400Z-2 of the Code and section 1.1400Z2(d)-1(a) of the Income Tax Regulations. FACTS According to the facts and representations provided, Taxpayer was organized by Members as a limited liability company on Date 1 under the laws of State X and is classified as a partnership for U.S. federal income tax purposes. As indicated in Taxpayer's company agreement executed on Date 1, Taxpayer was organized for the purpose of being a qualified opportunity fund and to invest in qualified opportunity zone property. As Members lacked tax experience, in Month 1, before Taxpayer was organized, they contacted Tax Accountant about performing tax compliance work for a QOF and to discuss the various tax aspects of forming a QOF. Members agreed to contact Tax Accountant again once the QOF was organized and indicated their intention to engage Tax Accountant to prepare and file the QOF's Federal income tax return for Year 1. The filing deadline for the tax return was not discussed. Once Taxpayer was formed, Members mistakenly believed that the filing deadline for Taxpayer's Year 1 Form 1065, U.S. Return of Partnership Income, and accompanying Form 8996 was Date 3. As such, Members contacted Tax Accountant to prepare Taxpayer's Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, on Date 2, after the due date. Taxpayer filed its Form 1065 and accompanying Form 8996 on Date 5 after submitting this request for a private letter ruling. LAW AND ANALYSIS Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for the certification of QOFs. Treas.Reg. section 1.1400Z2(d)-1(a)(2)(i) provides that the self-certification of a QOF must be timely-filed and effectuated annually in such form and manner as may be prescribed by the Commissioner of Internal Revenue in the IRS forms or instructions, or in publications or guidance published in the Internal Revenue Bulletin. To self-certify as a QOF, a taxpayer must file Form 8996, Qualified Opportunity Fund, with its tax return for the year to which the certification applies. The Form 8996 must be filed by the due date of the tax return (including extensions). The information provided indicates that Taxpayer did not file its Form 8996 by the due date of its income tax return (including extensions) due to a mistake in belief regarding the filing deadline. Section 1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for electing to be a QOF and electing to self-certify as a QOF. As such, these elections are regulatory elections, as defined in section 301.9100-1(b). Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make a regulatory election. Section 301.9100-3(a) provides that requests for extensions of time for regulatory elections (other than automatic extensions covered in section 301.9100-2) will be granted when the taxpayer provides evidence (including affidavits) to establish that the taxpayer acted reasonably and in good faith and the grant of relief will not prejudice the interests of the Government. Section 301.9100-3(b)(1) provides that a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer-- (i) requests relief before the failure to make the regulatory election is discovered by the Service; (ii) failed to make the election because of intervening events beyond the taxpayer's control; (iii) failed to make the election because, after exercising reasonable diligence, the taxpayer was unaware of the necessity for the election; (iv) reasonably relied on the written advice of the Service; or (v) reasonably relied on a qualified tax professional, and the professional failed to make, or advise the taxpayer to make, the election. In addition, section 301.9100-3(b)(3) provides that a taxpayer is deemed not to have acted reasonably and in good faith if the taxpayer-- (i) seeks to alter a return position for which an accuracy-related penalty has been or could be imposed under section 6662 at the time the taxpayer requests relief, and the new position requires or permits a regulatory election for which relief is requested; (ii) was fully informed in all material respects of the required election and related tax consequences but chose not to make the election; or (iii) uses hindsight in requesting relief. If specific facts have changed since the original deadline that make the election advantageous to a taxpayer, the Service will not ordinarily grant relief. Section 301.9100-3(c)(1) provides that the Commissioner will grant a reasonable extension of time to make the regulatory election only when the interests of the Government will not be prejudiced by the granting of relief. Section 301.9100-3(c)(1)(i) provides that the interests of the Government are prejudiced if granting relief would result in a taxpayer having a lower tax liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made (taking into account the time value of money). Section 301.9100-3(c)(1)(ii) provides that the interests of the Government are ordinarily prejudiced if the taxable year in which the regulatory election should have been made or any taxable year that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under section 6501(a) before the taxpayer's receipt of a ruling granting relief under this section. CONCLUSION Based on the facts and information submitted in connection with this request, we conclude Taxpayer has acted reasonably and in good faith, and that the granting of relief would not prejudice the interests of the Government. Accordingly, Taxpayer has satisfied the requirements of the regulations for the granting of relief, and Taxpayer's Form 8996, filed on Date 5, shall be considered timely filed. Accordingly, Taxpayer has thereby made the election under section 1400Z-2 and section 1.1400Z2(d)-1(a)(2)(i) to self-certify as a QOF as of Month 2. Taxpayer should submit a copy of this letter ruling to the IRS Service Center where Taxpayer files its income tax returns, along with a cover letter requesting that the Service associate this ruling with Taxpayer's Year 1 federal income tax return. This ruling is based upon facts and representations submitted by Taxpayer and accompanied by penalty of perjury statements executed by the appropriate parties. This office has not verified any of the material submitted in support of the request for a ruling. However, as part of an examination process, the Service may verify the factual information, representations, and other data submitted. This ruling addresses the granting of Treas.Reg. section 301.9100-3 relief as applied to the election to self-certify Taxpayer as a QOF by filing Form 8996 for Year 1. Except as expressly provided herein, no opinion is either expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we have no opinion, either express or implied, concerning whether any investments made into Taxpayer are qualifying investments as defined in Treas.Reg. section 1.1400Z2(a)-1(b)(34) or whether Taxpayer meets the requirements and structure under section 1400Z-2 and the regulations thereunder to be a QOF. In addition, we also express no opinion on whether any interest owned in any entity by Taxpayer qualifies as qualified opportunity zone property, as defined in section 1400Z-2(d)(2), or whether such entity would be treated as a qualified opportunity zone business, as defined in section 1400Z-2(d)(3). We express no opinion regarding the tax treatment of the instant transaction under the provisions of any other sections of the Code or regulations that may be applicable, or regarding the tax treatment of any conditions existing at the time of, or effects resulting from, the instant transaction. A copy of this letter must be attached to any tax return to which it is relevant. Alternatively, taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter ruling. This ruling is directed only to the taxpayer requesting it. Code section 6110(k)(3) provides that it may not be used or cited as precedent. Enclosed is a copy of the letter ruling showing the deletions proposed to be made when it is disclosed under Code section 6110. Pursuant to the Form 2848, Power of Attorney and Declaration of Representation, on file, we are sending a copy of this letter to Taxpayer's authorized representatives. This letter is being issued electronically in accordance with Rev.Proc. 2023-1, 2023-1 I.R.B. 1. A paper copy will not be mailed to the taxpayer. Sincerely, Stephen J. Toomey Senior Counsel, Branch 4 Office of Associate Chief Counsel (Income Tax & Accounting) cc:

Private Letter Ruling Number: 202104002 Internal Revenue Service October 26, 2020 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202104002 Release Date: 1/29/2021 Index Number: 856.00-00, 9100.00-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:FIP:B03 PLR-111341-20 Date: October 26, 2020 Dear *******: This ruling responds to a letter dated May 1, 2020, submitted on behalf of Taxpayer and Subsidiary. Taxpayer and Subsidiary request an extension of time under sections 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations (the "Regulations") to make an election under section 856(l) of the Internal Revenue Code (the "Code") to treat Subsidiary as a taxable REIT subsidiary ("TRS") of Taxpayer effective as of Date 1. FACTS Taxpayer is a State limited liability company formed on Date 2. Taxpayer timely filed Form 8832, Entity Classification Election, to be treated as a corporation for federal income tax purposes effective as of the date of formation on Date 2. Taxpayer intends to elect to be treated as a real estate investment trust ("REIT") for federal income tax purposes effective as of the date of formation on Date 2. Taxpayer uses an accrual method of accounting. Taxpayer's taxable year is the calendar year. Subsidiary is a State limited liability company that was formed on Date 3. Subsidiary timely filed Form 8832, Entity Classification Election, to be treated as a corporation for federal income tax purposes effective as of the date of formation on Date 3. Subsidiary uses an accrual method of accounting. Subsidiary's taxable year is the calendar year. Taxpayer, through a tiered partnership structure, acquired a a percent interest in Subsidiary on Date 1. Taxpayer, through a tiered partnership structure, acquired during Year real estate associated with skilled nursing facilities ("Properties"). Simultaneous with the acquisition of each of the Properties, Taxpayer leased the Properties to Subsidiary through a partnership indirectly owned by Taxpayer. Each of the leases is a triple net lease. Simultaneous with the lease of each of the Properties, Subsidiary engaged an eligible independent contractor, within the meaning of section 856(d)(9), to manage the Properties. Firm was involved in the formation of Taxpayer and Subsidiary. Firm was involved in Taxpayer's acquisition of its interest in Subsidiary. Firm was responsible for advising Adviser on a number of investments. Firm also filed Form 8832 on behalf of Subsidiary. Adviser manages or advises investment funds which own Taxpayer. Preparer was responsible for preparing income tax returns for certain entities associated with the tiered partnership structure. Preparer did not specifically prepare any tax returns for Taxpayer or Subsidiary. Taxpayer and Subsidiary intended to file Form 8875, Taxable REIT Subsidiary Election, to treat Subsidiary as a TRS of Taxpayer effective as of the date Taxpayer acquired its interest in Subsidiary on Date 1. The deadline to file Form 8875 with an effective date of Date 1 was Date 4. Due to a miscommunication between Taxpayer, Subsidiary, and Firm, Form 8875 was not timely filed. Specifically, Taxpayer believed Firm would prepare and file Form 8875. Alternatively, Taxpayer believed Preparer would prepare and file Form 8875. However, Firm believed Taxpayer or Preparer would prepare and file Form 8875. Preparer was not aware that Taxpayer acquired an interest in Subsidiary until after the due date for the election. In Month of Year, as part of drafting a private placement memorandum for Taxpayer, Firm requested confirmation from Adviser that Form 8875 was filed for Taxpayer and Subsidiary. Shortly thereafter, Taxpayer and Subsidiary were informed that the TRS election was not made. Preparer then prepared and submitted a request for an extension of time under sections 301.9100-1 and 301.9100-3 to elect under section 856(l) to treat Subsidiary as a TRS of Taxpayer with an effective date of Date 1. Taxpayer and Subsidiary make the following additional representations in connection with their request for an extension of time: 1. The request for relief was filed before the failure to make the regulatory election was discovered by the Service. 2. Granting the relief requested will not result in Taxpayer or Subsidiary having a lower U.S. federal tax liability in the aggregate for all years to which the election applies than they would have had if the election had been timely made (taking into account the time value of money). 3. Taxpayer and Subsidiary do not seek to alter a return position for which an accuracy-related penalty has been or could have been imposed under section 6662 of the Code at the time they requested relief and the new position requires or permits a regulatory election for which relief is requested. 4. Being fully informed of the required regulatory election and related tax consequences, Taxpayer and Subsidiary did not choose to not file the election. 5. Taxpayer and Subsidiary are not using hindsight in making the decision to seek the relief requested. No specific facts have changed since the due date for making the election that make the election advantageous to Taxpayer or Subsidiary. 6. The period of limitations on assessment under section 6501(a) has not expired for Taxpayer or Subsidiary for the taxable year in which the election should have been filed, nor for any taxable year(s) that would have been affected by the election had it been timely filed. In addition, affidavits on behalf of Taxpayer and Subsidiary have been provided as required by section 301.9100-3(e). LAW AND ANALYSIS Section 856(l) of the Code provides that a REIT and a corporation (other than a REIT) may jointly elect to treat such corporation as a TRS. To be eligible for treatment as a TRS, section 856(l)(1) provides that the REIT must directly or indirectly own stock in the corporation, and the REIT and the corporation must jointly elect such treatment. The election is irrevocable once made, unless both the REIT and the subsidiary consent to its revocation. In addition, section 856(l) specifically provides that the election, and any revocation thereof, may be made without the consent of the Secretary. In Announcement 2001-17, 2001-1 C.B. 716, the Service announced the availability of new Form 8875, Taxable REIT Subsidiary Election. According to the Announcement, this form is to be used for taxable years beginning after 2000 for eligible entities to elect treatment as a TRS. The instructions to Form 8875 provide that the subsidiary and the REIT can make the election at any time during the taxable year. However, the effective date of the election depends on when the Form 8875 is filed. The instructions further provide that the effective date cannot be more than 2 months and 15 days prior to the date of filing the election, or more than 12 months after the date of filing the election. If no date is specified on the form, the election is effective on the date the form is filed with the Service. Section 301.9100-1(c) of the Regulations provides that the Commissioner has discretion to grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than 6 months except in the case of a taxpayer who is abroad), under all subtitles of the Code except subtitles E, G, H, and I. Section 301.9100-1(b) defines a regulatory election as an election whose due date is prescribed by regulations or by a revenue ruling, a revenue procedure, a notice, or an announcement published in the Internal Revenue Bulletin. Section 301.9100-3(a) through (c)(1) sets forth rules that the Service generally will use to determine whether, under the particular facts and circumstances of each situation, the Commissioner will grant an extension of time for regulatory elections that do not meet the requirements of section 301.9100-2. Section 301.9100-3(a) provides that requests for relief subject to this section will be granted when the taxpayer provides the evidence (including affidavits described in section 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government. Section 301.9100-3(b) provides that a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer (i) requests relief under this section before the failure to make the regulatory election is discovered by the Service; (ii) failed to make the election because of intervening events beyond the taxpayer's control; (iii) failed to make the election because, after exercising reasonable diligence (taking into account the taxpayer's experience and the complexity of the return or issue), the taxpayer was unaware of the necessity for the election; (iv) reasonably relied on the written advice of the Service; or (v) reasonably relied on a qualified tax professional, including a tax professional employed by the taxpayer, and the tax professional failed to make, or advise the taxpayer to make, the election. A taxpayer will be deemed to have not acted reasonably and in good faith if the taxpayer (i) seeks to alter a return position for which an accuracy-related penalty has been or could be imposed under section 6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested; (ii) was informed in all material respects of the required election and related tax consequences, but chose not to file the election; or (iii) uses hindsight in requesting relief. Section 301.9100-3(c)(1) provides that a reasonable extension of time to make a regulatory election will be granted only when the interests of the Government will not be prejudiced by the granting of relief. Section 301.9100-3(c)(1)(i) provides that the interests of the Government are prejudiced if granting relief would result in the taxpayer having a lower tax liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made (taking into account the time value of money). Section 301.9100-3(c)(1)(ii) provides that the interests of the Government are ordinarily prejudiced if the taxable year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under section 6501(a) before the taxpayer's receipt of a ruling granting relief under this section. CONCLUSION Based on the information submitted and the representations made, we conclude that Taxpayer and Subsidiary have satisfied the requirements for granting a reasonable extension of time to elect under section 856(l) to treat Subsidiary as a TRS of Taxpayer effective as of Date 1. Accordingly, Taxpayer and Subsidiary have 90 calendar days from the date of this letter to make the intended election to treat Subsidiary as a TRS of Taxpayer effective as of Date 1. This ruling is limited to the timeliness of the filing of Form 8875. This ruling's application is limited to the facts, representations, and Code and regulation sections cited herein. Except as provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In particular, no opinion is expressed as to whether Taxpayer otherwise qualifies as a REIT or whether Subsidiary otherwise qualifies as a TRS of Taxpayer under part II of subchapter M of the Code. Further, no opinion is expressed in regard to the leasing structure between Taxpayer and Subsidiary. No opinion is expressed with regard to whether the tax liability of Taxpayer or Subsidiary is not lower in the aggregate for all years to which the election applies than such tax liability would have been if the election had been timely made (taking into account the time value of money). Upon audit of the federal income tax returns involved, the director's office will determine such tax liability for the years involved. If the director's office determines that such tax liability is lower, that office will determine the federal income tax effect. The ruling contained in this letter is based upon information and representations submitted by Taxpayer and Subsidiary and accompanied by penalties of perjury statements executed by the appropriate parties. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representatives. Sincerely, ________________________________ K. Scott Brown Branch Chief, Branch 3 Office of the Associate Chief Counsel (Financial Institutions & Products) Enclosures cc:

Private Letter Ruling Number: 202110023 Internal Revenue Service September 17, 2020 DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE 1100 Commerce Street, MC 4920DAL Dallas, TX 75242 TAX EXEMPT AND GOVERNMENT ENTITIES DIVISION UIL: 501.07-00 Number: 202110023 Release Date: 3/12/2021 Date: 09/17/20 Taxpayer ID Number: Form For Tax Period(s) Ending: Person to Contact: Identification Number: Telephone Number: CERTIFIED MAIL -- Return Receipt Requested LAST DAY FOR FILING A PETITION WITH THE TAX COURT: Dear *******: This is a final determination that you do not qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(7) for the tax period(s) above. Our adverse determination as to your exempt status was made for the following reasons: You have not established that you are operated substantially for pleasure and recreation of its members or other non-profitable purposes and no part of the earnings inures to the benefit of private shareholder within the meaning of IRC Section 501(c)(7). You have made your recreational and social facilities available to the general public. You have exceeded the non-member income test for tax year ending August 31, 20XX. Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns and pay tax, where applicable. For further instructions, forms, and information please visit www.irs.gov. If you decide to contest this determination, you may file an action for declaratory judgment under the provisions of IRC Section 7428 in one of the following three venues: 1) United States Tax Court, 2) the United States Court of Federal Claims, or 3) the United States District Court for the District of Columbia. A petition or complaint in one of these three courts must be filed within 90 days from the date this determination was mailed to you. Please contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions for declaratory judgment by referring to the enclosed Publication 892. You may write to the courts at the following addresses: United States Tax Court 400 Second Street, NW Washington, DC 20217 U.S. Court of Federal Claims 717 Madison Place, NW Washington, DC 20005 U. S. District Court for the District of Columbia 333 Constitution Ave., N.W. Washington, DC 20001 Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory judgment under IRC Section 7428. You may be eligible for help from the Taxpayer Advocate Service (TAS). TAS is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778. Taxpayer Advocate assistance can't be used as substitute for established IRS procedures, formal appeals processes, etc. The Taxpayer Advocate is not able to reverse legal or technically correct tax determination, nor extend the time fixed by law that you have to file a petition in Court. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling. You can get any of the forms or publications mentioned in this letter by calling 800-TAX-FORM (800-829-3676) or visiting our website at www.irs.gov/forms-pubs. If you have any questions about this letter, please contact the person whose name and telephone number are shown in the heading of this letter. Sincerely, Sean E. O'Reilly Director, Exempt Organizations Examinations Enclosures: Publication 892 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Exempt Organizations Examinations Date: 11/19/2019 Taxpayer Identification Number: Form: Tax Year(s) Ended: Person to Contact: Employee ID: Telephone: Fax: Manager's Contact Information: Telephone: Response Due Date: CERTIFIED MAIL -- Return Receipt Requested Dear *******: Why you're receiving this letter We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to revoke your tax-exempt status as an organization described in Internal Revenue Code (IRC) Section 501(c)(7). If you agree If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. We'll issue a final adverse letter determining that you aren't an organization described in IRC Section 501(c)(7) for the periods above. After we issue the final adverse determination letter, we'll announce that your organization is no longer eligible to receive tax deductible contributions under IRC Section 170. If you disagree 1. Request a meeting or telephone conference with the manager shown at the top of this letter. 2. Send any information you want us to consider. 3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information. The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For your protest to be valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't apply now that we've issued this letter. 4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the IRS. If you're considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals. If we don't hear from you If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final adverse determination letter. Contacting the Taxpayer Advocate Office is a taxpayer right The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778. For additional information You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person shown at the top of this letter. Sincerely, Joseph Colletti for Maria Hooke Director, Exempt Organizations Examinations Enclosures: Form 886-A Form 6018 Issue(s): 1) Should ****** (hereafter "EO") continue to qualify as an organization described in Section 501(c)(7) of the Internal Revenue Code? Facts: EO was exempt from income tax under Internal Revenue Code Section 501(c)(7), effective date of exemption is July 23, 19XX. In their Articles of Association, EO was formed for the "purpose of operating a club and social or lodge for the general good of the members by promoting literary, social and educational advantages in the culture, as well as English, and to promote an educational program for the purpose of interesting and assisting ******* people or people of *******". The Articles further state EO shall have social events and other activities for the purpose of assisting or enabling the carrying out of the purposes aforementioned. According to the President, *******, anyone can join the club during the year of audit and they don't have to be of ******* descend. EO has a member's area for all the member activities, a hall with 0 round tables, and another hall that is substantially large compare to the club's total space. Both halls are open to the public during bingo and dinner events. EO operated gaming throughout the year under audit. EO conducted bingo on a weekly basis, and they sold pull tabs tickets (progressive bingo) during the bingo nights. The organization advertised Bingo to the public, on EO's website, in local newspaper, and on their club's sign visible from the street. The agent confirmed, with the organization, that the public can play Bingo with the only restriction of access to the member's area. EO also operated many dinner events for the year under audit, and is evident that dinner nights are currently ongoing through their website. Similar to the bingo nights, these events were open to the public with the same restriction. Please see EXHIBIT A for reference to these events, according on EO's website. The organization leased a portion of land to a for profit company. The for profit entity used land and installed solar panels to generate electricity. The contract, reviewed, stated that the lease's term is 0 years with option to extend. According to the organization's General Ledger, Account 0 -- ******* reported a total of $0 for the year under audit. EO had a lot of events open to the public, including rental income and investment income. These activities were active in the audit year, as well as in 20XX thru 20XX, according to the Form 990-T filed. EO acknowledged these types of income constituted unrelated business income, and filed Form 990-T to report these income. The following table depicts the total unrelated business gross receipts for the reported year, according to the Form 990-T filed. Additionally, the table shows the total revenue reported on Form 990 for the respective year, the percentage of non member gross receipts to the total gross receipts, and the percentage of investment income to total gross receipts. EO reported bingo income of $0 in their books and records for the year under audit. Bingo is advertised on the newspaper, street signs, and is open to the public. Agent audited bingo income and the determined reported amount is not correct. Agent aggregated the revenues reported on the Bingo reports (filed to the State of *******) to determine the accuracy of the income reported on the P&L. Audit procedures conclude that this bingo income is reported as net, not gross. The total gross revenue for Bingo sales is $0 as audited. Data taken from Form 990 and Form 990-T filed: Please reference EXHIBIT B for copies of Form 990 and Form 990-T filed, except for Form 990 with period ending 20XX. RA used the Service's record to compute the total gross receipts for 20XX. This table is unadjusted for the audited bingo income. With the inclusion of the audited bingo income that was open for the public, the percentage of unrelated business income / total receipts for 20XX tax period would be 0%. Laws: Internal Revenue Code § 501(c)(7) exempts from Federal income tax: "Clubs organized for pleasure, recreation, and other non-profitable purposes, substantially all of the activities of which are for such purposes and not part of the net earnings of which inures to the benefit of any private shareholder." Section 1.501(c)(7) of the Income Tax Regulations provides that, in general, the exemption extends to social and recreation clubs supported solely by membership fees, dues and assessments. However, a club that engages in a business, such as making its social and recreational facilities open to the general public, is not organized and operated exclusively for pleasure, recreation and other non-profitable purposes, and is not exempt under section 501(a). Prior to its amendment in 1976, IRC § 501(c)(7) required that social clubs be operated exclusively for pleasure, recreation and other nonprofitable purposes. Public Law 94-568 amended the "exclusive" provision to read "substantially" in order to allow an IRC § 501(c)(7) organization to receive up to 35 percent of its gross receipts, including investment income, from sources outside its membership without losing its tax exempt status. The Committee Reports for Public Law 94-568 (Senate Report No. 94-1318 2d Session, 1976-2 C.B. 597) further states: (a) Within the 35 percent amount, not more than 15 percent of the gross receipts should be derived from the use of a social club's facilities or services by the general public. This means that an exempt social club may receive up to 35 percent of its gross receipts from a combination of investment income and receipts from non-members, so long as the latter do not represent more than 15 percent of total receipts. (b) Thus, a social club may receive investment income up to the full 35 percent of its gross receipts if no income is derived from non-members' use of club facilities. (c) In addition, the Committee Report states that where a club receives unusual amounts of income, such as from the sale of its clubhouse or similar facilities, that income is not to be included in the 35 percent formula. Revenue Ruling 66-149 holds a social club as not exempt as an organization described in Internal Revenue Code § 501(c)(7) where it derives a substantial part of its income from non-member sources. Revenue Procedure 71-17 sets forth the guidelines for determining the effect of gross receipts derived from the general public's use of a social club's facilities on exemption under Internal Revenue Code § 501(c)(7). Where nonmember income from the usage exceeds the standard as outlined in this Revenue procedure, the conclusion reached is that there is a non-exempt purpose and operating in this manner jeopardizes the organization's exempt status Internal Revenue Code Section 512(a)(3)(B) states that for purposes of subparagraph (A), the term "exempt function income" means the gross income from dues, fees, charges, or similar amounts paid by members of the organization as consideration for providing such members or their dependents or guests goods, facilities, or services in furtherance of the purposes constituting the basis for the exemption of the organization to which such income is paid. Such term also means all income (other than an amount equal to the gross income derived from any unrelated trade or business regularly carried on by such organization computed as if the organization were subject to paragraph (1)), which is set aside for a purpose specified in section 170(c)(4). Government's Position: Based on the examination, the organization does not qualify for exemption as a social club described in IRC § 501(c)(7) and Treas.Reg. § 1.501(c)(7) which provides that in general, this exemption extends to social and recreation clubs which are supported solely by membership fees, dues, and assessments. Revenue Ruling 66-149 and 60-324 support this position stating that a social club that opens to the public and derives a substantial part of its income from non-member sources is not exempt as an organization described in 501(c)(7). The organization permits use of its facilities and attendance at its events by the general public. Records show that it had exceeded the 35% investment & non-member income as well as 15% non-member income threshold as outlined in Public Law 94-568, on a recurring basis for the previous 0 years. EO provided documentation to claim that their nonmember income is only 0%, opposed to the 0% reported on their 990-T, as originally filed. The responses received on June 28, 20XX and subsequently on August 12, 20XX support their 0% nonmember allocation. However, this number is unaccounted for the actual bingo income. Furthermore, the 0% is still over the allowed 15% nonmember receipt requirement for 501(c)(7) organization. In addition to that, the records provided, just circles on the weekly cash out sheet to determine non member function do not conform with the requirement set forth by the IRS -- spelled out in Revenue Ruling 71-17. Even if the IRS accepts this substantiation, the organization is well over its allowed non member income limit. Because of that, RA did not address the legitimacy of the records produced by the organization. Accordingly, it is proposed that the organization's tax-exempt status be revoked effective September 1, 20XX. Taxpayer's Position: On June 28, 20XX, Agent received a 0 pages fax response from EO's representative. EO claimed they kept calendar records for the dinner nights. This distinguish between member and non member income ratio for the 990-T allocation. RA discussed this response with CPA ******* on July 25, 20XX. CPA maintains that the nonmember income is 0% per their calculation. On August 12, 20XX, Agent received a 0 pages fax response to substantiate the nonmember and member income ration. In the response, EO circled the nonmember events, indicating that those events were open to the public. The events that were not circled were determined for member's purposes. The nonmember income ratio is still 0% as previously claimed by the organization. On August 21, 20XX and October 22nd, 20XX, discussions with the organization's representative suggested that EO agrees with the nonmember income threshold being too high for a 501(c)(7) organization. However, formal agreement has not been secured by the CPA. Conclusion: The organization no longer qualifies for exemption under § 501(c)(7) of the Code as your investment and non-member income has exceeded the 35% threshold as well as nonmember income exceeded 15% threshold on a continuing basis. Therefore, we proposed to revoke your exempt status under § 501(c)(7) of the Code effective September 1, 20XX. Form 1120 Corporation Income Tax Return should be filed starting with tax periods ending August 31, 20XX and thereafter as long as you continue to be subject to income tax.

Private Letter Ruling Number: 202412011 Internal Revenue Service December 12, 2023 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Release Number: 202412011 Release Date: 3/22/2024 UIL Code: 501.03-00 Date: 12/12/2023 Taxpayer ID number (last 4 digits): Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: Last day to file petition with United States Tax Court: CERTIFIED MAIL - Return Receipt Requested Dear ******: This is a final determination regarding your foundation classification. This modifies our letter dated ******, ******, in which we determined that you were an organization described in Internal Revenue Code (IRC) Section 509(a)(3). This letter modifies your foundation status to a private non-operating foundation section 509(a) effective ******. Your tax-exempt status under IRC Section 501(c)(3) is not affected. Grantors and contributors may rely on this determination unless the Internal Revenue Service publishes a notice to the contrary. Because this letter could help resolve any questions about your private foundation status, please keep it with your permanent records. We previously provided you a report of examination explaining the proposed modification of your tax-exempt status. At that time, we informed you of your right to contact the Taxpayer Advocate, as well as your appeal rights. On ******, you signed Form 6018, Consent to Proposed Action, in which you agreed to the modification of your foundation classification to a private non-operating foundation. This is a final determination letter with regards to your federal tax-exempt status under Section 509(a). Because you are a ******, you are required to file ******, ******. If you have not already filed these returns and you have not received instructions for filing substitute ******, you should file these returns with the appropriate Service Center for the tax year ending ******, ******, and for all tax years thereafter in accordance with the instructions of the return. If you are subject to the tax on unrelated business income under IRC Section 511, you must also file an income tax return on Form 990-T, Exempt Organization Business Income Tax Return. What you must do if you disagree with this determination If you want to contest our final determination, you have 90 days from the date this determination letter was mailed to you to file a petition or complaint in one of the three federal courts listed below. How to file action for declaratory judgement If you decide to contest this determination, you may file an action for declaratory judgment under the provisions of IRC Section 7428 in one of the following three venues: 1) United States Tax Court, 2) the United States Court of Federal Claims, or 3) the United States District Court for the District of Columbia. Please contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions for declaratory judgment by referring to the enclosed Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. You may write to the courts at the following addresses: United States Tax Court 400 Second Street, NW Washington, DC 20217 ustaxcourt.gov US Court of Federal Claims 717 Madison Place, NW Washington, DC 20005 uscfc.uscourts.gov US District Court for the District of Columbia 333 Constitution Avenue, NWWashington, DC 20001 dcd.uscourts.gov You may also be eligible for help from the Taxpayer Advocate Service (TAS). TAS is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778. Taxpayer Advocate assistance can't be used as substitute for established IRS procedures, formal appeals processes, etc. The Taxpayer Advocate is not able to reverse legal or technically correct tax determination, nor extend the time fixed by law that you have to file a petition in Court. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling. You can get any of the forms or publications mentioned in this letter by calling 800-TAX-FORM (800-829-3676) or visiting our website at www.irs.gov/forms-pubs. If you have any questions about this letter, please contact the person whose name and telephone number are shown in the heading of this letter. Sincerely, Lynn A. Brinkley Director, Exempt Organizations Examinations Enclosures: Publication 892 How to Appeal an IRS Determination on Tax-Exempt Status Introduction U.S. tax law grants the Internal Revenue Service the authority to determine which organizations meet the criteria for tax-exempt status and which do not. This power applies to new applicants as well as existing groups that - in the view of the IRS - are no longer complying with the law. The tax laws also provide the right of appeal for organizations that disagree with a proposed adverse determination by the IRS. You may appeal when you don't agree with the IRS's proposed: - determination about your initial qualification for tax-exempt status or other request (such as certain changes in foundation classification). - determination that you do not qualify for tax-exempt status, as the result of an audit. - determination to change your Internal Revenue Code (IRC) Section 501(c)(3) organization's foundation classification, as the result of an audit. Certain appeals rules apply. See Special Considerations below. Appeals are considered by the Appeals Office, an independent function within the IRS. The appeals process offers an opportunity to resolve disputes before they lead to litigation. This publication helps explain the steps involved and how the system works. If We Propose an Adverse Determination as to Your Request for Initial Qualification of Tax - Exempt Status or Certain Other Requests If we review your request and determine you don't meet the requirements, we'll issue you a proposed adverse determination letter. This letter will explain why you don't meet the requirements. If you disagree with the letter, you may appeal the determination by submitting a protest. If you submit a protest, the Exempt Organizations Rulings and Agreements office will first review the protest. If is determines that the information you submitted with your protest demonstrates that you meet the requirements of your requested determination, that office will send you a favorable determination letter. If that office maintains its adverse position, it may send you a revised proposed adverse letter discussing your rights or it will forward you protest and your determination case file to the Appeals Office. If We Propose an Adverse Determination as to Your Tax-Exempt Status as the Result of an Audit If, after auditing you, we determine that you do not qualify for tax-exempt status, we may propose an adverse determination as to your exempt status. We'll notify you of the proposed adverse determination by letter. You may then appeal by filing a protest or request a conference with the manager of the IRS employee who issued the letter. If after meeting with the manager you agree with the proposed adverse determination letter, we'll ask you to sign a consent form. By signing a consent, you do not waive your rights to file a suit for declaratory judgment, discussed below. If you still disagree after the conference, you may exercise your appeal rights by filing a protest. You have 30 days from the date of the IRS's letter to file the protest. If We Propose an Adverse Determination as to Your Foundation Classification as the Result of an Audit If, after auditing you, we determine that your foundation classification is incorrect, we may propose a change to your foundation classification. For example, if you're classified as a publicly supported organization under IRC Sections 509(a)(1) and 170(b)(1)(A) (vi), but the level of public support reported on your return doesn't meet the required public support tests, we might propose that you be reclassified as a private foundation. We'll notify you of the proposed adverse determination by letter. You may then appeal by filing a protest or request a conference with the manager of the IRS employee who issued the letter. If after meeting with the manager you agree with the proposed adverse determination, we'll ask you to sign a consent form. By signing a consent, you do not waive your rights to file a suit for declaratory judgment, discussed below. If you still disagree after the conference, you may exercise your appeal rights by filing a protest. You have 30 days from the date of the IRS's letter to file the protest. Special Considerations Limits on appeals rights apply in some cases. The right to an appeal or an appeals conference does not apply in cases where a delay in the proceedings would harm the interests of the IRS. These cases might include fraud, jeopardy, the statute of limitations or where other immediate action is necessary to protect the interests of the government. The statute of limitations is the last day the IRS can legally assess a proposed tax that could arise from a proposal to revoke a tax-exempt status or other change. Generally, IRS policy requires at least 365 days remaining on the statute of limitations when a case is received in Appeals. The IRS will ask you to agree to extend this date if additional time is needed to meet the required number of days. Filing a Protest To appeal a proposed adverse determination, you must file your protest statement within 30 days of the date of the formal written letter from the IRS (sometimes called a "30-day letter"). Your protest should include: - your organization's name, address, employer identification number (EIN) and a daytime phone number. - a statement that the organization wants to protest the proposed determination. - a copy of the 30-day letter showing the findings that you disagree with (or the date and IRS office symbols from the letter). - an explanation of your reasons for disagreeing, including any supporting documents. - the law or authority, if any, on which you are relying. You must also state if you want an Appeals Conference. Include the following declaration with your protest statement: "Under penalties of perjury, I declare that I have examined this protest statement, including accompanying documents, and to the best of my knowledge and belief, the statement contains all relevant facts, and such facts are true, correct and complete." The protest statement should be signed by an officer of your organization or your representative. Submit your protest and any supporting documents to the address shown on the letter. Note: The Internal Revenue Code provides that a court will not issue a declaratory judgment unless the court determines that you have exhausted your administrative remedies. If you don't file a protest with respect to an adverse determination, the court may determine that you have not exhausted your administrative remedies. Representation A principal officer or trustee may act on behalf of your organization at any level of appeal. Or you may authorize an attorney, certified public accountant or individual enrolled to practice before the IRS to represent you. In that case, you need to file Form 2848, Power of Attorney and Declaration of Representative. The IRS will then authorize your representative to file written responses and execute consents, agreements and -- in certain circumstances -- returns on your behalf and communicate directly with him or her about your case. For more information, see Publication 947, Practice Before the IRS and Power of Attorney. If the protest is signed by your representative, a so-called substitute declaration also must be included stating that the representative prepared the protest and any accompanying documents, and personally knows (or does not know) that the statement of facts in the protest and any accompanying documents are true and correct. After You File Your Protest The Appeals Office is the dispute resolution forum of the IRS. It is separate from - and independent of - Exempt Organizations and other IRS divisions. Most disputes can be settled through the Appeals Office. But if you cannot reach an agreement with the Appeals Office, you may be able to take your case to federal court, assuming that you meet certain procedural and jurisdictional requirements. If you believe that your disputed issue has not been addressed in published precedent or has been treated inconsistently by the IRS, you may ask that it be referred to the Associate Chief Counsel (Tax Exempt and Government Entities) (TEGE) office for advice or guidance. The Associate Chief Counsel (TEGE) will consider the issue and render a written decision in the form of a technical advice memorandum. You can request Associate Chief Counsel consideration at any time, whether your case is in Exempt Organizations or in Appeals. Note: A decision rendered in a technical advice memorandum that concerns your tax-exempt status or foundation classification generally is final and binding on Appeals. If the decision concerns any other issue, it's binding on Appeals only if it's favorable to you. If the decision is unfavorable, Appeals can reach its own conclusion. Appeals Office conferences are informal so that you, your representative and the Appeals officer can engage in a frank discussion of the issues in dispute. There is no sworn testimony, and no stenographer is present to record the discussions. Matters alleged as fact must be submitted in the form of an affidavit or declared to be true under penalty of perjury. If the Appeals officer considers the issues amenable to settlement, the Appeals officer will ask you to submit an offer of settlement or the Appeals officer will propose the terms of a settlement. If you agree to settle, you'll be asked to sign a settlement agreement form. Taking Your Dispute to Court If a settlement can't be reached as to the proposed adverse determination, you will receive a letter stating the final decision and telling you the deadline for filing a pleading in court. Declaratory Judgments Relating to Tax-Exempt Status and Classification of Organizations Once you receive the letter, you have the right to petition the U.S. Tax Court, the U.S. Court of Federal Claims or the U.S. District Court for the District of Columbia for a declaratory judgment as to your qualification for exempt status or your classification as a private foundation or publicly supported organization. If the court rules in your favor, the IRS must abide by the court's decision. For information about appealing taxes owed or refunds, see Publication 5, Your Appeals Rights and How to Prepare a Protest If You Don't Agree. For employment taxes, see Publication 5146, Employment Tax Returns: Examinations and Appeal Rights. The court cannot issue you a declaratory judgment unless you file an appropriate petition or complaint with the court within 90 days of the date of our final determination letter. The court must also find that you exhausted all administrative remedies available to you within the IRS. United States Tax Court To initiate a declaratory judgment action in U.S. Tax Court, file a petition titled "Petition for Declaratory Judgment (Exempt Organization)" with the court clerk at: United States Tax Court, 400 Second Street, N.W., Washington, DC 20217. For more information about bringing an action in the U.S. Tax Court, including the type of information your petition should contain, contact the Office of the Clerk by mail at 400 Second Street NW, Washington, DC 20217-0002, or by phone at 202-521-0700. ISSUE: 1.) Does ****** qualify as a Type III functionally integrated supporting organization under IRC Section 509(a)(3)? 2.) Does ****** qualify as a publicly supported organization defined under IRC Section 509(a)(2)? 3.) Does ****** qualify as a publicly supported organization defined under IRC Sections 509(a)(1) and 170(b)(1)(A)(vi)? FACTS: The ****** was established on ******, ******, as an ****** for the benefit of ******, an organization exempt under section 501(c)(3) of the Internal Revenue Code. The ****** was granted exemption under IRC Section 501(c)(3) pursuant to a ruling dated ******, ******. It was determined that the ****** was not a private foundation because it met the definition of a public charity under IRC section 509(a)(3). Under the Pension Protection Act of 2006 (PPA) supporting organizations are classified as Type I, Type II, or Type III supporting organizations. Since its initial determination, the ****** has not received an initial determination classifying them as a Type, I, II or III supporting organization. Before enactment of the PPA, one way of satisfying the responsiveness test, under Treas.Reg. § 1.509(a)-4(i)(2)(iii), required that (1) the supporting organization be a charitable trust under state law, (2) each publicly supported organization that the trust supports be named as a beneficiary under the charitable trust's governing instrument, and (3) each beneficiary organization have the power to enforce the trust and compel an accounting under State law. This method of satisfying the responsiveness test was effectively removed by the PPA. Section 1241(c) of the PPA eliminated the charitable trust test, effective August 17, 2007. Consequently, as of August 17, 2007, a charitable trust can no longer qualify as a Type III supporting organization unless it meets the significant voice test. The ****** requires that after payment of all administrative expenses, ****** of income shall be accumulated, and the remaining ****** shall be distributed to ******, provided that ****** continues to qualify as an exempt organization. The ****** states that any ****** or ****** resulting from termination of the ****** must be exempt under IRC section 501(c)(3) of the revenue code. The ****** states that the ****** is created and shall be operated exclusively for charitable, religious or educational purposes; that no part of the ****** shall inure to the benefit of any private individual; and that no part of the activities of the ****** shall consist of carrying on propaganda or otherwise attempting to influence legislation or of participating in, intervening in (including the publication or distribution of statements), any political campaign on behalf of any candidate for public office. On its filed Form ****** for year ending ******, ******, the ****** states that it was not a ****** because it met the requirements of a Type III Functionally Integrated Supporting Organization as defined in IRC section 509(a)(3). On the same Form ******, the ****** listed ****** as the ****** organization. ****** is a ****** described in section ******. For the year ending ******, ******, the ****** reported total revenue of ****** comprised mostly of ****** (****** income, ****** contributions netted against ****** in ****** loss). The ****** uses a ****** as its tax year. Although it receives occasional small ****** from the grantor's family, it relies mostly on ****** income. The table below summarizes the information reported on the ******'s Form ****** for years ******: In response to Information Document Request 1 and during conversations with the ******'s ****** and ****** the following information was communicated regarding the ******'s relationship with ******: - There is no overlap in the governing body of the ****** and ******. - ****** does not appoint the ******'s officers or ****** and does not exert any influence or control over the ******. - ****** has no authority with respect to the administration and operation of the ******. The ****** is completely independent in the manner it ****** the ******'s ******, in setting the ****** 's ****** and ******, in selecting ****** to ****** and ****** and in the timing of ******. ****** can make no demands on how the ****** operates, ****** and ****** held or how and when the ****** makes ******. - The ****** forwards an accounting statement of the ****** and transactions at the beginning of each year to ******, Vice President of ******. No other information is included; no other statements are sent during the year and no investment strategy, transaction or asset allocation or performance reviews are conducted. - The ****** calculates the amount of distributable funds and makes ****** distributions to ******, usually during the ****** of each ******. - The ******'s main point of contact at ****** is ******, VP Administrative Assistant. - The ****** made a distribution of ****** to ****** on ******, ******, based on the ******'s available ******. As an exempt organization, ******'s ****** are widely available for public inspection. Based on the latest publicly available information, ****** total expenses for the year ending ******, ******, was ******. The organization's total assets for that period totaled ******. The ******'s distribution to ****** was less than ****** of ****** expenses. LAW: IRC Section 501(c)(3) requires tax exempt entities be organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary or educational purposes, to foster national and amateur sports competition and prevention of cruelty to children or animals. Treas.Reg. 1.501(c)(3)-1(a)(1) provides that in order to be exempt as an organization described under section 501(c)(3) of the Code, an organization must be both organized and operated exclusively for one or more purposes specified in such section. If an organization fails to meet either the organizational test or the operational test, it is not exempt. Treas.Reg. 1.501(c)(3)-1(c)(1) provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose. IRC Section 509(a) defines the term "private foundation" to mean any domestic or foreign organization described in section 501(c)(3) other than an organization described in section 509(a)(1), (2), (3) or (4). Organizations which fall into the categories excluded from the definition of "private foundation" are generally those which either have broad public support or actively function in a supporting relationship to such organizations. Organizations which test for public safety are also excluded. Organizations described in IRC Section 501(c)(3) that meet the requirements of IRC Section 509(a)(3) are commonly referred to as "supporting organizations." IRC Section 509(a)(3) provides that certain "supporting organizations" (in general, organizations that provide support to another section 501(c)(3) organization that is not a private foundation) are classified as public charities rather than private foundations. To qualify as a supporting organization, an organization must meet all three of the following tests: (A) it must be organized and always operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more "publicly supported organizations." In general, supported organizations of a supporting organization must be publicly supported charities described in sections 509(a)(1) or (a)(2) (the " organizational and operational tests " -- Treasury Regulation 1.509(a)-4(b)); (B) it must not be controlled directly or indirectly by one or more disqualified persons (as defined in section 4946) other than foundation managers and other than one or more publicly supported organizations (the " control test " -- Treasury Regulation 1.509(a)-4(j)); and (C) it must be operated, supervised, or controlled by or in connection with one or more publicly supported organizations (the " relationship test " -- Treasury Regulation 1.509(a)-4(f)); Organizational Test: Treas.Reg. 1.509(a)-4(b)(1) provides that a supporting organization must be organized exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more specified supported organizations. Treas.Reg. 1.509(a)-4(c)(1), provides that to qualify for classification under IRC Section 509(a)(3), a supporting organization's governing instrument must meet the following requirements: 1. The first requirement limits the organization's purposes to supporting one or more supported organizations and may not contain any provisions inconsistent with these purposes. 2. Treas.Reg. Section 1.509(a)-4(c)(1) states that the organization must not empower itself to engage in activities that are not in furtherance of the authorized purposes. 3. The third requirement calls for the supporting organization to specify the publicly supported organization they are supporting. 4. Treas.Reg. 509(a)-4(c)(1)(iv) states an organization must not be empowered to support or benefit any organization other than the specified publicly supported organizations. Operational Test: Treas.Reg. 1.509(a)-4(e)(1) provides that a supporting organization will be regarded as operated exclusively to support one or more specified publicly supported organizations only if it engages solely in activities which may include making payments to or for the use of, or providing services or facilities for, individual members of the charitable class benefited by the specified publicly supported organization. Treas.Reg. 1.509(a)-4(e)(2) provides that a supporting organization may also satisfy the operational test by using its income to carry on an independent activity or program, which supports or benefits the specified publicly supported organization(s) which is called permissible activities. Treas.Reg. 1.509(a)-4(e)(3) states that the supporting organization may carry on its own programs designed to support or benefit the specified publicly supported organization. Supporting organizations may also engage in fund raising activities, such as fund-raising dinners and unrelated trade or business to raise funds for the supported organization or their permissible beneficiaries. Control Test: To qualify for IRC Section 509(a)(3) classification, Treas.Reg. 1.509(a)-4(j) requires the organization to satisfy the control test. It's designed to prevent the supporting organization's being controlled, directly or indirectly, by disqualified persons as defined in IRC Section 4946, except for Section 509(a)(1) or (2) organizations and a manager of the supporting organization who is not a disqualified person for another reason. If a person is a disqualified person with respect to a supporting organization, he or she will continue to be a disqualified person even if a supported organization appoints or elects that person to be a director, trustee, or officer of the supporting organization. Disqualified persons include the following: - Substantial contributor - Certain 20 percent owners - Family members - Corporations, partnerships, etc. Relationship Test: Treas.Reg. 1.509(a)-4(f)(2) provides that, to satisfy the relationship test, a supporting organization must hold one of three statutorily described close relationships with the supported organization. The organization must be: (i) operated, supervised, or controlled by a publicly supported organization (commonly referred to as " Type I " supporting organizations). A Type I supporting organization must be operated, supervised or controlled by its supported organization(s), typically by giving the supported organization(s) the power to regularly appoint or elect a majority of the directors or trustees of the supporting organization. The relationship between the supported organization(s) and the supporting organization is sometimes described as a parent-subsidiary relationship. Treas.Reg. 1.509(a)-4(g)(1)(i) states that the "operated, supervised, or controlled by" relationship is established if the majority of the officers, directors, or trustees of the supporting organization are appointed or elected by the governing body, members of the governing body, officers acting in their official capacity, or the membership of one or more publicly supported organizations. (ii) supervised or controlled in connection with a publicly supported organization (commonly referred to as " Type II " supporting organizations) Treas.Reg. Section 1.509(a)-4(h) states the distinguishing feature of the "supervised or controlled in connection with" relationship is the presence of common supervision or control among the governing bodies of the supporting and supported organizations. This is often described as a "brother-sister" relationship, as distinguished from the "parent-subsidiary" relationship required for Type I, "operated, supervised, or controlled by" organizations. Type II is also distinguished from the Type III, "operated in connection with," relationship. The common supervision or control provided in the Type II relationship ensures that the supporting organization will be responsive to the needs of the supported organization. (iii) Operated in connection with, one or more publicly supported organizations (commonly referred to as " Type III " supporting organizations). A Type III supporting organization must be operated in connection with one or more publicly supported organizations. All supporting organizations must be responsive to the needs and demands of and must constitute an integral part of or maintain significant involvement in, their supported organizations. Type I and Type II supporting organizations are deemed to accomplish these responsiveness and integral part requirements by virtue of their control relationships. However, a Type III supporting organization is not subject to the same level of control by its supported organization(s). Therefore, in addition to a notification requirement, Type III supporting organizations must pass separate responsiveness and integral part tests. The third relationship type was revised by the Pension Protection Act (PPA) of 2006, which made significant changes in Type III requirements to ensure that supporting organizations are responsive to the needs and demands of and must constitute an integral part of or maintain significant involvement in, their supported organizations. Notification Requirement Type III supporting organizations has a notification requirement that applies to both FISOs and non-FISOs. Treas.Reg. 1.509(a)-4(i)(2) states that for each taxable year, a type III supporting organization must provide the following documents to each of its supported organizations: - A written notice addressed to a principal officer of the supported organization describing the type and amount of all of the support the supporting organization provided to the supported organization during the supporting organization's taxable year immediately before the taxable year in which the written notice is provided (and during any other taxable year of the supporting ending after December 28, 2012, for which such support information has not previously been provided); - A copy of the supporting organization's most recently filed Form 990, "Return of Organization Exempt from Income Tax," or other annual information return required to be filed under section 6033; and - A copy of the supporting organization's governing documents in effect on the date of the notification is provided, including its articles of organization and bylaws (if any) and any amendments to those documents, unless the documents have been previously provided and not subsequently amended. Responsiveness Test The responsiveness test requires that the Type III supporting organization be responsive to the needs or demands of the publicly supported organizations. In order to meet this test, Treas.Reg. 1.509(a)-4(i)(3)(ii) states that a supporting organization must demonstrate that: a. one or more officers, directors, or trustees of the supporting organization are elected or appointed by the board members of the supported organization, or; b. one or more board members of the governing body of the supported organization are also officers, directors, or trustees of, or hold other important officers in the supporting organization, or; c. the supporting organization's officers, directors, or trustees maintain a close and continuous working relationship with the officers, directors, or trustees of the supported organization. In addition, the supported organization must demonstrate a significant voice in the supporting organization's investment policies, the timing of grants, the manner of making grants, and the selection of grant recipients by such supporting organization, and in otherwise directing the use of the income or assets of the supporting organization. Treas.Reg. 1.509(a)-4(i)(3)(iv) provides examples of responsiveness test. Example 2. Y is an organization described in section 501(c)(3) and is a trust under State law. The trustee of Y (Trustee) is a bank. Y supports charities P, Q, and R, each an organization described in section 509(a)(1). Y makes annual cash payments to P, Q, and R. Once a year, Trustee sends to P, Q, and R the cash payment, the information required under paragraph (i)(2) of this section, and an accounting statement. Trustee has no other communication with P, Q, or R. Y does not meet the responsiveness test of this paragraph (i)(3). In Rev.Rul. 75-437, 1975-2 C.B. 218 it was held that an exempt charitable trust, established solely to provide college scholarships to county high school graduates, that is trusteed by an independent bank trustee, is a private foundation and not a supporting organization within the meaning of section 509(a)(3) of the Code. It was further held that the responsiveness test was not satisfied because the publicly supported organizations do not have a significant voice in the investment policies of the trust or the timing and making of grants. Integral Part Test Treas.Regs. 1.509(a)-4(i)(1)(iii) provides that, the integral part test requires the Type III supporting organization maintain significant involvement in the operations of one or more publicly supported organizations, and that such publicly supported organizations are in turn dependent upon the supporting organization for the type of support which it provides. There are two alternative methods for satisfying the integral part test: " functionally integrated " or " non-functionally integrated ". Both the notification requirement and the responsiveness test are the same for Functionally integrated type III supporting organization (FISOs) and Non-functionally Integrated type III supporting organization (Non-FISOs), the integral part test is different for FISOs and non-FISOs. Functionally Integrated (FISO) requirements: Treas.Regs. 1.509(a)-4(i)(4) states that a supporting organization will be considered functionally integrated if it engages in activities substantially all of which directly further the exempt purposes of one or more supported organization. The supporting organization must engage in the activities of or carry out the purposes of the supported organization. The activities are those which the supported organization would have otherwise performed. The supporting organization must satisfy one of these three tests for functionally integrated: - Activities test - Parent of supported organizations - Supporting a governmental entity 1. Activities Test (Treas.Reg. (§1.509(a)-4(i)(4)(i)(A)) Treas.Reg.(§1.509(a)-4(i)(4)(i)(A)) states for an organization to satisfy the integral part test for a functionally integrated Type III supporting organization is to engage in activities substantially all of which directly further the exempt purposes of one or more supported organizations to which the supporting organization is responsive and which, but for the involvement of the supporting organization, would normally be engaged in by the supported organization(s). - Direct furtherance prong (Treas.Reg. Section (§1.509(a)-4(i)(4)(ii) Substantially all of the supporting organization's activities must be direct furtherance activities. Direct furtherance activities are conducted by the supporting organization itself, rather than by a supported organization. Fundraising, managing non-exempt-use assets, grant-making to organizations, and grant-making to individuals (unless it meets certain requirements) are not direct furtherance activities. - But for prong: Treas.Reg. Section §1.509(a)-4(i)(4)(ii)(A)(2) In addition, substantially all of such activities must be activities in which, but for the supporting organization's involvement, the supported organization would normally be involved. 2. Parent of Supported Organizations (Treas.Reg. (§1.509(a)-4(i)(4)(i)(B)) - Governance: The supporting organization must have the power to appoint a majority of the officers, directors or trustees of each of its supported organizations. - Substantial degree of direction. In addition, the supporting organization must perform "parent-like" activities by exercising a substantial degree of direction over the policies, programs and activities of the supported organizations. 3. Supporting a Governmental Entity (Treas.Reg. §1.509(a)-4(i)(4)(i)(C)) Notice 2014-4, 2014-2 IRB 274) provides that a Type III Supporting organization will be treated as meeting the requirements of Treas.Reg. §1.509(a)-4(i)(4), and hence will be treated as functionally integrated, if it: - Supports at least one supported organization that is a governmental entity to which the supporting organization is responsive within the meaning of §1.509(a)-4(i)(3); and - Engages in activities for or on behalf of the governmental supported organization that perform the functions of, or carry out the purpose of, that governmental supported organization and that, but for the involvement of the supporting organization, would normally be engaged in by the governmental supported organization itself. Non-Functionally Integrated (Non-FISO) requirements: The integral part test for a Non-FISO is in Treas.Reg. Section 1.509(a)-4(i)(5). In general, a non-FISO must satisfy both a distribution requirement (Treas.Reg. Section 1.509(a)-4(i)(5)(ii)), and an attentiveness requirement (Treas.Reg. Section 1.509(a)-4(i)(5)(iii)). - The supporting organization must pay substantially all of its income to or for the use of the publicly supported organization(s). - The amount of support received by the supported organization(s) must be sufficient to ensure the attentiveness (attentiveness requirement) of such organizations to the operations of the supporting organization. - A substantial amount of total support of the supporting organization must go to those publicly supported organizations that meet the attentiveness requirement. Rev.Rul. 76-208, 1976-1 C.B. 161 defines "substantially all" for purposes of the integral part test as at least 85 percent and prohibits counting accumulating income even if it must be paid to the supported organization. Distribution Requirement A Type III Non-FISO must distribute its "distributable amount" each taxable year to or for the use of one or more supported organizations. The distributable amount for a taxable year is an amount equal to or the greater of either: a) Eighty-five percent of the supporting organization's adjusted net income for its prior taxable year, reduced by the amount of taxes imposed on the supporting organization under subtitle A of the Internal Revenue Code during the immediately preceding taxable year, or b) The "minimum asset amount" (as defined in Treas.Reg. Section 1.509(a)-4(i)(5)(ii)(C)), which equals 3.5 percent of the excess of the aggregate fair market value of the supporting organization's non-exempt-use assets in the taxable year immediately before the taxable year of the required distribution, over the acquisition indebtedness for the non-exempt-use assets, with certain adjustments. Attentiveness Requirement Each taxable year, a Non-FISO must distribute one-third or more of its distributable amount to one or more supported organizations that are attentive to the operations of the supporting organization and to which the supporting organization is responsive as stated in Treas.Reg. Section 1.509(a)-4(i)(5)(iii)(A). A supported organization is attentive to the operations of the supporting organization during a taxable year if at least one of the following requirements is satisfied: (1) The supporting organization distributes to the supported organization amounts equaling or exceeding 10% of the supported organization's total support for the prior taxable year. (Treas.Reg. Section 1.509(a)-4(i)(5)(iii)(B)(1)); or (2) The amount of support received from the supporting organization is necessary to avoid interruption of a function or activity of the supported organization. The support is considered necessary if it is earmarked for a particular program or activity, as long as the program is a substantial one. (Treas.Reg. Section 1.509(a)-4(i)(5)(iii)(B)(2)); or (3) Based on all facts and circumstances, the amount of support received is a sufficient part of a supported organization's total support to ensure attentiveness. Pertinent factors include the number of supported organizations, the length and nature of relationships, and the purpose to which funds are applied. (Treas.Reg. Section 1.509(a)-4(i)(5)(iii)(B)(3)). IRC Section 509(a)(2) provides that in order for an organization to be recognized as a public charity organization described under this section, it must satisfy both of the following tests: - The One-Third Support Test described in Section 509(a)(2)(A) must normally receive more than one-third of its support from any combination of gifts, grants, contributions, membership fees, and gross receipts from permitted sources, and - The Not-More-Than-One Third Support Test described in Section 509(a)(2)(B) must normally receive not more than one-third of its support from gross investment income and the excess of the amount of unrelated business taxable income over the amount of taxes imposed by Section 511. These two tests are designed to ensure that an organization excluded from classification as a private foundation under Section 509(a)(2) is responsive to the general public rather than to a limited number of donors or other persons. IRC Section 170(b)(1)(A)(vi) describes an organization "which normally receives a substantial part of its support from a governmental unit...or from direct or indirect contributions from the general public." Treasury Regulation section 1.170A-9(f)(2) states that an organization is publicly supported if at least 33 1/3 percent of its support is received from grants from governmental units, and direct or indirect support from the general public. Private Foundation Requirements and Chapter 42 Excise Taxes (in part) IRC Section 508(e)(1) states, a private foundation shall not be exempt from taxation under section 501(a) unless its governing instrument includes provisions the effects of which are -- (A) to require its income for each taxable year to be distributed at such time and in such manner as not to subject the foundation to tax under section 4942, and (B) to prohibit the foundation from engaging in any act of self-dealing (as defined in section 4941(d)), from retaining any excess business holdings (as defined in section 4943(c)), from making any investments in such manner as to subject the foundation to tax under section 4944, and from making any taxable expenditures (as defined in section 4945(d)). Taxes on Net Investment Income IRC Section 4940(a) imposes a tax equaled to 1.39 percent of the net investment income of a private foundation for the taxable year, with respect to the carrying on of its activities. IRC Section 4940(c)(1) defines net investment income, for purposes of exempt private non-operating foundations, as the sum of the gross investment income and the capital gain net income that exceeds the deductions allowed by this section, except to the extent inconsistent with the provisions of this section. IRC Section 4940(c)(2) defines gross investment income, for purposes of paragraph (1), as the gross amount of income from interest, dividends, rents, payments with respect to securities loans (as defined in IRC Section 512(a)(5)), and royalties. Taxes on Failure to Distribute Income Initial Taxes on Private Foundations IRC Section 4942(a) imposes a tax equaled to 30 percent on the undistributed income of a private foundation for any taxable year, which has not been distributed before the first day of the second taxable year following such taxable year. IRC Section 4942(c) defines undistributed Income as the amount by which the distributable amount for such taxable year, exceeds the qualifying distributions made before such time out of such distributable amount. IRC Section 4942(d) defines distributable amount as an amount equal to the sum of the minimum investment return plus the amount described in subsection (f)(2)(C), reduced by the sum of the taxes imposed on such private foundation for the taxable year under subtitle A and section 4940. IRC Section 4942(e) defines minimum investment return is 5 percent of the excess of the aggregate fair market value of all assets of the foundation other than those which are used (or held for use) directly in carrying out the foundation's exempt purpose, over the acquisition indebtedness with respect to such assets (determined under section 514(c)(1) without regard to the taxable year in which the indebtedness was incurred). IRC Section 4942(g)(1) defines qualifying distribution as any amount (including the portion of reasonable and necessary administrative expenses) paid to accomplish one or more purposes described in section 170(c)(2)(B), other than any contribution to an organization controlled by the private foundation or one or more disqualified persons, or to a private foundation which is not an operating foundation. Taxes on Taxable Expenditures Initial Taxes on Private Foundations IRC Section 4945(a)(1) imposes on each taxable expenditure (as defined in IRC Section 4945(d)) an initial tax equal to 20 percent of the amount thereof. The tax imposed by this paragraph shall be paid by the private foundation. IRC Section 4945(d)(4) states in part, for purposes of this Section, the term "taxable expenditure" means any amount paid or incurred by a private foundation for as a grant to an organization unless (A) such organization (i) is described in paragraph (1) or (2) of section 509(a), (ii) is an organization described in section 509(c)(3), or (iii) is an exempt operating foundation. (B) the private foundation exercises expenditure responsibility with respect to such grant in accordance with section 4945(h). IRC Section 4945(d)(5) states in part, for purposes of this Section, the term "taxable expenditure" means any amount paid or incurred by a private foundation for any purpose other than one specified in IRC Section 170(c)(2)(B). IRC Section 170(c)(2)(B) lists the following purposes: religious, charitable, scientific, literary, educational, to foster national or international amateur sports competition..., or for the prevention of cruelty to children or animals. Filing Form 4720 Treas.Regs. 53.6011-1(b) states, in part, that every person (including a governmental entity) liable for tax imposed by IRC Sections 4941(a), 4942(a), 4943(a), 4944(a), [or] 4945(a)... and every private foundation... which has engaged in an act of self-dealing (as defined in IRC Section 4941(d)) (other than an act giving rise to no tax under IRC Section 4941(a)) shall file an annual return on Form 4720,"Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code," and shall include therein the information required by such form and the instructions issued with respect thereto..... In the case of any tax imposed by IRC Section 4942(a), the annual return shall be filed with respect to each act (or failure to act) for each year (or part thereof) in the taxable period...In the case of a tax imposed by IRC Section 4945(a),... the annual return shall be filed with respect to each act for the year in which such act giving rise to liability occurred. Treas.Regs. 1.6033-2(a)(2)(ii)(J) states in the case of a private foundation liable for tax imposed under chapter 42, such information as is required by Form 4720. TAXPAYER'S POSITION: Taxpayer's position has not been provided. GOVERNMENT'S POSITION -- ISSUE 1 The ****** doesn't meet the definition of a supporting organization in Treas.Reg. 1.509(a)-4. There are three types of supporting organizations: - Type I - operated, supervised, or controlled by, - Type II - supervised or controlled in connection with, and - Type III - operated in connection with, one or more publicly supported organizations. A supported organization is expected to have a say in the operation of the supporting organization as to the investment policies and how the grants are made, to whom, and at what amounts. Type I is defined in Treas.Reg. 1.509(a)-4(g). The relationship required under any one of these terms is comparable to that of a parent and subsidiary, where the subsidiary is under the direction of, and accountable or responsible to, the parent organization. This relationship is established by the fact that a majority of the officers, directors, or trustees of the supporting organization are appointed or elected by the governing body, members of the governing body, officers acting in their official capacity, or the members of one or more publicly supported organization. Type II is defined in Treas.Reg. 1.509(a)-4(h). It requires common supervision or control by the persons supervising or controlling both the supporting organization and the publicly supported organization. The last sentence of paragraph (h)(1) states: "Therefore, in order to meet such requirement, the control or management of the supporting organization must be vested in the same persons that control or manage the publicly supported organizations". Type III is defined in Treas.Reg. 1.509(a)-4(i). It requires that it meet the notification requirement, the responsiveness test, and the integral part test. The first step to determine if an organization qualifies under IRC Section 509(a)(3) is to see if it meets the definition of type I, II, or III. To qualify as a Type I supporting organization, the officers, directors, or trustees of the supporting organization are appointed or elected by the governing body, members of the governing body, officers acting in their official capacity, or the membership of one or more publicly supported organizations. The Trust does not have board members which are on the board of the supported organization. Because the sole trustee in this case is a ******, the ****** is neither operated, supervised, or controlled by, nor supervised or controlled in connection with the publicly supported church. The ****** does not meet the definition of a Type I ****** organization. To qualify as a Type II supporting organization the supported and supporting organizations must be controlled or managed by the same persons. Treas.Reg. 1.509(a)-4(h)(1) specifically states that in order to meet the requirements of "supervised or controlled in connection with" the control or management of the supporting organization must be vested in the same persons that control or manage the publicly supported organizations. In the case of a Type I or Type II supporting organization, the supported organization(s) are in control of the supporting organization. Type I because the supporting organization is a subsidiary of the supported; Type II because the same persons control or manage the supporting and the supported organizations. By being in control, the supported organizations are determining the investment policies and the amounts given and to whom given to; therefore, the supporting organization can't decide to give to a different organization unless the supported organization allows it. This section doesn't mean that if an organization gives to more than one organization that it meets the definition of a type II. To be a type II supporting organization there must be common supervision and/or control of both the supported and the supporting organizations. Because the sole trustee in this case is a bank, the Trust is neither operated, supervised, or controlled by, nor supervised or controlled in connection with the publicly supported organization. The ****** doesn't have common supervision or control with the supported organizations; therefore, it does not meet the definition of a Type II ****** organization. On its ****** the ****** made a selection on Schedule A indicating that it is a ******. ****** as defined in Treas.Reg. 1.509(a)(4)(i) require that the supported organizations have a significant voice in the investment policy, grants made, recipients, amounts, and when the grants are paid. To meet the definition of a type III supporting organization, an organization must meet the notification requirement, the responsiveness test, and the integral part test. The responsiveness test has two parts: relationship of the officers and significant voice. The relationship test requires that one or more officers, directors, or trustees of the supporting organization are elected or appointed by the supported organization or one or more of the governing body of the supported organization also hold important offices in the supporting organization; or the board of the supporting organization maintains a close and continuous working relationship with the board of the supported organization, and the supported organization must have a significant voice in the investment policies of the supporting organization, the timing of grants, the manner of making grants, and the selection of grant recipients, and in otherwise directing the use of the income or assets of the supporting organization. As established above, the ****** doesn't have common supervision or control with the ******. The ****** makes an ****** and forwards a copy of the ****** account statement ****** to a point-person at the ****** but maintains no other contact with ****** of the supported organization. The ****** has complete autonomy and independence over the ******, ****** and ******. The ****** is similar to the organization in Rev.Rul. 75-437, acting independently with the supported organization not having a significant voice in the ****** of the ****** or the ****** and ******. The ****** in Rev.Rul. 75-437 failed the responsiveness test, and it was held that it is a private foundation and not a supporting organization within the meaning of section 509(a)(3) of the Code. To meet the notification requirement the supporting organization must provide a written notice to a principal officer of the ****** describing the type and amount of all support it provided during the preceding year, a copy of the ****** for the previous year, and a copy of the most recent governing documents. The ****** provides a copy of an ****** to the supported organization but does not provide to ****** of the ****** the required written notice, copies of the ****** and ****** documents. The ****** does not meet the responsiveness test or notification requirement. Therefore, it does not meet the definition of a Type III organization. The ****** has failed the required tests with respect to its relationships with a ******. It does not meet the requirements of IRC 509(a)(3). GOVERNMENT POSITION -- ISSUE 2 The ****** does not meet the requirements of IRC 509(a)(2). To be recognized as a public charity described under IRC 509(a)(2), an organization must satisfy both the One-Third Support Test and the Not-More-Than-One Third Support Test. The ****** is organized as an income-generating investment vehicle relying solely on its ****** for ******. Although it may receive ****** from time to time, ****** comprises the bulk of its support. GOVERNMENT POSITION -- ISSUE 3 The ****** does not meet the requirements of IRC Section 170(b)(1)(A)(vi) as a publicly supported organization with a foundation status described in Section 509(a)(1). The ****** does not seek ****** and ****** or ****** in order to attract ******. It ****** receives ****** from the ******; however, it relies almost exclusively on its ****** for ****** to a ******. CONCLUSION The ****** doesn't meet the requirements of IRC Section 509(a)(3) therefore, it is a private foundation. It needs to file ****** and pay the tax on its ****** beginning with the year ending ******, ****** and thereafter. In the case of a ****** liable for tax imposed under chapter 42, such information is required by Form 4720, Return of Certain Excise Taxes on Charities and Other Persons Under Chapters 41 and 42 of the Internal Revenue Code. The ****** tax-exempt status under IRC Section 501(c)(3) remains in effect. The effective date of this reclassification is ******, ******. If you agree to this conclusion, please sign and return the attached Form 6018. If you disagree, please submit a statement of your position.

Private Letter Ruling Number: 202339025 Internal Revenue Service April 18, 2023 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Release Number: 202339025 Release Date: 9/29/2023 UIL Code: 501.03-00 Date: 04/18/2023 Taxpayer ID number (last 4 digits): Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: Last day to file petition with United States Tax Court: 07/17/2023 CERTIFIED MAIL - Return Receipt Requested Dear ******: Why we are sending you this letter This is a final determination that you don't qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3), effective ******. Your determination letter dated ****** is revoked. Our adverse determination as to your exempt status was made for the following reasons: Organizations described in IRC Section 501(c)(3) and exempt under IRC Section 501(a) must be both organized and operated exclusively for charitable, educational, or other exempt purposes within the meaning of IRC Section 501(c)(3). You have not demonstrated that you are operated exclusively for charitable, educational, or other exempt purposes within the meaning of IRC Section 501(c)(3) and that no part of your net earnings inure to the benefit of private shareholders or individuals. You failed to respond to repeated reasonable requests to allow the Internal Revenue Service to examine your records regarding your receipts, expenditures, or activities as required by IRC sections 6001, 6033(a)(1) and Rev.Rul. 59-95, 1959-1 C.B. 627. Further, you were involuntarily dissolved by the State of ****** for violations of the ******, by procuring the organization through fraud; repeatedly, willfully, and materially exceeding the authority conferred on it by law; and repeatedly, willfully, and materially conducting its affairs in an unlawful manner, demonstrating that you are not operated exclusively for exempt purposes. Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns and pay tax, where applicable. For further instructions, forms and information please visit IRS.gov. Contributions to your organization are no longer deductible under IRC Section 170. What you must do if you disagree with this determination If you want to contest our final determination, you have 90 days from the date this determination letter was mailed to you to file a petition or complaint in one of the three federal courts listed below. How to file your action for declaratory judgment If you decide to contest this determination, you can file an action for declaratory judgment under the provisions of Section 7428 of the Code in either: - The United States Tax Court, - The United States Court of Federal Claims, or - The United States District Court for the District of Columbia You must file a petition or complaint in one of these three courts within 90 days from the date we mailed this determination letter to you. You can download a fillable petition or complaint form and get information about filing at each respective court's website listed below or by contacting the Office of the Clerk of the Court at one of the addresses below. Be sure to include a copy of this letter and any attachments and the applicable filing fee with the petition or complaint. You can eFile your completed U.S. Tax Court petition by following the instructions and user guides available on the Tax Court website at ustaxcourt.gov/dawson.html. You will need to register for a DAWSON account to do so. You may also file your petition at the address below: United States Tax Court 400 Second Street, NW Washington, DC 20217 ustaxcourt.gov The websites of the U.S. Court of Federal Claims and the U.S. District Court for the District of Columbia contain instructions about how to file your completed complaint electronically. You may also file your complaint at one of the addresses below: US Court of Federal Claims 717 Madison Place, NW Washington, DC 20439 uscfc.uscourts.gov US District Court for the District of Columbia 333 Constitution Avenue, NW Washington, DC 20001 dcd.uscourts.gov Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory judgment under IRC Section 7428. We'll notify the appropriate state officials (as permitted by law) of our determination that you aren't an organization described in IRC Section 501(c)(3). Information about the IRS Taxpayer Advocate Service The IRS office whose phone number appears at the top of the notice can best address and access your tax information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Contact your local Taxpayer Advocate Office at: Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights, go to taxpayeradvocate.IRS.gov. Do not send your federal court pleading to the TAS address listed above. Use the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time to file an action for declaratory judgment. Where you can find more information Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for more comprehensive information. Find tax forms or publications by visiting IRS.gov/forms or calling 800-TAX-FORM (800-829-3676). If you have questions, you can call the person shown at the top of this letter. If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best time to call, and a copy of this letter. You may fax your documents to the fax number shown above, using either a fax machine or online fax service. Protect yourself when sending digital data by understanding the fax service's privacy and security policies. Keep the original letter for your records. Sincerely, for Lynn A. Brinkley Director, Exempt Organizations Examinations Enclosures: Publication 1 Publication 594 Publication 892 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Exempt Organizations Examinations Date: December 15, 2022 Taxpayer ID number: Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: Address: Manager's contact information: Name: ID number: Telephone: Response due date: January 17, 2023 CERTIFIED MAIL -- Return Receipt Requested Dear ******: Why you're receiving this letter We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to revoke your tax-exempt status as an organization described in Internal Revenue Code (IRC) Section 501(c)(3). If you agree If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. We'll issue a final adverse letter determining that you aren't an organization described in IRC Section 501(c)(3) for the periods above. After we issue the final adverse determination letter, we'll announce that your organization is no longer eligible to receive tax deductible contributions under IRC Section 170. If you disagree 1. Request a meeting or telephone conference with the manager shown at the top of this letter. 2. Send any information you want us to consider. 3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information. The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For your protest to be valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't apply now that we've issued this letter. 4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the IRS. If you're considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals. If we don't hear from you If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final adverse determination letter. Contacting the Taxpayer Advocate Office is a taxpayer right The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778. For additional information You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person shown at the top of this letter. Sincerely, for Lynn A. Brinkley Acting Director Exempt Organizations Examinations Enclosures: Form 886-A and Attachments Form 6018 Issue: Whether ****** (Taxpayer) continues to qualify for exemption from Federal income tax under section 501(a) of the Internal Revenue Code (Code) as a charitable organization described in Code section 501(c)(3). Facts: Taxpayer was incorporated in the State of ****** on ****** under the ****** Taxpayer's organizing document, the Articles of Incorporation, was filed electronically with the state and provides for the following corporate purpose in Article ****** Article ****** of Taxpayer's Articles of Incorporation provides that the organization is organized exclusively for charitable, religious, educational, and scientific purposes under section 501(c)(3) of the Code, or corresponding section of any future federal tax code. Article ****** also provides for a dissolution clause intended to allow Taxpayer to satisfy the organizational requirements for Federal exemption. Taxpayer's Articles of Incorporation identifies the incorporator as ****** with a residential or business address of ****** is also appointed as the resident agent of the corporation. According to Article ****** the street address of the registered office of the corporation (P.O. Boxes are not acceptable by the state) is ******. The ****** directors listed in Article ****** of Taxpayer's organizing document are ****** The mailing address for ****** is ****** - ******. ****** has a mailing address in ****** A copy of Taxpayer's organizing document, which was secured from public records maintained by the ****** is appended as Exhibit A. The street address in ****** furnished by ****** as his residential or business address corresponds to a retail store called Mailbox Forwarding which offers mailbox services. See Exhibit B. The website for Mailbox Forwarding contains the following description of mailbox services offered to its customers: In ****** Taxpayer filed Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, with the Internal Revenue Service (IRS). Part I of the Form 1023-EZ requires applicant organizations to list the names, titles and mailing addresses of all officers, directors, and trustees. ****** is listed as the Executive Director. ****** are also listed in Part I - ****** and ****** is identified as a director of the organization with a mailing address in ****** has the ******. His mailing address is the same address in ****** referenced in Taxpayer's organizing document as noted above. The Form 1023-EZ application is signed by ****** as the ****** according to the declaration on page 3. Taxpayer furnished the following mailing address on Form 1023-EZ for ****** the organization and its ******, ****** Taxpayer's address in ****** corresponds to a ****** (****** retail store which offers mailbox services. According to information posted by ****** on the Internet, the retail store located at ****** offers the following mailbox services: - A ******. - Package and mail receipt notifications - Mail holding and forwarding - Call-in mail check A copy of the pertinent website content posted by or on behalf of the ****** store located in ****** in ****** is appended as Exhibit C. In its Form 1023-EZ application, Taxpayer attested that it is ****** organized and operated exclusively for charitable purposes. Taxpayer did not furnish a copy of its Articles of Incorporation since the organizing document is not required to be filed with the streamlined Form 1023-EZ application. Based on representations and attestations made by Taxpayer in its Form 1023-EZ, the IRS issued a favorable determination letter dated ****** granting Taxpayer recognition of exemption under section 501(c)(3) of the Code effective ****** Taxpayer was classified as a public charity under sections 509(a)(1) and 170(b)(1)(A)(vi) of the Code based on its attestation regarding public support in Part IV of the Form 1023-EZ. IRS records show that Taxpayer filed Form 990-N, Electronic Notice (e-Postcard), for the ****** through ******, inclusive. Taxpayer filed Form 990-N in lieu of a Form 990 or Form 990-EZ return. The organization indicated on Form 990-N that its gross receipts are normally ******. The address reported by Taxpayer on its Forms 990-N is the same address reported on the Form 1023-EZ: ******. In ****** the Tax Exempt and Governmental Entities (TE/GE) division of the IRS selected Taxpayer for examination of its books and records covering the ****** The notice of examination package, which is dated ******, consists of IRS letter #6031, Form 4564, Information Document Request (IDR), Publication 1, Your Rights as a Taxpayer, Notice 609, Privacy Act Notice, and Publication 3498-A, The Examination Process (Audits by Mail). The notice of examination package was mailed to Taxpayer at the last known address on file for the organization, which is as follows: ****** c/o ****** As noted on ****** IDR issued with the examination notice, the examination of Taxpayer's books and records is intended to verify that the organization: 1. Operates in accordance with section 501(c)(3) of the Code 2. Is eligible to file Form 990-N based on gross receipts, and 3. Filed all required returns including information returns. As part of standard audit procedures, the ****** requested that Taxpayer furnish certain records and information needed to determine whether the organization is operating in furtherance of charitable and other exempt purposes described in section 501(c)(3) of the Code. IDR ****** issued to Taxpayer on ******, requests copies of the following records and information covering the ****** under examination: - Chart of accounts - General ledger - Adjusted trial balance - Cash disbursements journal. - Monthly bank statements for Taxpayer's primary operating (checking) account together with canceled checks or check images furnished by the bank. - Monthly statements for all credit cards that may have been issued to Taxpayer. - Minutes of meetings held by Taxpayer's Board of Directors and committees of the Board. - Internal policies and procedures regarding the handling and recording of cash donations. - Lease agreements and other information relating to any office or other facility used by Taxpayer to conduct activities. - Contracts and other arrangements with individuals and/or organizations which solicit and raise funds for Taxpayer including, but not limited to, professional fundraising organizations. - The organization's website address, if any, and the identity of the party that hosts the website. If no website is maintained, Taxpayer was requested to provide copies of records which describe the activities conducted in ****** In the absence of formal marketing and fundraising materials, Taxpayer was asked to provide a statement describing the activities, services, programs, and events conducted by the organization in ****** - Information regarding the accounting software used by Taxpayer for preparation of its books and records. The response due date for IDR ****** was ******. Taxpayer did not respond to the IDR or otherwise contact the ****** or the ****** by the due date. In accordance with established IRS procedures, a follow-up "Delinquency Notice" letter was issued to Taxpayer with a copy of IDR ****** on ******, with a response due date of ******. The delinquency notice states, in part, that if the organization does not fully respond to the IDR by the response due date, the IRS will propose revocation of Taxpayers exempt status. The delinquency notice was not returned by the post office as undeliverable. Taxpayer did not respond to the delinquency notice or otherwise contact the ****** Neither the ****** nor the ****** subsequently received any of the requested records and information from ****** or any other officer or director of the organization. Despite its name, there is no evidence that Taxpayer is an ******. Taxpayer is not among the ****** listed. The ****** Form 990-N filed by Taxpayer with the IRS in ****** identifies a ****** in section E. The ****** was not able to locate the website domain address referenced on the ****** Form 990-N. There is no ****** listed on Form 990-N filed by Taxpayer for the ****** including the ******. A search of the State of ****** corporate database, which provides information on the status of entities incorporated under ****** state law, shows that Taxpayer's was formally dissolved as a corporation by court order effective ****** A copy of the entity status search for Taxpayer secured from the State of ****** online filing system is appended as Exhibit D. An electronic copy of the court ordered dissolution of Taxpayer was also made available online and is appended as Exhibit E. The ****** indicates that the ****** was filed ****** and ****** by the Attorney General of the State of ****** Following a hearing, the court held that the Taxpayer and the related defendants engaged in unlawful conduct in violation of the ****** by procuring the organizations through ****** repeatedly, willfully, and materially exceeding the authority conferred on it by law; and repeatedly, willfully, and materially conducting its affairs in an unlawful manner. ****** An order for default judgment was filed with the corporations' division on ****** Applicable Law: Section 501(c)(3) of the Code provides that an organization organized and operated exclusively for charitable or educational purposes is exempt from Federal income tax, provided no part of its net earnings inures to the benefit of any private shareholder or individual. Section 1.501(c)(3)-1(a)(1) of the Treasury Regulations states that to be exempt as an organization described in section 501(c)(3), an organization must be both organized and operated exclusively for one or more of the purposes specified in such section - charitable, religious, educational, scientific, literary, testing for public safety, or for the prevention of cruelty to children or animals. If an organization fails to meet either the organizational test or the operational test, it is not exempt. Section 1.501(c)(3)-1(b)(1)(i) of the regulations provides that an organization is organized exclusively for one or more exempt purposes only if its articles of organization (as defined in subparagraph (2)) limit its purposes to one or more exempt purposes and do not expressly empower it to engage, otherwise than as an insubstantial part of its activities, in activities which in themselves are not in furtherance of one or more exempt purposes. Section 1.501(c)(3)-1(b)(2) of the regulations provides that the term "articles of organization" or "articles" includes the trust instrument, the corporate charter, the articles of association, or any other written instrument by which an organization is created. Section 1.501(c)((3)-1(c) of the regulations describes the operational test requirements for 501(c)(3) exemption. The operational test focuses on how the organization is actually operated, regardless of whether it is properly organized for tax-exempt purposes. Section 1.501(c)(3)-1(c)(1) of the regulations provides that an organization will be regarded as "operated exclusively" for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose. This is referred to as the "primary activities" test. Section 1.501(c)(3)-1(c)(2) of the regulations provides that an organization is not operated exclusively for one or more exempt purposes if its net earnings inure in whole or in part to the benefit of private shareholders or individuals. Section 511 of the Code imposes a tax at corporate rates under section 11 on the unrelated business taxable income of certain tax-exempt organizations. Section 6001 of the Code provides, in part, that every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe. Whenever in the judgment of the Secretary it is necessary, he may require any person, by notice served upon such person or by regulations, to make such returns, render such statements, or keep such records, as the Secretary deems sufficient to show whether or not such person is liable for tax under this title. Section 1.6001-1(c) of the regulations provides that in addition to such permanent books and records as are required by paragraph (a) of this section with respect to the tax imposed by section 511 on unrelated business income of certain exempt organizations, every organization exempt from tax under section 501(a) shall keep such permanent books of account or records, including inventories, as are sufficient to show specifically the items of gross income, receipts and disbursements. Such organizations shall also keep such books and records as are required to substantiate the information required by section 6033. See section 6033 and regulations sections 1.6033-1 through 1.6033-3. Section1.6001-1(e) of the regulations provides that the books or records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees and, shall be retained as long as the contents thereof may be material in the administration of any internal revenue law. Section 6033 of the Code provides, in general, that every organization exempt under IRC 501(a) shall file an annual return, stating specifically the items of gross income, receipts, and disbursements, and such other information for the purpose of carrying out the Internal Revenue laws as the Secretary may by forms of regulations prescribe, and shall keep such records, render under oath such statements, make such other returns, and comply with such rules and regulations as the Secretary may from time to time prescribe. Section 6033 of the Code provides an exception to the annual filing requirement in the case of an organization described in section 501(c) (other than a private foundation or a supporting organization described in section 509(a)(3)) the gross receipts of which in each taxable year are normally not more than $50,000. See section 1.6033-2(g)(1)(iii) of the regulations. Section 1.6033-2(g)(5) of the regulations provide that an organization that is not required to file an annual return by virtue of the gross receipts exception must submit an annual electronic notice notification as described in section 6033(i) of the Code. Section 1.6033-2(i)(2) of the regulations provides that every organization which is exempt from tax, whether or not it is required to file an annual information return, shall submit such additional information as may be required by the Internal Revenue Service for the purpose of inquiring into its exempt status and administering the provisions of subchapter F (section 501 and following), chapter 1 of subtitle A of the Code and section 6033. Rev.Rul. 59-95, 1959-1 C.B. 627, concerns an exempt organization that was requested to produce a financial statement and statement of its operations for a certain year. However, its records were so incomplete that the organization was unable to furnish such statements. The Service held that the failure or inability to file the required information return or otherwise to comply with the provisions of section 6033 of the Code and the regulations which implement it, may result in the termination of the exempt status of an organization previously held exempt, on the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status. Organization's Position: Taxpayer's position is unknown at this time. Government's Position: Analysis The facts indicate that Taxpayer received recognition of exemption under section 501(c)(3) of the Code in ****** based on information presented in its Form 1023-EZ application. Taxpayer attested that it is ****** organized and operated exclusively for charitable purposes. The TE/GE division of the IRS maintains an examination program for exempt organizations to determine whether they are complying with statutory requirements regarding their tax-exempt status, the proper filing of returns, and other tax reporting matters. Taxpayer filed Form 990-N, an electronic notice, for the ****** Operational Test Not Met Taxpayer was selected for audit to ensure that the organization's activities and operations align with their approved exempt status and to verify whether Taxpayer was eligible to file Form 990-N based on gross receipts. Section 6001 of the Code and the regulations thereunder impose requirements on exempt organizations to keep books and records to substantiate information required under section 6033 of the Code. Although Taxpayer filed an electronic notice in lieu of a return, the organization is nevertheless required to produce records and other information requested by the IRS to verify that it operates in furtherance of its exempt purpose. See regulations section 1.6033-2(i)(2). As part of standard audit procedures, the ****** requested basic financial records including books of account, minutes of Board meetings and records and information pertaining to Taxpayer's activities. Such records and information are needed to verify whether Taxpayer continues to be operated exclusively for one or more of the exempt purposes specified in section 501(c)(3) of the Code. Taxpayer failed to respond to repeated reasonable requests to allow the IRS to examine its books and records including its receipts, disbursements, and other items required to be kept and maintained pursuant to sections 6001 and 6033(a)(1) of the Code. Accordingly, Taxpayer has failed to meet the requirements of section 501(c)(3) of the Code and sections 1.501(c)(3)-1(a) and 1.501(c)(3)-1(c) of the regulations, in that the organization has not established that it is operated exclusively for exempt purposes and that no part of its net earnings inures to the benefit of private shareholders or individuals. See also Rev.Rul. 59-95. Taxpayer is No Longer a Legal Entity Under State Law A basic premise of tax-exempt status under section 501(c)(3) of the Code is that it may apply only to an organization that is organized pursuant to "articles of organization" within the meaning of section 1.501(c)(3)-1(b)(2) of the regulations. Such articles of organization include a corporate charter, articles of incorporation, or similarly named instrument in the case of a corporation. Public records made available online by the State of ****** show that Taxpayer was dissolved as a corporate entity pursuant to a court order filed on ****** See Exhibits D and E. Upon the involuntary dissolution of Taxpayer by the State of ****** Taxpayer is no longer exempt by operation of law since the organization is no longer a separate legal entity that can qualify for exemption under section 501(c)(3). See section 1.501(c)(3)-1(b) of the regulations regarding the organizational test requirements. Conclusion: For the reasons stated above, the IRS has determined that Taxpayer is no longer exempt from Federal income tax under section 501(a) of the Code as an organization described in Code section 501(c)(3). The IRS is proposing to revoke Taxpayer's 501(c)(3) tax-exempt status effective ****** the ****** of the ****** under examination. Please note that this Form 886-A, Explanation of Items, which is also known as the revenue agent report (RAR), constitutes an integral part of the attached 30-day letter #3618. Please refer to the attached letter #3618 for additional information including appeals rights and other options available to the organization and, the instructions for how to respond.

Private Letter Ruling Number: 202120010 Internal Revenue Service February 24, 2021 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202120010 Release Date: 5/21/2021 Index Number: 1400Z.02-00 Person To Contact: ID No. Telephone Number: Refer Reply To: CC:ITA:5 PLR-119294-20 Date: February 24, 2021 Dear *******: This ruling responds to the Taxpayer's request dated Date 1. Specifically, Taxpayer requests an extension of time under sections 301.9100-1 and 301.9100-3 of the Income Tax Regulations to (1) make a timely election under section 1.1400Z2(a)-1(a)(2)(i) to be certified as a qualified opportunity fund (QOF), as defined in section 1400Z-2(d) of the Internal Revenue Code. FACTS Taxpayer was organized as a limited liability company under the laws of State of Z on Date 2 and is classified as a partnership for Federal income tax purposes. Taxpayer was organized for the purpose of investing in qualified opportunity zone property as defined in section 1400Z-2(d)(2). Taxpayer's year end for maintaining its accounting books and records and filing its Federal income tax return is Date 3. Taxpayer's method of accounting for maintaining its accounting books and records and filing its Federal income tax return is the accrual method of accounting. Taxpayer is requesting an extension of time under section 301.9100-3(b)(1) of the Income Tax Regulations to self-certify as a Qualified Opportunity Fund under section 1.1400Z2(d)-1. Taxpayer was formed with the intent to be the X% owner of Entity C. Entity C is an LLC classified as a partnership for federal income tax purposes and was formed for the purpose of operating as a Qualified Opportunity Zone Business as that term is defined in § 1400Z-2(d)(3). Taxpayer intended to self-certify as a QOF by filing Form 8996, Qualified Opportunity Fund, with its first form 1065, U.S. Return of Partnership Income, which it believed needed to be filed for the year ending Date 3. Taxpayer's director and controller of corporate and development accounting, B thought that a Year 1 Form 1065 was not required because Taxpayer had no profit and loss activity for the year. B did not know that because Taxpayer was formed and funded in Year 1 that it would need to file for that year in order to self-certify as a QOF. Taxpayer's Form 1065 for the year ending Date 3 was due on or before Date 4. Taxpayer did not timely file form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information and Other Returns because it did not learn until after the fact that a Year 1 Form 1065 was required. Taxpayer did ultimately become aware when it provided information about itself to the income tax preparer, Accounting Firm. Taxpayer has not yet filed its Form 1065 for the year ending Year 1. Taxpayer requests a ruling that based upon the facts and information submitted in connection with the request, Taxpayer has acted reasonably and in good faith; and that the granting of relief would not prejudice the interests of the government. LAW AND ANALYSIS Section 1400Z-2(e)(4)(A) of the Internal Revenue Code directs the Secretary to prescribe regulations for rules for the certification of QOFs. Section 1.1400Z2(d)-1(a)(2) of the Income Tax Regulations provides that the rules for an entity to self-certify as a QOF. Section 1.1400Z2(a)-1(a)(2)(i) provides that the entity electing to be certified as a QOF must do so annually on a timely filed return in such form and manner as may be prescribed by the Commissioner of Internal Revenue in the Internal Revenue Service forms or instructions, or in publications or guidance published in the Internal Revenue Bulletin. To self-certify as a QOF, a taxpayer must file Form 8996, Qualified Opportunity Fund, with its tax return for the year to which the certification applies. The Form 8996 must be filed by the due date of the tax return (including extensions). The information provided indicates that the taxpayer did not file its Form 8996 by the due date of its income tax return (including extensions) due to his belief that submission was not required for the year at issue. Because section 1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for an entity to self-certify as a QOF, these elections are regulatory elections, as defined in section 301.9100-1(b). Sections 301.9100-1 through 301.9100-3 provide the standards that the Commissioner will use to determine whether to grant an extension of time to make a regulatory election. Section 301.9100-3(a) provides that requests for extensions of time for regulatory elections (other than automatic extensions covered in section 301.9100-2) will be granted when the taxpayer provides evidence (including affidavits) to establish that the taxpayer acted reasonably and in good faith and the grant of relief will not prejudice the interests of the Government. Under section 301.9100-3(b) a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer requests relief before the failure to make the regulatory election is discovered by the Service, or reasonably relied on a qualified tax professional, and the tax professional failed to make, or advise the taxpayer to make, the election. However, a taxpayer is not considered to have reasonably relied on a qualified tax professional if the taxpayer knew or should have known that the professional was not competent to render advice on the regulatory election or was not aware of all relevant facts. In addition, section 301.9100-3(b)(3) provides that a taxpayer is deemed not to have acted reasonably and in good faith if the taxpayer-- (i) seeks to alter a return position for which an accuracy-related penalty has been or could be imposed under § 6662 at the time the taxpayer requests relief, and the new position requires or permits a regulatory election for which relief is requested; (ii) was fully informed in all material respects of the required election and related tax consequences but chose not to make the election; or (iii) uses hindsight in requesting relief. If specific facts have changed since the original deadline that make the election advantageous to a taxpayer, the Service will not ordinarily grant relief. Section 301.9100-3(c)(1) provides that the Commissioner will grant a reasonable extension of time to make the regulatory election only when the interests of the Government will not be prejudiced by the granting of relief. Section 301.9100-3(c)(1)(i) provides that the interests of the Government are prejudiced if granting relief would result in a taxpayer having a lower tax liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made (taking into account the time value of money). Section 301.9100-3(c)(1)(ii) provides that the interests of the government are ordinarily prejudiced if the taxable year in which the regulatory election should have been made or any taxable year that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under § 6501(a) before the taxpayer's receipt of a ruling granting relief under this section. Based on the facts and information submitted and the representations made, we conclude that Taxpayer has acted reasonably and in good faith, and that the granting of relief would not prejudice the interests of the government. Accordingly, based solely on the facts and information submitted, and the representations made in the ruling request, we grant the taxpayer an extension of 45 days from the date of this letter ruling to file an amended return to make the election under section 1400Z-2 and section 1.1400Z2(d)-1(a)(2)(i). The election is to be made on Form 8996. This ruling is based upon facts and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. This office has not verified any of the material submitted in support of the request for a ruling. However, as part of an examination process, the Service may verify the information, representations, and other data submitted. Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we express no opinion, either express or implied, concerning whether any investments made into the taxpayer are qualifying investments as defined in section 1.1400Z2 (a)-1(b)(3) or whether the taxpayer meets the requirements under section 1400Z-2 and the regulations thereunder to be a QOF. We express no opinion regarding the tax treatment of the instant transaction under the provisions of any other sections of the Code or regulations that may be applicable, or regarding the tax treatment of any conditions existing at the time of, or effects resulting from, the instant transaction. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative. Sincerely, Shareen S. Pflanz Chief, Branch 5 Office of Associate Chief Counsel (Income Tax & Accounting) cc:

Private Letter Ruling Number: 202334018 Internal Revenue Service May 30, 2023 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Number: 202334018 Release Date: 8/25/2023 UIL: 501.03-00 Date: May 30, 2023 Taxpayer ID number (last 4 digits): Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: Last day to file petition with United States Tax Court: CERTIFIED MAIL - Return Receipt Requested Dear ******, Why we are sending you this letter This is a final determination that you don't qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3), effective ******. Your determination letter dated ******, is revoked. Our adverse determination as to your exempt status was made for the following reasons: Organizations described in IRC Section 501(c)(3) and exempt under IRC Section 501(a) must be both organized and operated exclusively for exempt purposes. The majority of your organization's activities in the years under examination were to raise funds and to conduct gaming activities such as hunting and shooting which are not considered exempt activities. Therefore, you have not operated exclusively for charitable, educational, or other exempt purposes within the meaning of IRC Section 501(c)(3). Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns and pay tax, where applicable. For further instructions, forms and information please visit IRS.gov. Contributions to your organization are no longer deductible under IRC Section 170. What you must do if you disagree with this determination If you want to contest our final determination, you have 90 days from the date this determination letter was mailed to you to file a petition or complaint in one of the three federal courts listed below. How to file your action for declaratory judgment If you decide to contest this determination, you can file an action for declaratory judgment under the provisions of Section 7428 of the Code in either: - The United States Tax Court, - The United States Court of Federal Claims, or - The United States District Court for the District of Columbia You must file a petition or complaint in one of these three courts within 90 days from the date we mailed this determination letter to you. You can download a fillable petition or complaint form and get information about filing at each respective court's website listed below or by contacting the Office of the Clerk of the Court at one of the addresses below. Be sure to include a copy of this letter and any attachments and the applicable filing fee with the petition or complaint. You can eFile your completed U.S. Tax Court petition by following the instructions and user guides available on the Tax Court website at ustaxcourt.gov/dawson.html. You will need to register for a DAWSON account to do so. You may also file your petition at the address below: United States Tax Court 400 Second Street, NW Washington, DC 20217 ustaxcourt.gov The websites of the U.S. Court of Federal Claims and the U.S. District Court for the District of Columbia contain instructions about how to file your completed complaint electronically. You may also file your complaint at one of the addresses below: US Court of Federal Claims 717 Madison Place, NW Washington, DC 20439 uscfc.uscourts.gov US District Court for the District of Columbia 333 Constitution Avenue, NW Washington, DC 20001 dcd.uscourts.gov Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory judgment under IRC Section 7428. Information about the IRS Taxpayer Advocate Service The IRS office whose phone number appears at the top of the notice can best address and access your tax information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Contact your local Taxpayer Advocate Office at: Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights, go to taxpayeradvocate.IRS.gov. Do not send your federal court pleading to the TAS address listed above. Use the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time to file an action for declaratory judgment. Where you can find more information Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for more comprehensive information. Find tax forms or publications by visiting IRS.gov/forms or calling 800-TAX-FORM (800-829-3676). If you have questions, you can call the person shown at the top of this letter. If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best time to call, and a copy of this letter. You may fax your documents to the fax number shown above, using either a fax machine or online fax service. Protect yourself when sending digital data by understanding the fax service's privacy and security policies. Keep the original letter for your records. Sincerely, Lynn A. Brinkley Director, Exempt Organizations Examinations Enclosures: Publication 1 Publication 594 Publication 892 cc: Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Exempt Organizations Examinations Date: December 20, 2022 Taxpayer ID number: Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: Address: Manager's contact information: Name: ID number: Telephone: Response due date: CERTIFIED MAIL -- Return Receipt Requested Dear ******: Why you're receiving this letter We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to revoke your tax-exempt status as an organization described in Internal Revenue Code (IRC) Section 501(c)(3). If you agree If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. Well issue a final adverse letter determining that you aren't an organization described in IRC Section 501(c)(3) for the periods above. After we issue the final adverse determination letter, we'll announce that your organization is no longer eligible to receive tax deductible contributions under IRC Section 170. If you disagree 1. Request a meeting or telephone conference with the manager shown at the top of this letter. 2. Send any information you want us to consider. 3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information. The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For your protest to be valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't apply now that we've issued this letter. 4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the IRS. If you're considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals. If we don't hear from you If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final adverse determination letter. Contacting the Taxpayer Advocate Office is a taxpayer right The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov, or call 877-777-4778. For additional information You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person shown at the top of this letter. Sincerely, Lynn Brinkley Director, Exempt Organizations Examinations Enclosures: Form 886-A Form 6018 Form 4621-A ISSUE: Whether ****** continues to qualify for exemption as an organization described in the Internal Revenue Code (IRC) Section 501(c)(3) because of no operation or activity during the years of examination, tax year ending ******, and ******. FACTS: ****** was incorporated under the laws of the State of ****** as a non-profit corporation on ****** for the purpose of the following: - The Corporation is organized for charitable and scientific purpose within the meaning purposes within the meaning of Code Section 501(c)(3). - The Corporation general purpose is to ****** United States. - The Corporation will work to educate youth and the general public on the ****** within the United States. On ******, with an effective date of ******, ****** exemption was retroactively reinstated and recognized to be exempt from federal income tax as an organization described in IRC Section 501(c)(3). During the initial telephone interview on ******, the organization's Secretary stated that the organization started in the State of ****** before moving the ****** to its present location ******. The organization was established to raise money for ******, raise money for the ******, affiliate with ****** organizations, youth education. The organization's ****** office works with ****** to educate people about ******. Per the Secretary, the economy has not been good to the organization since ****** because of the COVID-19 pandemic. Per the Exempt Organization's Secretary during the initial interview, the purpose of the organization is to ******, ****** and ******. The organization raises funds through grants, dinners, auctions, and other activities, to assist ******, ******, ******, and to ****** conduct and promote ******, ****** and ******. The organization is involved in other meaningful programs for the ****** and use funds for locally ******. The organization contributes to the ****** and ******. The organization ****** and ******, ****** and ******. Based on the organization's minutes of Board of Director's meetings on ******, and ******, the organization was planning to dissolve the exempt organization. A follow-up call made to the organization's Secretary on ******, confirmed the dissolution discussion stated on the Board of Director's minutes of meetings. The following are reasons why the organization has not been dissolved: - ****** before the Exempt Organization can start the dissolution process. - The ****** of the Exempt Organization - ****** to start the process - The ******, the ******. - The ******. - The process will start ******. The organization disagreed with proposed revocation for the fiscal year ending ******, stating that they conducted some exempt activities in that ******, and provided list of activities that were conducted. The review of the activities revealed that the organization's major activity was to raise funds ****** to carry out their exempt activities. For example, the organization ******. The ****** provided paper receipts and material to support ******. It also allowed the ****** to ******, etc. In the fiscal year ending ******, these are responses provided for the organization's detailed activities requested on Form 4564-Information Document Request (IDR): a. What specific activities you conducted. Response: Board of Directors meeting was held on ******. ****** along with ****** hosted the ******. $ ****** to ****** was received from the fundraiser b. Who participated in the activities. Response: ****** board members c. Where you conducted the activities. Response: d. When or how often the activities occurred. Response: ****** board meetings a year. Board members participate in the ****** e. What fees, if any, were charged and how you determined them. Response: No Fees f. What percentage of your time and resources you spent on the activities. Response: ****** event plus planning g. How the activities contributed to the furtherance of your 501(c)(3) exempt purpose. Response: Promote ****** events and ******. Due to the responses stated above, the Secretary of the organization was called on ******, to let him know that the responses provided pertaining to the organization's detailed activities for the fiscal year ending ******, will not the change the earlier proposed revocation of the organization's exemption, the date of the revocation might change to ******, instead of ****** on the earlier reports due to document emailed stating some activities conducted in the year ******. LAW: Internal Revenue Code (IRC) Section 501(c)(3) exempts from federal income tax organizations which are organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which 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. Treasury Regulation Section 1.501(c)(3)-1(d)(i) states that an organization may be exempt as an organization described in 501(c)(3) if it is organized and operated exclusively for one or more of the following purposes: religious, charitable, scientific, testing for public safety, literary, educational, or prevention of cruelty to children or animals. Treas.Reg. Section 1.501(c)(3)-1(a)(1) of the regulations provides that in order to be exempt as an organization described in section 501(c)(3) of the Code, the organization must be one that is both organized and operated exclusively for one or more of the purposes specified in that section. Treas.Reg. Section 1.501(c)(3)-1(c)(1) of the regulations provides that an organization will be regarded as "operated exclusively" for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in section 501(c)(3) Revenue Ruling 58-617, 1958-2 CB 260, (Jan. 01, 1958) Rulings and determinations letters granting exemption from federal income tax to an organization described in section 501(a) of the Internal Revenue Code of 1954, to which contributions are deductible by donors in computing their taxable income in the manner and to the extent provided by section 170 of the Code, are effective only so long as there are no material changes in the character of the organization, the purposes for which it was organized, or its methods of operation. Failure to comply with this requirement may result in serious consequences to the organization for the reason that the ruling or determination letter holding the organization exempt may be revoked retroactively to the date of the changes affecting its exempt status, depending upon the circumstances involved, and subject to the limitations on retroactivity of revocation found in section 503 of the Code. TAXPAYER'S POSITION: The organization's secretary declared that the organization has no operational or financial activities. Agent discussed revocation with the organization's secretary on ******, and ******. Per the discussion with the organization's Secretary on ******, the organization has ******, but the ******, ******. GOVERNMENT'S POSITION AND CONCLUSION: As demonstrated in Rev.Rul. 58-617, an organization's exempt status will remain in effect only so long as there are no material changes in the character of the organization, the purposes for which it was organized, or its methods of operation. In the case of ******, the organization has been inactive since the year ****** and there have been no exempt activities conducted. The majority of the organization's activities in the years under examination was to ****** for the ****** and to conduct ******such as ****** and ****** which are not considered exempt activities. Per the minutes of the Board of Director's, the organization is just waiting for ****** and ****** before dissolving the organization. The organization has not provided adequate records or substantiation to support that the organization was conducting any activities related to an exempt purpose during the tax year ending ******, and ******. As such, ****** fails to meet the operational requirements to continue its exemption status under IRC 501(c)(3). Therefore, the effective revocation date will be ******. If you agree to this conclusion, please sign the attached Form 6018. If you disagree, please submit a statement of your position.

Private Letter Ruling Number: 202417007 Internal Revenue Service January 29, 2024 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202417007 Release Date: 4/26/2024 Index Number: 2010.04-00, 9100.35-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:04 PLR-115300-23 Date: January 29, 2024 Dear ******: This letter responds to a letter dated July 3, 2023, and additional correspondence, submitted on behalf of Decedent's estate, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make an election. Decedent's estate is requesting to make an election under § 2010(c)(5)(A) of the Internal Revenue Code (a "portability" election) to allow a decedent's surviving spouse to take into account that decedent's deceased spousal unused exclusion ( DSUE) amount. The information submitted for consideration is summarized below. Decedent died on Date, survived by Spouse. It is represented that based on the value of Decedent's gross estate and taking into account any taxable gifts, Decedent's estate is not required under § 6018(a) to file an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return). It is further represented that there is an unused portion of Decedent's applicable exclusion amount and that a portability election is required to allow Spouse to take into account that amount (the "DSUE" amount). A portability election is made upon the timely filing of a complete and properly prepared estate tax return, unless the requirements for opting out are satisfied. See § 20.2010-2(a)(2) of the Estate Tax Regulations. For various reasons, an estate tax return was not timely filed and a portability election was not made. After discovery of this, Decedent's estate submitted this request for an extension of time under § 301.9100-3 to make a portability election. LAW AND ANALYSIS Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. Section 2010(a) provides that a credit of the applicable credit amount shall be allowed to the estate of every decedent against the tax imposed by § 2001. Section 2010(c)(1) provides that the applicable credit amount is the amount of the tentative tax that would be determined under § 2001(c) if the amount with respect to which such tentative tax is to be computed were equal to the applicable exclusion amount. On December 17, 2010, Congress amended § 2010(c), effective for estates of decedents dying and gifts made after December 31, 2010, to allow portability of a decedent's unused applicable exclusion amount between spouses. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111-312, § 303, 124 Stat. 3296, 3302 (2010). Section 2010(c)(2) provides that the applicable exclusion amount is the sum of the basic exclusion amount, and, in the case of a surviving spouse, the DSUE amount. Section 2010(c)(3) provides the basic exclusion amount available to the estate of every decedent, an amount to be adjusted for inflation annually after calendar year 2011. Section 2010(c)(4) defines the DSUE amount to mean the lesser of (A) the basic exclusion amount, or (B) the excess of -- (i) the applicable exclusion amount of the last deceased spouse of the surviving spouse, over (ii) the amount with respect to which the tentative tax is determined under § 2001(b)(1) on the estate of such deceased spouse. Section 2010(c)(5)(A) provides that a DSUE amount may not be taken into account by a surviving spouse under § 2010(c)(2) unless the executor of the estate of the deceased spouse files an estate tax return on which such amount is computed and makes an election on such return that such amount may be so taken into account. The election, once made, shall be irrevocable. No election may be made if such return is filed after the time prescribed by law (including extensions) for filing such return. Section 20.2010-2(a)(1) provides that the due date of an estate tax return required to elect portability is nine months after the decedent's date of death or the last day of the period covered by an extension (if an extension of time for filing has been obtained). Further, an extension of time under § 301.9100-3 to make a portability election may be granted in the case of an estate that is not required to file an estate tax return under § 6018(a), as determined solely based on the value of the gross estate and any adjusted taxable gifts (and without regard to § 20.2010-2(a)). Under § 301.9100-1(c), the Commissioner has discretion to grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time to make an election whose due date is prescribed by a regulation (and not expressly provided by statute). Requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. In this case, based on the representation as to the value of the gross estate and any adjusted taxable gifts, the time for filing the portability election is fixed by the regulations. Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Decedent's estate to elect portability, provided Decedent's estate establishes it acted reasonably and in good faith, the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government. Information, affidavits, and representations submitted on behalf of Decedent's estate explain the circumstances that resulted in the failure to timely file a valid election. Based solely on the information submitted and the representations made, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Therefore, we grant an extension of time of 120 days from the date of this letter to make the portability election. The election should be made by filing a complete and properly prepared Form 70 6 and a copy of this letter, within 120 days from the date of this letter, with the Service Center at the following address: Department of the Treasury, Internal Revenue Service Center, Kansas City, MO 64999. For purposes of electing portability, a Form 706 filed by Decedent's estate within 120 days from the date of this letter will be considered to be timely filed. If it is later determined that, based on the value of the gross estate and taking into account any taxable gifts, Decedent's estate is required to file an estate tax return pursuant to § 6018(a), the Commissioner is without authority under § 301.9100-3 to grant an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void. See § 20.2010-2(a)(1). We neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In particular, we express no opinion as to the DSUE amount to be potentially taken into account by Spouse. Any claimed DSUE amount will be included in the applicable exclusion amount of Spouse only to the extent that Spouse can substantiate such amount and will be subject to determination by the Director's office upon audit of relevant Federal gift or estate tax returns. See § 20.2010-3(c)(1) and (d). The rulings contained in this letter are based upon information and representations submitted by the Taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. This ruling is directed only to the Taxpayer requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, we have sent a copy of this letter to your authorized representative. Sincerely, Associate Chief Counsel (Passthroughs & Special Industries) Leslie H. Finlow By: Leslie H. Finlow Senior Technician Reviewer, Branch 4 Office of the Associate Chief Counsel (Passthroughs & Special Industries) Enclosure Copy for § 6110 purposes cc:

Private Letter Ruling Number: 202217006 Internal Revenue Service February 3, 2022 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202217006 Release Date: 4/29/2022 Index Number: 2010.04-00, 9100.35-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:04 PLR-121491-21 Date: February 03, 2022 Dear ******** This letter responds to a letter dated October 6, 2021, and additional correspondence, submitted on behalf of Decedent's estate, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make an election. Decedent's estate is requesting to make an election under § 2010(c)(5)(A) of the Internal Revenue Code (a "portability" election)) to allow a decedent's surviving spouse to take into account that decedent's deceased spousal unused exclusion (DSUE) amount. The information submitted for consideration is summarized below. Decedent died on Date, survived by Spouse. It is represented that based on the value of Decedent's gross estate and taking into account any taxable gifts, Decedent's estate is not required under § 6018(a) to file an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return). It is further represented that there is an unused portion of Decedent's applicable exclusion amount and that a portability election is required to allow Spouse to take into account that amount (the "DSUE" amount). A portability election is made upon the timely filing of a complete and properly prepared estate tax return, unless the requirements for opting out are satisfied. See § 20.2010-2(a)(2) of the Estate Tax Regulations. For various reasons, an estate tax return was not timely filed and a portability election was not made. After discovery of this, Decedent's estate submitted this request for an extension of time under § 301.9100-3 to make a portability election. LAW AND ANALYSIS Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. Section 2010(a) provides that a credit of the applicable credit amount shall be allowed to the estate of every decedent against the tax imposed by § 2001. Section 2010(c)(1) provides that the applicable credit amount is the amount of the tentative tax that would be determined under § 2001(c) if the amount with respect to which such tentative tax is to be computed were equal to the applicable exclusion amount. On December 17, 2010, Congress amended § 2010(c), effective for estates of decedents dying and gifts made after December 31, 2010, to allow portability of a decedent's unused applicable exclusion amount between spouses. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111-312, § 303, 124 Stat. 3296, 3302 (2010). Section 2010(c)(2) provides that the applicable exclusion amount is the sum of the basic exclusion amount, and, in the case of a surviving spouse, the DSUE amount. Section 2010(c)(3) provides the basic exclusion amount available to the estate of every decedent, an amount to be adjusted for inflation annually after calendar year 2011. Section 2010(c)(4) defines the DSUE amount to mean the lesser of (A) the basic exclusion amount, or (B) the excess of -- (i) the applicable exclusion amount of the last deceased spouse of the surviving spouse, over (ii) the amount with respect to which the tentative tax is determined under § 2001(b)(1) on the estate of such deceased spouse. Section 2010(c)(5)(A) provides that a DSUE amount may not be taken into account by a surviving spouse under § 2010(c)(2) unless the executor of the estate of the deceased spouse files an estate tax return on which such amount is computed and makes an election on such return that such amount may be so taken into account. The election, once made, shall be irrevocable. No election may be made if such return is filed after the time prescribed by law (including extensions) for filing such return. Section 20.2010-2(a)(1) provides that the due date of an estate tax return required to elect portability is nine months after the decedent's date of death or the last day of the period covered by an extension (if an extension of time for filing has been obtained). Further, an extension of time under § 301.9100-3 to make a portability election may be granted in the case of an estate that is not required to file an estate tax return under § 6018(a), as determined solely based on the value of the gross estate and any adjusted taxable gifts (and without regard to § 20.2010-2(a)). Under § 301.9100-1(c), the Commissioner has discretion to grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time to make an election whose due date is prescribed by a regulation (and not expressly provided by statute). Requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. In this case, based on the representation as to the value of the gross estate and any adjusted taxable gifts, the time for filing the portability election is fixed by the regulations. Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Decedent's estate to elect portability, provided Decedent's estate establishes it acted reasonably and in good faith, the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government. Information, affidavits, and representations submitted on behalf of Decedent's estate explain the circumstances that resulted in the failure to timely file a valid election. Based solely on the information submitted and the representations made, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Therefore, we grant an extension of time of 120 days from the date of this letter to make the portability election. The election should be made by filing a complete and properly prepared Form 706 and a copy of this letter, within 120 days from the date of this letter, with the Service Center at the following address: Department of the Treasury, Internal Revenue Service Center, Kansas City, MO 64999. For purposes of electing portability, a Form 706 filed by Decedent's estate within 120 days from the date of this letter will be considered to be timely filed. If it is later determined that, based on the value of the gross estate and taking into account any taxable gifts, Decedent's estate is required to file an estate tax return pursuant to § 6018(a), the Commissioner is without authority under § 301.9100-3 to grant an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void. See § 20.2010-2(a)(1). We neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In particular, we express no opinion as to the DSUE amount to be potentially taken into account by Spouse. Any claimed DSUE amount will be included in the applicable exclusion amount of Spouse only to the extent that Spouse can substantiate such amount and will be subject to determination by the Director's office upon audit of relevant Federal gift or estate tax returns. See § 20.2010-3(c)(1) and (d). The rulings contained in this letter are based upon information and representations submitted by the Taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. This ruling is directed only to the Taxpayer requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, we have sent a copy of this letter to your authorized representative. Sincerely, Associate Chief Counsel (Passthroughs & Special Industries) Leslie H. Finlow By: ______________________ Leslie H. Finlow Senior Technician Reviewer, Branch 4 Office of the Associate Chief Counsel (Passthroughs & Special Industries) Enclosure Copy for § 6110 purposes cc:

Internal Revenue Service - Fact Sheet FS-2020-10 IRS payment options July 2020 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 IRS payment options FS-2020-10, July 2020 Taxpayers have a variety of options to consider when paying federal taxes. This year, in response to the COVID-19 pandemic, the filing deadline and tax payment due date was postponed from April 15 to July 15, 2020. A list of forms due July 15 is on the Coronavirus Tax Relief: Filing and Payment Deadlines page. Electronic payment options are the optimal way to make a tax payment. All payment options are available at IRS.gov/payments. The IRS reminds taxpayers filing Form 1040 series returns that they must file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return (PDF), by July 15 to obtain the automatic extension to Oct. 15. The extension provides additional time to file the tax return - it is not an extension to pay any taxes due. Those who owe a 2019 income tax liability, as well as estimated tax for 2020, must make two separate payments on or by July 15, 2020.One for their 2019 income tax liability and one for their 2020 estimated tax payments. The two estimated tax payments can be combined into a single payment. Automatic extension of time to file Taxpayers who need more time to prepare and file their federal tax return can apply for an extension of time to file until Oct. 15. To get an extension, taxpayers must estimate their tax liability on the extension form and pay any amount due. Individual taxpayers have several easy ways to file Form 4868 (PDF) by the July 15 deadline. Tax software providers have an electronic version available. In addition, all taxpayers, regardless of income, can use IRS Free File to electronically request an automatic tax-filing extension. State deadlines may differ The IRS also reminds taxpayers to check their state filing and payment deadlines, which may differ from the federal July 15 deadline. A list of state tax division websites is available through the Federation of Tax Administrators. Paying electronically - Individuals - Taxpayers can use Direct Pay for two payments each day. Direct Pay allows taxpayers to pay online directly from a checking or savings account for free, and to schedule payments up to 365 days in advance. They will receive an email confirmation of their payments. - Businesses - For businesses or those making large payments, the best payment option is the Electronic Federal Tax Payment System, which allows up to five payments per day. Enrollment is required. Taxpayers can schedule payments up to 365 days in advance and opt in to receive email notifications about their payments. Additional electronic payment options - Taxpayers can pay when they file electronically using tax software online. If using a tax preparer, ask the preparer to make the tax payment through an electronic funds withdrawal from a bank account. - Taxpayers can choose to pay with a credit card, debit card or digital wallet option through a payment processor. Processing fees apply. No part of the card service fee goes to the IRS. - The IRS2Go app provides mobile-friendly payment options, including Direct Pay and Payment Provider payments on mobile devices Paying by check, money order or cashier's check - 2019 Tax Liability - If paying a 2019 income tax liability without an accompanying 2019 tax return, taxpayers paying by check, money order or cashier's check should include Form 1040-V, Payment Voucher with the payment. Mail the payment to the correct address by state or by form. Do not send cash through the mail. Indicate on the check memo line that this is a 2019 income tax payment. - For those paying when filing their 2019 income tax return, do not staple or paperclip the payment to the return. For more information, go to Pay by Check or Money Order on IRS.gov. - 2020 Estimated Tax Payments - Taxpayers making their 2020 estimated tax payment by check, money order or cashier's check should include the appropriate Form 1040-ES payment voucher. Indicate on the check memo line that this is a 2020 estimated tax payment. Paying by cash - Individuals and businesses, preferring to pay in cash, can do so at a participating retail store. Select the cash option in the "Other Ways You Can Pay" section and follow the instructions. There is a $1,000 payment limit per day and a $3.99 fee per payment. Payment options for those who cannot pay in full For taxpayers who cannot pay in full, the IRS encourages them to pay what they can and consider a variety of payment options available for the remaining balance. Act as quickly as possible. Tax bills accumulate more interest and fees the longer they remain unpaid. Most taxpayers have the following payment options - Online Payment Agreement - These are available for individuals who owe $50,000 or less in combined income tax, penalties and interest and businesses that owe $25,000 or less in combined payroll tax, penalties and interest and have filed all tax returns. Most taxpayers qualify for this option, and an Online Payment Agreement can usually be set up in a matter of minutes on IRS.gov/opa. Online Payment Agreements are available Monday - Friday, 6 a.m. to 12:30 a.m.; Saturday, 6 a.m. to 10 p.m.; Sunday, 6 p.m. to midnight. All times are Eastern time. Certain fees may apply. - Installment Agreement - Taxpayers who do not qualify to use the online payment agreement option, or choose not to use it, can also apply for a payment plan by phone, or by mail by submitting Form 9465, Installment Agreement Request. Installment agreements paid by direct deposit from a bank account or a payroll deduction will help taxpayers avoid default on their agreements. It also reduces the burden of mailing payments and saves postage costs. Certain fees may apply. - Temporarily Delaying Collection - Taxpayers can contact the IRS to request a temporary delay of the collection process. If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer's financial condition improves. Penalties and interest continue to accrue until the full amount is paid. - Offer in Compromise - Certain taxpayers qualify to settle their tax bill for less than the amount they owe by submitting an offer in compromise. To help determine eligibility, use the Offer in Compromise Pre-Qualifier tool. Though interest and late-payment penalties continue to accrue on any unpaid taxes after July 15, the failure to pay tax penalty rate is cut in half while an installment agreement is in effect. The usual penalty rate of 0.5% per month is reduced to 0.25%. For the calendar quarter beginning July 1, 2020, the interest rate for underpayment is 3%. In addition, taxpayers can consider other options for payment, including getting a loan to pay the amount due. In many cases, loan costs may be lower than the combination of interest and penalties the IRS must charge under federal law. Reviewing federal tax information online Individual taxpayers can go to IRS.gov/account to securely access information about their federal tax account. They can view the amount they owe, access their tax records online, review their payment history and view key tax return information for the most recent tax return as originally filed. Check tax withholding The IRS urges all taxpayers to check their withholding for 2020, especially those who made withholding adjustments in 2019 or had a major life change. Those most at risk of having too little tax withheld from their pay include taxpayers who itemized in the past but now take the increased standard deduction as well as two-wage-earner households, employees with non-wage sources of income, and those with complex tax situations. To help taxpayers allocate the appropriate withholding to their paychecks throughout the year in 2020, an updated version of the agency's online Tax Withholding Estimator is now available on IRS.gov. It's never too early to check withholding. Online tools The IRS urges taxpayers to take advantage of the many tools and other resources available on IRS.gov, especially with extremely limited phone services and face-to-face service due to COVID 19.

Private Letter Ruling Number 202424018 Internal Revenue Service March 18, 2024 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202424018 Release Date: 6/14/2024 Index Number: 2010.04-00, 9100.35-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:04 PLR-121458-23 Date: March 18, 2024 Dear ******: This letter responds to a letter dated October 18, 2023, and additional correspondence, submitted on behalf of Decedent's estate, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make an election. Decedent's estate is requesting to make an election under § 2010(c)(5)(A) of the Internal Revenue Code (a "portability" election) to allow a decedent's surviving spouse to take into account that decedent's deceased spousal unused exclusion (DSUE) amount. The information submitted for consideration is summarized below. Decedent died on Date, survived by Spouse. It is represented that based on the value of Decedent's gross estate and taking into account any taxable gifts, Decedent's estate is not required under § 6018(a) to file an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return). It is further represented that there is an unused portion of Decedent's applicable exclusion amount and that a portability election is required to allow Spouse to take into account that amount (the "DSUE" amount). A portability election is made upon the timely filing of a complete and properly prepared estate tax return, unless the requirements for opting out are satisfied. See § 20.2010-2(a)(2) of the Estate Tax Regulations. For various reasons, an estate tax return was not timely filed and a portability election was not made. After discovery of this, Decedent's estate submitted this request for an extension of time under § 301.9100-3 to make a portability election. LAW AND ANALYSIS Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. Section 2010(a) provides that a credit of the applicable credit amount shall be allowed to the estate of every decedent against the tax imposed by § 2001. Section 2010(c)(1) provides that the applicable credit amount is the amount of the tentative tax that would be determined under § 2001(c) if the amount with respect to which such tentative tax is to be computed were equal to the applicable exclusion amount. On December 17, 2010, Congress amended § 2010(c), effective for estates of decedents dying and gifts made after December 31, 2010, to allow portability of a decedent's unused applicable exclusion amount between spouses. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111-312, § 303, 124 Stat. 3296, 3302 (2010). Section 2010(c)(2) provides that the applicable exclusion amount is the sum of the basic exclusion amount, and, in the case of a surviving spouse, the DSUE amount. Section 2010(c)(3) provides the basic exclusion amount available to the estate of every decedent, an amount to be adjusted for inflation annually after calendar year 2011. Section 2010(c)(4) defines the DSUE amount to mean the lesser of (A) the basic exclusion amount, or (B) the excess of -- (i) the applicable exclusion amount of the last deceased spouse of the surviving spouse, over (ii) the amount with respect to which the tentative tax is determined under § 2001(b)(1) on the estate of such deceased spouse. Section 2010(c)(5)(A) provides that a DSUE amount may not be taken into account by a surviving spouse under § 2010(c)(2) unless the executor of the estate of the deceased spouse files an estate tax return on which such amount is computed and makes an election on such return that such amount may be so taken into account. The election, once made, shall be irrevocable. No election may be made if such return is filed after the time prescribed by law (including extensions) for filing such return. Section 20.2010-2(a)(1) provides that the due date of an estate tax return required to elect portability is nine months after the decedent's date of death or the last day of the period covered by an extension (if an extension of time for filing has been obtained). Further, an extension of time under § 301.9100-3 to make a portability election may be granted in the case of an estate that is not required to file an estate tax return under § 6018(a), as determined solely based on the value of the gross estate and any adjusted taxable gifts (and without regard to § 20.2010-2(a)). Under § 301.9100-1(c), the Commissioner has discretion to grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time to make an election whose due date is prescribed by a regulation (and not expressly provided by statute). Requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. In this case, based on the representation as to the value of the gross estate and any adjusted taxable gifts, the time for filing the portability election is fixed by the regulations. Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Decedent's estate to elect portability, provided Decedent's estate establishes it acted reasonably and in good faith, the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government. Information, affidavits, and representations submitted on behalf of Decedent's estate explain the circumstances that resulted in the failure to timely file a valid election. Based solely on the information submitted and the representations made, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Therefore, we grant an extension of time of 120 days from the date of this letter to make the portability election. The election should be made by filing a complete and properly prepared Form 706 and a copy of this letter, within 120 days from the date of this letter, with the Service Center at the following address: Department of the Treasury, Internal Revenue Service Center, Kansas City, MO 64999. For purposes of electing portability, a Form 706 filed by Decedent's estate within 120 days from the date of this letter will be considered to be timely filed. If it is later determined that, based on the value of the gross estate and taking into account any taxable gifts, Decedent's estate is required to file an estate tax return pursuant to § 6018(a), the Commissioner is without authority under § 301.9100-3 to grant an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void. See § 20.2010-2(a)(1). We neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In particular, we express no opinion as to the DSUE amount to be potentially taken into account by Spouse. Any claimed DSUE amount will be included in the applicable exclusion amount of Spouse only to the extent that Spouse can substantiate such amount and will be subject to determination by the Director's office upon audit of relevant Federal gift or estate tax returns. See § 20.2010-3(c)(1) and (d). The rulings contained in this letter are based upon information and representations submitted by the Taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. This ruling is directed only to the Taxpayer requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, we have sent a copy of this letter to your authorized representative. Sincerely, Associate Chief Counsel (Passthroughs & Special Industries) Karlene M. Lesho By: _____________________ Karlene M. Lesho Chief, Branch 4 Office of the Associate Chief Counsel (Passthroughs & Special Industries) Enclosure Copy for § 6110 purposes cc:

Private Letter Ruling Number: 202324012 Internal Revenue Service March 22, 2023 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities PO Box 2508 Cincinnati, OH 45201 Date: 03/22/2023 Employer ID number: Tax years: Person to contact: Number: 202324012 Release Date: 6/16/2023 UIL: 501.00-03, 501.03-00, 501.35-00 Dear ******: This letter is our final determination that you don't qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3). Recently, we sent you a proposed adverse determination in response to your application. The proposed adverse determination explained the facts, law, and basis for our conclusion, and it gave you 30 days to file a protest. Because we didn't receive a protest within the required 30 days, the proposed determination is now final. Because you don't qualify as a tax-exempt organization under IRC Section 501(c)(3), donors generally can't deduct contributions to you under IRC Section 170. We may notify the appropriate state officials of our determination, as required by IRC Section 6104(c), by sending them a copy of this final letter along with the proposed determination letter. You must file the federal income tax forms for the tax years shown above within 30 days from the date of this letter unless you request an extension of time to file. For further instructions, forms, and information, visit www.irs.gov. We'll make this final adverse determination letter and the proposed adverse determination letter available for public inspection after deleting certain identifying information, as required by IRC Section 6110. Read the enclosed Letter 437, Notice of Intention to Disclose - Rulings, and review the two attached letters that show our proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Letter 437 on how to notify us. If you agree with our deletions, you don't need to take any further action. If you have questions about this letter, you can call the contact person shown above. If you have questions about your federal income tax status and responsibilities, call our customer service number at 800-829-1040 (TTY 800-829-4933 for deaf or hard of hearing) or customer service for businesses at 800-829-4933. We sent a copy of this letter to your representative as indicated in your power of attorney. Sincerely, Stephen A. Martin Director, Exempt Organizations Rulings and Agreements Enclosures: Letter 437 Redacted Letter 4034 Redacted Letter 4038 cc: Department of the Treasury Internal Revenue Service PO Box 2508 Cincinnati, OH 45201 Date: February 1, 2023 Employer ID number: Person to contact: Name: ID number: Telephone: Fax: UIL: 501.00-03 501.03-00 501.35-00 Legend: B = state C = date D = software E = currency f percent = number 1 g percent = number 2 h dollars = amount J = number 2 K = platform L = company 1 M = company 2 N = company 3 Dear ******: We considered your application for recognition of exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a). We determined that you don't qualify for exemption under IRC Section 501(c)(3). This letter explains the reasons for our conclusion. Please keep it for your records. Issues Do you qualify for exemption under IRC Section 501(c)(3)? No, for the reasons stated below. Facts You were formed as a corporation on C, in B. According to your amended and restated articles of incorporation your purpose is exclusively charitable, educational, or scientific within the meaning of IRC Section 501(c)(3). You claim that your mission is to benefit and support the broader community that aims to deliver the promise of K, where every internet user can participate in the value they create because they have ****** of their ****** and ******. You plan on creating ****** to the ****** based upon the D protocol. The D protocol is a ****** linked to E by its ****** that spans the ******, called ******. This enables D to leverage E's security and enables D apps to use E's state, despite being a separate ******. D powers ****** apps that run on the D ****** instead of on a ******, enabling new use cases that couldn't exist before. You claim in your application that your activities consist of approximately f percent research and maintenance of public infrastructure, and g percent education and grants. Like E, D is a ******. There are many individuals and companies from all over the world that contribute to and build on D. The development is open source and community driven through open messaging platforms L and M. You create new avenues for innovation through funding research, ecosystem development, and developer incentives. You made a capital commitment of h dollars to a ****** company which employs a ****** and has a closely aligned mission, developing K, a ****** and ******. With respect to the time you spend on research, you claim: You may support, design, conduct and publish research, potentially in collaboration with academics and institutions, or collaborate with institutions, organizations, or individuals already conducting research, related to a ******, in particular the D protocol. All results of this research and/or development of related technology such as software or other innovations will be made available to the public gratis. Research results related to software will be made available through ****** publication, wherein all ****** will be made available to the general public under ****** software licenses permitting ****** n and ****** of the ******. One of the ways that you support research is by granting funds to independent researchers, contributors, and collaborators to help build a better ****** through research and development. According to your grant agreements, a grant recipient's use of a D Development Grant is entirely outside of your control or direction. Your grant agreements also state that it is intended that benefits may accrue to your principals through the use of the D network that has been enriched by the developments you have funded. Your grant agreements provide samples of the projects that you have funded. These projects include an application that acts as "your home on D." This application allows a user to track the "meta" data of D users as well as keep track of their own transactions. In the grant application the funded project is referred to as ******" for D, providing a user with searchable and reviewable information regarding the D ****** Another grant was awarded for a ****** application allowing D users to fund ****** organizations through E and for such organizations to manage their ******. A ****** grant was awarded to create a "peer-to-peer marketplace for services" based on the D protocol. Finally, you also provided a grant agreement to create a program to "protect [D] users from [phishing], identity theft and other scam activities." With respect to maintenance of public infrastructure, you claim: D is a ****** designed to work as a public utility to enable the development of smart contracts on E. D is powered by open networks (anyone with an Internet-connected computer can participate) that ****** internet. These networks distribute to all participants a ****** transactions. No party on the network acts as a ****** or otherwise has ****** to ****** or ****** the ****** of any participant. With respect to education, you claim: You operate a website pertaining to a ******, D, the computing networks that power it, and research and technologies that can be integrated into the network. You educate the public regarding D through a variety of potential methods, including dissemination or publication of guides, manuals, and blogs, among other possible resources. These materials are free on your website. These materials provide education on a variety of topics, including the basics of D, the role and importance of D in society, future developments in D, and the need for ongoing development. You also hold regular forums for discussing and solving coding problems to help further the development of D technology. You are the home for governance of D's ****** technology, serving as neutral ground for various parties to come together and reach consensus on the path forward. These activities will be conducted mostly virtually by your staff, volunteers, and grantees. You also offer free consulting services to other ****** to help them make the best use of the tech available to them. You received a ****** of J, D ****** (******) from N, a ****** entity and your main contributor. N acknowledges, in its contribution agreement with you, that it expects to receive economic benefits from this transfer. In the contribution agreement it states in part, "Contributor believes, based upon extensive experience in the field of ****** development, that transferring the Contributed Assets to the Assignee will bring economic benefits both to itself and to other persons and entities, and Contributor further believes that, although it will not receive any specific quantifiable services from the Assignee on account of the contribution nor will it be a customer of the Assignee, the ****** benefits it will receive from the contribution will be commensurate with the value of the Contributed Assets transferred to the Assignee." The terms of the contribution agreement place restrictions on the sale and/or transfer of ****** for ****** years for the benefit of D holders and other ******. Law IRC Section 501(a) provides for the exemption from federal income tax for organizations described in Section 501(c)(3). Such organizations are recognized if they are organized and operated exclusively for religious, charitable, educational purposes, or other exempt purposes. IRC Section 501(c)(3) provides for exemption from federal income tax of organizations organized and operated exclusively for charitable, educational, scientific, and other purposes, provided that no part of the net earnings inures to the benefit of any private shareholder or individual. Treasury Regulation Section 1.501(a)-1(c) defines a private shareholder or individual as one having a personal and private interest in the activities of the organization. Treas.Reg. Section 1.501(c)(3)-1(a)(1) provides that, in order to be exempt as an organization described in IRC Section 501(c)(3), an organization must be both organized and operated exclusively for one or more of the purposes specified in IRC Section 501(c)(3). If an organization fails to meet either the organizational or operational test, it is not exempt. Treas.Reg. Section 1.501(c)(3)-1(c)(1) provides that an organization will be regarded as "operated exclusively" for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in IRC Section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose. Treas.Reg. Section 1.501(c)(3)-1(d)(1)(ii) states that an organization is not organized or operated exclusively for exempt purposes unless it serves a public rather than a private interest. Treas.Reg. Section 1.501(c)(3)-1(d)(2) provides that the term "charitable" is used in IRC Section 501(c)(3) in its generally accepted legal sense and includes, among other things, lessening the burdens of government, relief of the poor and distressed or of the underprivileged, advancement of education or science, erection or maintenance of public buildings, monuments, or works, and promotion of social welfare by organizations designed to accomplish any of the above purposes, or in part to defend human and civil rights secured by law. Treas.Reg. Section 1.501(c)(3)-1(d)(3) defines educational as the instruction or training of the individual for the purpose of improving or developing their capabilities, or the instruction of the public on subjects useful to the individual and beneficial to the community Treas.Reg. Section 1.501(c)(3)-1(d)(5) provides that a scientific organization must be organized and operated in the public interest. Therefore, the term scientific, as used in IRC Section 501(c)(3), includes the carrying on of scientific research in the public interest. Research when taken alone is a word with various meanings; it is not synonymous with scientific; and the nature of particular research depends upon the purpose which it serves. For research to be scientific, within the meaning of Section 501(c), it must be carried on in furtherance of a scientific purpose. Scientific research does not include activities of a type ordinarily carried on as an incident to commercial or industrial operations, as, for example, the ordinary testing or inspection of materials or products or the designing or construction of equipment, buildings, etc. In Rev.Rul. 65-1, 1965-1 C.B. 226, an organization that made research grants for the development of new machinery to be used commercial operations and retained all the rights to the new developments, did not qualify for exemption under IRC Section 501(c)(3). Rev.Rul. 65-2, 1965-1 C.B. 227, holds that a foundation operated exclusively to teach children a sport by holding clinics conducted by qualified instructors in schools, playgrounds, and parks and by providing free instruction, equipment, and facilities qualifies for exemption under IRC Section 501(c)(3). Rev.Rul. 66-179, 1966-1 C.B. 139, provides illustrations under which garden clubs may establish exemption as charitable or educational organizations, civic organizations, horticultural organizations, or as social clubs. Rev.Rul. 66-255, 1966-2 C.B. 210, holds that a nonprofit organization which through meetings, films, forums, and publications educates the public in a particular method of painless childbirth is entitled to exemption. In Rev.Rul. 66-358, 1966-2 C.B. 218, a corporation contributed funds and realty adjacent to its plant reception area to an organization exempt from Federal income tax under IRC Section 501(c)(3). The exempt organization used the funds and realty to establish a park for the use of the general public. Rev.Rul. 68-373, 1968-2 C.B. 206, held that an organization which primarily engaged in testing drugs for commercial pharmaceutical companies did not qualify for exemption under IRC Section 501(c)(3). Rev.Rul. 68-489, 1968-2 C.B. 210, states that, "An organization will not jeopardize its exemption under IRC Section 501(c)(3), even though it distributes funds to nonexempt organizations, provided it retains control and discretion over use of the funds for Section 501(c)(3) purposes." Rev.Rul. 70-79, 1970-1 C.B. 127, describes an organization that assisted local governments of a metropolitan area by researching solutions for common regional problems, such as water and air pollution, waste disposal, water supply, and transportation, that was operated exclusively for the charitable purpose of relieving the burden of government. The chief elected officers of the local jurisdictions constituted the membership of the organization. Receipts included assessments on the local jurisdictions. The interrelationship between the local governments and the organization indicates the existence of a burden of government in that the organization's membership was composed totally of government officials; persons appointed by the local governments involved. The funding of the organization from the government assessments indicates a burden of government. Developing regional plans and policies for regional problems is an activity normally conducted by governmental units and indicates a burden of the government. Rev.Rul. 70-186, 1970-1 C.B. 128, holds that an organization formed to preserve a lake used as a public recreation facility by treating the water in the lake and otherwise improving its condition for recreational purposes is a charitable organization within the meaning of IRC section 501(c)(3). Rev.Rul. 71-29, 1971-1 C.B. 150, states that a grant to a city transit authority for the purpose of maintaining a mass transportation system qualifies as a charitable disbursement in furtherance of an organization's exempt purposes. Rev.Rul. 85-1, 1985-1 C.B. 177, states that an activity is a burden of government only if there is an objective manifestation by a governmental unit that it considers the activities of the organization to be its burden. it was through participation of government officials on the governing body of the charity, the provision of funding, and the actual use of the organization's services. Rev.Rul. 85-2, 1985-2 C.B. 178, states that an organization is lessening the burdens of government if its activities are activities that a governmental unit considers to be its burdens, and the activities lessen such governmental burden. The organization must demonstrate that a governmental unit considers the organization to be acting on the government's behalf, thereby actually freeing up government assets -- human, material, and fiscal -- that would otherwise have to be devoted to the activity. This determination is based on facts and circumstances. The fact that a government sometimes takes part in an activity will not be enough to meet the test, nor will mere expressions of support from officials. In Better Business Bureau of Washington D.C., Inc. v. United States, 326 U.S. 279 (1945), the Supreme Court held that the presence of a single non-exempt purpose, if substantial in nature, will destroy the exemption regardless of the number or importance of truly exempt purposes. The Court found that the trade association had an "underlying commercial motive" that distinguished its educational program from that carried out by a university. In Universal Oil Products. Co. v. Campbell, 181 F.2d 451, 464 (7th Cir. 1950), it was found that a business corporation engaging in development of refining processes was not organized nor operated exclusively for scientific or educational purposes. The court quoted another case in nothing that: "It did not operate on the basis of science for the sake of science. It was science for the sake of business. The fact that scientific methods were used by the petitioner does not alter the case. Most business today uses some kind of scientific processes or methods." In Retired Teachers Legal Defense Fund v. Commissioner, 78 T.C. 280, 286 (1982), the tax court defined private benefit to include any "advantage; profit; fruit; privilege; gain or interest." In Columbia Park & Recreation Association, Inc. v. Commissioner, 88 T.C. 1 (1987), aff'd without published opinion, 838 F.2d 465 (4th Cir. 1988), the petitioner argued that it had a charitable purpose to lessen the burdens of government. According to the petitioner, it provides a wide range of services and facilities to the residents of a large private real estate development and that if it did not provide these services and facilities the local or state government would have to provide them. The Tax Court, in upholding an IRS ruling that the petitioner is not organized and operated exclusively for exempt purposes within the meaning of IRC Section 501(c)(3), rejected the petitioner's argument, saying that the mere assertion that, in petitioner's absence, government would have to assume the activities in question does not mean the activities are, in fact, the burdens of government. Rather, the court said, the organization must demonstrate that the government accepts the activities conducted by the petitioner as its responsibility and recognizes petitioner as acting on its behalf. In addition, the organization must further establish that its activities lessen the burden of the state or local government. In Jacobsen v Katzer, 535 F.3d 1373 (Fed.Cir. 2008), the court held that a software owner cannot bring infringement action as to an open source software unless the defendant acts in a manner contrary to the open source license terms. Application of law IRC Section 501(a) provides for the exemption from federal income tax for organizations described in Section 501(c)(3). As stated in Treas.Reg. Section 1.501(c)(3)-1(a)(1), an organization must be both organized and operated exclusively for purposes described in Section 501(c)(3). You do not meet the requirements under Section 501(c)(3) because you fail the operational test as explained below. You have not demonstrated that you are operated exclusively for exempt purposes within the meaning of IRC Section 501(c)(3). A substantial part of your activities are in furtherance of creating a ******, which is not an exempt purpose; therefore, you are not operated exclusively for exempt purposes. In Better Business Bureau of Washington, D.C. Inc. v. United States., 326 U.S. 279 (1945), the Supreme Court found that even though an organization has some exempt activities, if there is one activity that is substantial and does not further an exempt purpose, the organization will not qualify for exemption. A ****** that is open source and community driven through open messaging platforms L and M does not serve an exempt purpose. As developing and maintaining a ****** is your primary activity, it is a substantial activity. Accordingly, you have a substantial nonexempt purpose, and are not exempt under IRC Section 501(c)(3). The Creation of a ****** Does Not Further Scientific Purposes. You do not qualify for tax-exemption as a scientific research organization for your activities related to the research and development of a ******. To qualify as an IRC Section 501(c)(3) scientific research organization, an organization must (1) engage in scientific research; (2) the scientific research must not include activities that are incident to commercial or industrial operations; and (3) the scientific research must be undertaken in the public's interest. See Treas.Reg. Section 1.501(c)(3)-1(d)(5). Your self-described activities of research and development of technology such as software or other innovations are like the two organizations described in Rev.Rul. 65-1 and Rev.Rul. 68-373, in that you are engaging in, or otherwise funding, routine software and technology design, development, testing, and distribution, similar to that which a commercial software company engages in to create new products or adapt their products to new uses to be competitive in the market. You are also like the organization in Universal Oil Products. Co. v. Campbell. The organization's main objective in that case was to develop and acquire oil refining processes. The court found that such activities did not constitute scientific research. The court indicated that the organization's activities were "science for the sake of business." Here your activities are for the sake of business in that what you claim to be scientific research stands to benefit an entire ****** industry that develops ****** technologies. Your activity is of a type ordinarily carried on as an incident to commercial or industrial operations. A ****** involves open-source software intended to replace ****** software created by ****** entities. A ****** also involves ****** software intended to replace "******" software created by ****** entities. The grant agreements that you provided indicate that your funds will be used to create software applications that replicate ****** programs. One grant creates a ******" for D. Another grant replicates sites like ****** or ****** creating a "peer-to-peer marketplace for services." And a third guards the user from malicious internet activity. The fact that the source codes for these programs will be open to the public (at least in their beta formats) does not remove such activity from being incidental to commercial operations. Therefore, even if your research is made available to the public, you have not demonstrated that you conduct scientific research because your activities are an incident to commercial operations. The Creation of a ****** Does Not Further Charitable Purposes. You have not shown that your activities further a charitable purpose because you do not limit your services to a specific charitable class. You claim that a ****** will benefit the general public; but the general public is not a defined charitable class, as it includes all persons, not just those with charitable characteristics, such as the poor and distressed. Moreover, whatever public good you claim your ****** provides, it is not the type of public benefit contemplated by IRC Section 501(c)(3). Not all organizations which incidentally enhance the public good will be classified as "public" organizations within Section 501(c)(3). For example, commerce clearly provides an economic benefit to the community, but Treas.Reg. Section 1.501(c)(3)-1(c)(1) limits the kinds and amounts of commerce exempt organizations may conduct. It is significant that Congress enacted special exemption provisions (e.g., Section 501(c)(6)) for certain types of organizations which would be unable to meet the stricter Section 501(c)(3) tests which require service to public interests rather than to private ones. Accordingly, because you do not limit use of your ****** to a charitable class, the development and distribution of the ****** by you to the public under open-source licenses is not the type of benefit to the community contemplated by Section 501(c)(3) and does not further a charitable purpose. The Creation of a ****** Does Not Lessen the Burdens of Government. You state that you were established for the purpose of lessening the burdens of government. You must demonstrate that the government accepts your activities as its responsibility and recognizes that you are acting on its behalf. See Columbia Park & Recreation Association, Inc. v. Commissioner, 88 T.C. at 21. The term "charitable" includes lessening the burdens of government. Treas.Reg. Section 1.501(c)(3)-1(d)(2). To qualify as an IRC Section 501(c)(3) organization on the basis of lessening the burdens of the government, you must meet a two-pronged test. The first prong requires that a government unit objectively manifest that it considers your activities to be its burden. See Rev.Rul. 85-1 and Rev.Rul. 85-2. You do not meet the first prong of the lessening the burdens of government test as there is no objective manifestation by the government that it considers the development of an "******" to be its burden. You have not shown that you will be funded, supported by, or have a working relationship with any governmental entity. You have not demonstrated an objective manifestation by the government recognizing that your activities are its burden or responsibility, as required by Rev.Rul. 85-1 and 85-2. Therefore, we must consider all relevant facts and circumstances in determining whether an objective manifestation exists. "A favorable working relationship between the government and the organization is strong evidence that the organization is actually 'lessening' the burdens of the government." See Rev.Rul. 85-2. The stronger the control a government has over the activities of the organization the better evidence of an objective manifestation. See Rev.Rul. 85-1. You are not controlled, nor are you working directly with the government. The government has no influence over your activities, no representation in your governing body, nor do they have any right to appoint any of your officers and/or board members. They do not have any role in how you conduct your operations. You do not meet the second prong of the lessening the burdens of government test. To meet the second prong your activities must actually lessen the burdens of a governmental unit. Evidence that the organization is actually lessening the burdens of government is shown when the government could not continue to conduct its program without the organization's activities. See Rev.Rul. 85-2. Your activities do not alleviate any fiscal or personnel burden of the government. There is no evidence you defray any of their expenses. Moreover, the government has not acknowledged that the creation of a ****** is its burden. Thus, you also fail to meet the second prong of the test and do not qualify under IRC Section 501(c)(3) as an organization that is lessening the burdens of the government within the meaning of Treas.Reg. Section 1.501(c)(3)-1(d)(2). You are unlike the organization described in Rev.Rul. 70-79 where the chief elected officers of the local jurisdictions constituted the membership of the organization. The interrelationship between the local governments and the organization indicated the existence of a burden of government in that the organization's membership was composed totally of government officials. You state the Organization for Economic Cooperation and Development (OECD) stressed the importance of an open internet to achieve social well-being and address society's greatest challenges, including health care and climate change. OECD does not use the phrase "open internet" to mean a fully decentralized, open source, non-proprietary, internet. The documents use the phrase "open internet" to describe how the internet is relatively open and decentralized by nature. The OECD documents do not manifest the intent of any part of the government within the meaning of IRC Section 501(c)(3) to develop an internet as you describe. The documents also do not solely refer to the positives of internet openness, but rather, examine the pros and cons of the relatively decentralized nature of the internet. The Creation of a ****** is Not a Public Work. You state that you are creating a public work by developing a ****** designed to work as a public utility. ****** fail several key tax characteristics of public works. First, software is not a facility. It is not a lake, park, or like any other public work described in Rev.Rul. 66-358 and Rev.Ru1.70-186. ****** are ******, and by their very nature, ****** are not fixed; their perpetual existence and access by the public relies upon private persons ****** the ****** on private servers, and anyone may ****** the ******. Second, ****** of this nature are not "ordinarily provided at public expense." It is not something ordinarily constructed by public bodies for use by members of the public. Third, anyone can appropriate it or portions of it for nonpublic uses. For instance, private persons can use it for nonexempt purposes. In Jacobsen v. Katzer, 535 F.3d 1373 (Fed.Cir. 2008), the court recognized that free and open software licenses are used by "software engineers... to dedicate certain works to the public" and Rev.Rul. 71-29, recognized that purposes beneficial to the community as a whole have been deemed charitable. Even if an exempt organization copyright holder retained sufficient ownership rights via its open-source license to satisfy the public ownership requirement of public works, software cannot satisfy other essential tax characteristics. The charitable purpose underlying public works is to provide the community with facilities... ordinarily provided at public expense. See Scott and Ascher on Trusts, 5th ed. Section 38.6. Software is not a facility nor is it ordinarily provided at public expense. The fact that digital goods can, after development, be duplicated ad infinitum at a price approaching zero does not satisfy this tax characteristic. Under copyright law, dedicating certain works to the public appears to include mere licensing to the public that does not divest the copyright holder of all right, title, and interest to the work. As noted above, complete public ownership is an essential tax characteristic of "public works" within that term's meaning under IRC Section 501(c)(3). Because open source software fails the essential tax attributes of public works, you do not qualify under IRC Section 501(c)(3) as an organization erecting or maintaining public buildings, monuments, or works within the meaning of Treas.Reg. Section 1.501(c)(3)-1(d)(2). The Creation of a ****** Does Not Further Educational Purposes You claim you are developing and maintaining a ****** and that you will publish some educational materials. Treas.Reg. Section 1.501(c)(3)-1(d)(3) defines educational as the instruction or training of the individual for the purpose of improving or developing their capabilities, or the instruction of the public on subjects useful to the individual and beneficial to the community. While you may conduct some activities with educational aspects, you are not operated exclusively for exempt purposes, and you are operated for substantial nonexempt purposes. Unlike the organizations in Rev.Rul. 65-2, 66-179 and Rev.Rul. 66-255, which provided instructional training, lectures, workshops, exhibits and presentations, you primarily develop and distribute open-source software. You state that your activities consist of approximately 20% education and grants. Even if 20% of your activities exclusively further educational purposes, a substantial portion of your activities are not primarily educational and are not otherwise exempt. Private Benefit An organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than private interest. See Treas.Reg. Section 1.501(c)(3)-1(d)(1)(ii). In Retired Teachers Legal Defense Fund, the tax court defined private benefit to include any "advantage; profit; fruit; privilege; gain or interest." You are operated for a substantial private interest in that you promote the private interest of your initial and primary donor, a ****** entity, and the private interests of ****** companies in the tech space. Your main contributor, a ****** entity, acknowledges it expects to receive economic benefits from its contribution to the organization. In the contribution agreement it states in part, "Contributor believes, based upon extensive experience in the field of ****** development, that transferring the Contributed Assets to the Assignee will bring economic benefits both to itself and to other persons and entities, and Contributor further believes that, although it will not receive any specific quantifiable services from the Assignee on account of the contribution nor will it be a customer of the Assignee, the economic benefits it will receive from the contribution will be commensurate with the value of the Contributed Assets transferred to the Assignee." You admitted in your application that your goals are closely aligned with those of some ****** entities. You made investments in some of these ****** entities. You also make grants to ****** entities and to individual entrepreneurs. According to your grant agreements, use of grant funds is entirely outside of your control or direction. Rev.Rul. 68-489 provides that for such grants to further a charitable purpose you must retain control and discretion over these funds. You haven't established that your free consulting services to ****** entities excludes ****** entities. Throughout your application for recognition of exemption you have acknowledged that your efforts will provide economic benefits to private shareholders or individuals as defined in Treas.Reg. Section 1.501(a)-1(c). Your contribution contract states that the contributor, which is a ****** entity, expects economic benefits both to itself, equal to its contribution, and to other persons and entities. You invest and support the development of ****** and ****** technologies; technologies which are ordinarily used and developed for commercial purposes. And your grant agreements acknowledge that you, or your principals, may benefit from the use of the funded applications. For the above reasons, you benefit private interests, and such benefit is not merely incidental to exempt purposes. Per Treas.Reg. Section 1.501(c)(3)-1(d)(1)(ii), an organization is not organized or operated exclusively for exempt purposes unless it serves a public rather than a private interest. Conclusion Based on the foregoing, we have determined that you were formed for the purpose of creating, developing, and publishing a specific product. You are operated for substantial non-exempt purposes and for the private benefit of contributor and other ****** entities. In addition, you do not further a scientific purpose, do not serve a charitable purpose, are not a public work, and do not further an educational purpose or serve a charitable class as described in IRC Section 501(c)(3). Therefore, you do not qualify for exemption under Section 501(c)(3) and donations to you are not deductible by the donor. If you agree If you agree with our proposed adverse determination, you don't need to do anything. If we don't hear from you within 30 days, we'll issue a final adverse determination letter. That letter will provide information on your income tax filing requirements. If you don't agree You have a right to protest if you don't agree with our proposed adverse determination. To do so, send us a protest within 30 days of the date of this letter. You must include: - Your name, address, employer identification number (EIN), and a daytime phone number - A statement of the facts, law, and arguments supporting your position - A statement indicating whether you are requesting an Appeals Office conference - The signature of an officer, director, trustee, or other official who is authorized to sign for the organization or your authorized representative - The following declaration: For an officer, director, trustee, or other official who is authorized to sign for the organization: Under penalties of perjury, I declare that I have examined this request, or this modification to the request, including accompanying documents, and to the best of my knowledge and belief, the request or the modification contains all relevant facts relating to the request, and such facts are true, correct, and complete. Your representative (attorney, certified public accountant, or other individual enrolled to practice before the IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven't already done so. You can find more information about representation in Publication 947, Practice Before the IRS and Power of Attorney. We'll review your protest statement and decide if you gave us a basis to reconsider our determination. If so, we'll continue to process your case considering the information you provided. If you haven't given us a basis for reconsideration, we'll send your case to the Appeals Office and notify you. You can find more information in Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. If you don't file a protest within 30 days, you can't seek a declaratory judgment in court later because the law requires that you use the IRC administrative process first (IRC Section 7428(b)(2)). Where to send your protest Send your protest, Form 2848, if applicable, and any supporting documents to the applicable address: U.S. mail: Internal Revenue Service EO Determinations Quality Assurance Mail Stop 6403 PO Box 2508 Cincinnati, OH 45201 Street address for delivery service: Internal Revenue Service EO Determinations Quality Assurance 550 Main Street, Mail Stop 6403 Cincinnati, OH 45202 You can also fax your protest and supporting documents to the fax number listed at the top of this letter. If you fax your statement, please contact the person listed at the top of this letter to confirm that they received it. You can get the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person listed at the top of this letter. Contacting the Taxpayer Advocate Service The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or if you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778. We sent a copy of this letter to your representative as indicated in your power of attorney. Sincerely, Stephen A. Martin Director, Exempt Organizations Rulings and Agreements

Notice 2020-70 Internal Revenue Service 2020-43 I.R.B. 913 Requirement that Specified Tax Return Preparers Electronically File Form 1040-NR (U.S. Nonresident Alien Income Tax Return) Notice 2020-70 SECTION 1. PURPOSE This notice modifies Notice 2011 - 26 (2011 - 17 I.R.B. 720) to generally remove Form 1040 - NR, U.S. Nonresident Alien Income Tax Return, from the list of returns that are administratively exempt from the electronic filing requirement imposed on specified tax return preparers by section 6011(e)(3) of the Internal Revenue Code and § 301.6011 - 7 of the Procedure and Administration Regulations, and to provide the circumstances under which the Form 1040 - NR remains subject to the exemption. This notice further provides that future updates to the list of returns in Notice 2011 - 26 that are administratively exempt from the electronic filing requirement due to IRS e-file limitations will be provided for in IRS Publication 4164, Modernized e - File (MeF) Guide for Software Developers and Transmitters. SECTION 2. BACKGROUND Section 6011(e)(3)(A) and § 301.6011-7(b) contain an electronic filing requirement for any individual income tax return that is prepared by and filed by a specified tax return preparer. Under section 6011(e)(3)(B) and as further defined in § 301.6011 - 7(a)(3), a "specified tax return preparer" means, with respect to any calendar year, any tax return preparer within the meaning of section 7701(a)(36) and § 301.7701 - 15, who prepares any individual income tax return, unless the tax return preparer (or his or her firm, if the tax return preparer is a member of a firm) reasonably expects to file 10 or fewer individual income tax returns in the calendar year. Section 301.6011 - 7(c)(2) permits administrative exemptions from the electronic filing requirement for certain classes of specified tax return preparers, or regarding certain types of individual income tax returns, as the IRS determines necessary to promote effective and efficient tax administration. Notice 2011 - 26 sets forth the specific administrative exemptions to the electronic filing requirement under section 6011(e)(3) and § 301.6011 - 7(b). These administrative exemptions apply to certain categories of specified tax return preparers and certain types of individual income tax returns, including certain individual income tax returns and attachments to returns for which IRS barriers or other system limitations prevent the electronic filing of those returns and attachments. See Notice 2011-26 at 721-722. For the exemption relating to IRS electronic filing (e - file) limitations, Notice 2011 - 26 provides a list of the exempt returns, which includes the Form 1040-NR. The IRS e - file limitations that previously prevented the electronic filing of the Form 1040-NR have been resolved. Except as provided in section 3.B. of this notice, IRS e-file limitations no longer apply to the Form 1040 - NR, and many taxpayers can now file income tax returns on that form electronically. To reflect the changes in IRS e - file capacities and limitations, this notice modifies Notice 2011 - 26 as it applies to returns that cannot be electronically filed because of the IRS e - file limitations. This notice does not affect the exemptions provided in Notice 2011 - 26 for certain categories of specified tax return preparers, including certain foreign tax return preparers. Foreign tax return preparers without a social security number who live and work abroad remain exempt from the electronic filing requirement if they are not a member of a firm that is eligible for electronic filing with the IRS and they applied for a Preparer Tax Identification Number (PTIN) under one of the methods described in Notice 2011-26. SECTION 3. THE EXEMPTION FOR FORM 1040-NR A. In General Except as otherwise provided in the continued exemptions set forth in section 3.B. of this notice, the exemption for Form 1040 - NR from the electronic filing requirement under section 6011(e)(3) is removed for tax returns filed for taxable years ending on or after December 31, 2020. Accordingly, a specified tax return preparer must electronically file a Form 1040-NR, unless (1) an exemption described in section 3.B. of this notice for these taxable years or (2) an exemption under § 301.6011 - 7(c) or Notice 2011 - 26, as modified by this notice, applies. B. Continued Exemptions The IRS does not currently accept Form 1040 - NR tax returns via electronic filing by certain taxpayers. Accordingly, the exemption from the electronic filing requirement set forth in section 6011(e)(3) remains in effect for a Form 1040-NR filed for the following taxpayers: (1) dual-status taxpayers (taxpayers who have changed status between resident alien and nonresident alien during the taxable year), (2) fiscal-year taxpayers, (3) trusts, and (4) estates. The exemption for Form 1040-NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents, also remains in effect. SECTION 4. FUTURE UPDATES TO THE LIST OF RETURNS ADMINISTRATIVELY EXEMPT FROM ELECTRONIC FILING DUE TO IRS E-FILE LIMITATIONS The remaining administrative exemptions in Notice 2011 - 26 for certain types of individual income tax returns that are exempt due to IRS e - file limitations remain in effect until a revision to IRS Publication 4164, Modernized e - File (MeF) Guide for Software Developers and Transmitters, or a successor publication, announces that an individual income tax return can be electronically filed and announces the taxable year for which the exemption from the electronic filing requirement under section 6011(e)(3) is removed with respect to that return. See https://www.irs.gov/pub/irs-pdf/p4164.pdf.b Updates to all other administrative exemptions described in Notice 2011-26 (aside from exemptions due to IRS e-file limitations) will continue to be announced in a notice or other appropriate guidance, rather than in IRS Publication 4164. SECTION 5. EFECT ON OTHER DOCUMENTS Notice 2011-26 is modified. SECTION 6. EFFECTIVE DATE This notice is effective for individual tax returns filed for taxable years ending on or after December 31, 2020. SECTION 7. DRAFTING INFORMATION The principal author of this notice is Han Huang of the Office of the Associate Chief Counsel (Procedure and Administration). For further information regarding this notice contact Ms. Huang at (202) 317-6844 (not a toll-free number).

Private Letter Ruling Number: 202110039 Internal Revenue Service September 22, 2020 DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE 1100 Commerce Street, MC 4920DAL Dallas, TX 75242 TAX EXEMPT AND GOVERNMENT ENTITIES DIVISION Number: 202110039 Release Date: 3/12/2021 UIL: 501.07-00 Date: September 22, 2020 Taxpayer ID Number: Form: For Tax Period(s) Ending: Person to Contact: Identification Number: Telephone Number: Fax Number: CERTIFIED MAIL - Return Receipt Requested LAST DAY FOR FILING A PETITION WITH THE TAX COURT: Dear *******: This is a final determination that you do not qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(7) for the tax periods above. Your determination letter dated February 18, 19XX is revoked. Our adverse determination as to your exempt status was made for the following reasons: You have not established that you are operated substantially for pleasure and recreation of your members or other non-profitable purposes and no part of the earnings inures to the benefit of private shareholder within the meaning of IRC Section 501(c)(7). You have made your recreational and social facilities available to the general public. You have exceeded the non-member income test for tax years ending December 31, 20XX and December 31, 20XX. Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns and pay tax, where applicable. For further instructions, forms, and information please visit www.irs.gov. If you decide to contest this determination, you may file an action for declaratory judgment under the provisions of IRC Section 7428 in one of the following three venues: 1) United States Tax Court, 2) the United States Court of Federal Claims, or 3) the United States District Court for the District of Columbia. A petition or complaint in one of these three courts must be filed within 90 days from the date this determination was mailed to you. Please contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions for declaratory judgment by referring to the enclosed Publication 892. You may write to the courts at the following addresses: United States Tax Court 400 Second Street, NW Washington, DC 20217 U.S. Court of Federal Claims 717 Madison Place, NW Washington, DC 20439 U. S. District Court for the District of Columbia 333 Constitution Ave., N.W. Washington, DC 20001 Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory judgment under IRC Section 7428. You may be eligible for help from the Taxpayer Advocate Service (TAS). TAS is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778. Taxpayer Advocate assistance can't be used as substitute for established IRS procedures, formal appeals processes, etc. The Taxpayer Advocate is not able to reverse legal or technically correct tax determination, nor extend the time fixed by law that you have to file a petition in Court. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling. You can get any of the forms or publications mentioned in this letter by calling 800-TAX-FORM (800-829-3676) or visiting our website at www.irs.gov/forms-pubs. If you have any questions, you can contact the person listed at the top of this letter. Sincerely, Sean E. O'Reilly Director, Exempt Organizations Examinations Enclosures: Publication 892 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Date: 01/06/2020 Taxpayer ID number: Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: Address: Manager's contact information Name: ID number: Telephone: Response due date: CERTIFIED MAIL -- Return Receipt Requested Dear *******: Why you're receiving this letter If you agree If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. We'll issue a final adverse letter determining that you aren't an organization described in IRC Section 501(c)(7) for the periods above. If you disagree 1. Request a meeting or telephone conference with the manager shown at the top of this letter. 2. Send any information you want us to consider. 3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information. The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For your protest to be valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't apply now that we've issued this letter. 4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the IRS. If you're considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals. If we don't hear from you If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final adverse determination letter. Contacting the Taxpayer Advocate Office is a taxpayer right The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778. Additional information You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person shown at the top of this letter. Sincerely, for Maria Hooke Director, Exempt Organizations Examinations Enclosures: Form 6018 Form 886-A Form 4621-A Pub. 3498 Pub. 892 ISSUE Whether ******* ("*******") continues to qualify for tax exemption under Internal Revenue Code (IRC) § 501(c)(7)? FACTS ******* is exempt as an organization described in IRC § 501(c)(7) to provide social, recreational and other activities to its members. The club is open for both members and non-members for events, which includes ******* matches, *******, ******* range, a *******, and *******. ******* did not separate income between members and non-members. ******* also conducts educational activities such as *******, CPR training, Jr. Rifle Club, and First Shoot. These activities are open to the public. ******* files Forms 990 & 990-T annually. On Form 990-T, ******* reports unrelated business taxable income ("UBTI"). ******* reported dividend income of $ ******* on its 20XX Form 990-T. When reviewing the investment statements, we found that the $ ******* was the dividend income from only one of ******* two investment accounts. We found that ******* had received dividends of $0 in the second account. In 20XX, total income from sources outside ******* membership was calculated to be $0. This figure includes an estimate of $0 in nonmember raffle income (0% of total raffle income); as indicated above, ******* did not separate member and nonmember income. Total Income was $0. Using these figures, ******* received 0.00% of its income from sources outside its membership in 20XX. ******* reported dividend income of $0 on its 20XX Form 990-T. When we compared this figure to ******* investment statements, we confirmed that, similar to 20XX, ******* had only reported the dividend income from one of its two accounts. We found that ******* had received $0 in dividends from the second investment account. In 20XX, total income from outside ******* membership was calculated to be $0. Total income was $0. Using these figures, ******* received 0.0-% of its income from sources outside its membership in 20XX. LAW IRC § 501(c)(7) exempts from federal income tax clubs organized for pleasure, recreation, and other non-profitable purposes, substantially all of the activities of which are for such purposes and not part of the net earnings of which inures to the benefit of any private shareholder. Section 1.501(c)(7) of the Regulations provides that, in general, the exemption extends to social and recreation clubs supported solely by membership fees, dues and assessments. However, a club that engages in a business, such as making its social and recreational facilities open to the general public, is not organized and operated exclusively for pleasure, recreation and other non-profitable purposes, and is not exempt under section 501(a). Prior to its amendment in 1976, IRC § 501(c)(7) required that social clubs be operated exclusively for pleasure, recreation and other nonprofitable purposes. Public Law 94-568 amended the "exclusive" provision to read "substantially" in order to allow an IRC § 501(c)(7) organization to receive up to 35 percent of its gross receipts, including investment income, from sources outside its membership without losing its tax exempt status. The Committee Reports for Public Law 94-568 (Senate Report No. 94-1318 2d Session, 1976-2 C.B. 597) further states; (a) Within the 35 percent amount, not more than 15 percent of the gross receipts should be derived from the use of a social club's facilities or services by the general public. This means that an exempt social club may receive up to 35 percent of its gross receipts from a combination of investment income and receipts from non-members, so long as the latter do not represent more than 15 percent of total receipts. (b) Thus, a social club may receive investment income up to the full 35 percent of its gross receipts if no income is derived from non-members' use of club facilities. Revenue Ruling 66-149 holds a social club as not exempt as an organization described in IRC § 501(c)(7) where it derives a substantial part of its income from non-member sources. Revenue Ruling 60-324 states by making its social facilities available to the general public the club cannot be treated as being operated exclusively for pleasure, recreation or other non-profitable purposes. GOVERNMENT'S POSITION ******* does not qualify for exemption as a social club described in IRC §501(c)(7). ******* exceeded the 35% threshold for income outside its membership, as outlined in Public Law 94-568, on a recurring basis during tax years ending December 31, 20XX and December 31, 20XX. Accordingly, it is proposed that ******* tax exempt status be revoked for full tax year-end 12/31/20XX and 12/31/20XX. CONCLUSION ******* no longer qualifies for exemption under IRC § 501(c)(7) because its income has exceeded the 35% threshold on a continuing basis. Therefore, it is proposed that exempt status under IRC § 501(c)(7) of the Code be revoked for tax years 12/31/20XX and 12/31/20XX.

Notice 2024-36 Internal Revenue Service 2024-24 I.R.B. 1479 Guidance Regarding the 2024 Allocation Round of Qualifying Advanced Energy Project Credit Program under Section 48C(e) Notice 2024-36 SECTION 1. PURPOSE.01 This notice provides additional guidance to clarify and amplify the procedures for the allocation of credits under § 48C of the Internal Revenue Code (Code) 1 (§ 48C credits) pursuant to the qualifying advanced energy project credit program under § 48C(e) (§ 48C(e) program) and announces the 2024 allocation round of the § 48C(e) program (Round 2). Notices 2023-18, 2023-10 I.R.B. 508, and 2023-44, 2023-25 I.R.B. 924, established the § 48C(e) program to allocate $10 billion of § 48C credits ($4 billion of which may be allocated only to projects located in § 48C(e) Energy Communities Census Tracts 2 ) for qualified investments in eligible qualifying advanced energy projects and provided guidance for the first allocation round of the § 48C(e) program (Round 1). Except as specifically provided in this notice, Round 2 will be conducted in the same manner and under the same procedures as provided under Notice 2023-18 and Notice 2023-44. 3 ******** 1 Unless otherwise specified, all "section" or "§" references are to sections of the Code. 2 The term "§ 48C(e) Energy Communities Census Tracts" is defined in section 5.06 of Notice 2023-18 and such tracts are listed in Appendix C of this notice. 3 Prior Notices and other relevant information about the § 48C(e) program can be found at https://www.irs.gov/credits-deductions/businesses/advanced-energy-project-credit. ********.02 For purposes of Round 2, Appendices A, B, and C of this notice supersede Appendices A, B, and C of Notice 2023-44..03 As stated in section 1.03 of Notice 2023-18, the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) anticipate providing at least two allocation rounds under the § 48C(e) program. During Round 1, the Treasury Department and IRS allocated approximately $4 billion of § 48C credits, with approximately $ 1.5 billion in § 48C credits allocated to projects located in § 48C(e) Energy Communities Census Tracts (as defined in section 5.06 of Notice 2023-18). For Round 2, the Treasury Department and the IRS anticipate allocating approximately $6 billion of § 48C credits, with approximately $2.5 billion in § 48C credits to be allocated to projects located in § 48C(e) Energy Communities Census Tracts. Although the Treasury Department and the IRS intend to allocate a total of $10 billion of § 48C credits over the duration of the § 48C(e) program, with not less than $4 billion of § 48C credits allocated to projects located in § 48C(e) Energy Communities Census Tracts, depending upon applications received, the Treasury Department and the IRS may not allocate in Round 2 all of the approximately $2.5 billion of § 48C credits that must be allocated to § 48C(e) Energy Communities Census Tracts. The Treasury Department and the IRS will evaluate if any § 48C credits remain unallocated at the close of Round 2 and determine if another allocation round is needed..04 To be considered for an allocation of § 48C credits in Round 2, taxpayers must first submit concept papers to the IRS through the Qualified Advanced Energy Project Credit Program Applicant Portal ( 48C Portal), accessible at https://eco.energy.gov/48C/, maintained by the Department of Energy (DOE). Following submission of a concept paper, DOE will provide a letter encouraging or discouraging the taxpayer's submission of a joint application for DOE recommendation and for IRS § 48C(e) certification (§ 48C(e) application). DOE begins the acceptance period for a taxpayer's § 48C(e) application on the date of the letter of encouragement or discouragement. To be considered for the § 48C(e) program, a taxpayer's § 48C(e) application must be submitted no later than 50 calendar days after DOE begins the acceptance period for the taxpayer's § 48C(e) application. The IRS will make all Round 2 allocation decisions no later than January 15, 2025. SECTION 2. BACKGROUND.01 For purposes of the § 38 general business credit, § 46 provides that the amount of the investment credit for any taxable year is the sum of the credits listed in § 46. That list includes the § 48C credit, which was originally enacted by § 1302(b) of the American Recovery and Reinvestment Act of 2009, Public Law 111-5, Division B, Title I, Subtitle D, 123 Stat. 115, 345 (February 17, 2009), to provide an allocated credit for qualified investments in qualifying advanced energy projects..02 In addition to certain amendments made by the Tax Increase Prevention Act of 2014, Public Law 113-295, 128 Stat. 4010 (December 19, 2014), § 48C was amended most recently by § 13501 of Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA). Section 13501(a) of the IRA added § 48C(e) to the Code to extend the § 48C credit and to provide an additional credit allocation of $10 billion. Section 13501(b) of the IRA modified the definition of a "qualifying advanced energy project" contained in § 48C(c)(1)(A). Section 13501(c) and (d) of the IRA made conforming amendments to § 48C(c)(2)(A) and (f). The amendments made by § 13501 of the IRA became effective on January 1, 2023. See § 13501(e) of the IRA..03 Notice 2023-18 established the § 48C(e) program and provided initial program guidance. Section 3 of Notice 2023-18 provided certain definitions for purposes of the § 48C(e) program, section 4 of Notice 2023-18 described how the prevailing wage and apprenticeship requirements under § 48C(e)(5) and (6) impact the rate of § 48C credits allocated under the § 48C(e) program, section 5 of Notice 2023-18 provided a general description of the § 48C(e) program, and section 6 of Notice 2023-18 provided initial information regarding the procedures for concept papers and § 48C(e) applications..04 Section 5 of Notice 2023-18 states that the IRS will consider a project under the § 48C(e) program only if DOE provides a recommendation and ranking to the IRS. As stated in section 5 of Notice 2023-18, DOE will provide a recommendation only if it determines that the project has a reasonable expectation of commercial viability and merits a recommendation based on the criteria provided in additional § 48C(e) program guidance later provided in Notice 2023-44..05 Section 4 of Notice 2023-44 states that eligible property that is part of a § 48C eligible project placed in service prior to being awarded an allocation of § 48C credits under the § 48(C)(e) program is not eligible to receive such an allocation. SECTION 3. ROUND 2 OF SECTION 48C(e) PROGRAM.01 In General. For each project for which a taxpayer seeks an allocation of § 48C credits in Round 2, the taxpayer must use the 48C Portal to submit to the IRS (1) a concept paper for DOE consideration and (2) a joint application for DOE recommendation and for IRS § 48C(e) certification (§ 48C(e) application). If a § 48C(e) application does not (1) propose a qualifying advanced energy project (as described in Appendix A) or (2) include all of the information required in Appendix B, DOE may decline to consider the § 48C(e) application or request that the applicant resubmit its § 48C(e) application with the missing information. If DOE does not provide a recommendation to the IRS on the § 48C(e) application, the IRS will not consider the § 48C(e) application. Failure to receive an allocation in Round 1 does not preclude an applicant from applying in Round 2..02 Taxpayer submissions. Taxpayers must submit their concept papers and § 48C(e) applications through the 48C Portal. See Appendix B for additional information regarding the application process..03 Program Timeline. Generally, Round 2 will proceed as follows: (1) A taxpayer submits a concept paper through the 48C Portal. The 48C Portal will open to accept concept paper submissions no later than Tuesday, May 28, 2024. Taxpayers must submit concept papers prior to 5:00 PM Eastern Time, within 30 calendar days after the 48C Portal opens. (2) DOE reviews the concept paper and sends the taxpayer a letter encouraging or discouraging the submission of a § 48C(e) application. After receiving a letter of encouragement or discouragement from DOE, the taxpayer determines whether to submit a § 48C(e) application. Any taxpayer who submits a concept paper through the 48C Portal is eligible to submit a § 48C(e) application, regardless of DOE's response to the taxpayer's concept paper. (3) Taxpayers submit § 48C(e) applications through the 48C Portal. See Appendix B for additional information. (4) DOE reviews each § 48C(e) application for compliance with eligibility and other threshold requirements. (5) If the § 48C(e) application complies with all eligibility and threshold requirements, DOE conducts a technical review of the application based on the technical review criteria described in Appendix B. (6) DOE provides a recommendation to the IRS regarding the acceptance or rejection of each § 48C(e) application and a ranking of all § 48C(e) applications. (7) The IRS makes a decision regarding the acceptance or rejection of each § 48C(e) application based on DOE's recommendation and ranking. The IRS notifies each taxpayer who submitted a § 48C(e) application of the outcome by sending a letter allocating § 48C credits in the case of an acceptance (Allocation Letter) or a letter denying the requested allocation in the case of a rejection (Denial Letter). The IRS will make all Round 2 allocation decisions no later than January 15, 2025. In the case of an acceptance, the amount of § 48C credits allocated to a project will be based on the taxpayer's qualified investment in the qualifying advanced energy project and whether the taxpayer intends to apply for and receive an allocation of § 48C credits calculated at the 30 percent credit rate ( see section 5.07 of Notice 2023-18). In the case of a denial, a taxpayer may request a debriefing with DOE regarding DOE's review of the taxpayer's § 48C(e) application. The Denial Letter will include instructions for requesting a DOE debriefing. (8) To be eligible to receive a § 48C credit allocated under the § 48C(e) program with respect to a taxpayer's qualified investment in a qualifying advanced energy project (§ 48C Facility), the earliest that the taxpayer may place in service the § 48C Facility is after receiving the Allocation Letter with respect to that § 48C Facility. See section 4 of Notice 2023-44. (9) Within 2 years of receiving an Allocation Letter, a taxpayer must notify DOE that the certification requirements have been met by submitting the required information through the 48C Portal. See Appendix B for additional information. (10) DOE reviews information provided by the taxpayer evidencing that the requirements for certification have been met. (11) DOE notifies the taxpayer and the IRS if the taxpayer satisfies the certification requirements. (12) The IRS certifies a taxpayer's § 48C Facility by sending a letter (Certification Letter). (13) Within 2 years of receiving the Certification Letter, the taxpayer notifies DOE that the § 48C Facility has been placed in service by submitting such information through the 48C Portal. See Appendix B for additional information. If the taxpayer has not placed the § 48C Facility in service within the required 2-year period or has not notified DOE that the § 48C Facility has been placed in service within the required 2-year period, then the § 48C credit allocated to the taxpayer's § 48C Facility is forfeited. (14) DOE notifies the taxpayer and the IRS that it has received the taxpayer's notification that the § 48C Facility has been placed in service or notification that the taxpayer will not place the § 48C Facility in service within the required 2-year period. See section 5.09 of Notice 2023-18. (15) If the taxpayer has placed the § 48C Facility in service within the required 2-year period and has notified DOE, then the taxpayer claims the § 48C credit on its Federal income tax return for the taxable year in which the § 48C Facility was placed in service. (16) If the taxpayer chooses to withdraw a submission at any phase of the § 48C(e) program (whether at the concept paper phase, the § 48C(e) application phase, the post-Allocation Letter phase, or the post-Certification Letter phase), the taxpayer must provide a formal withdrawal notification through the 48C Portal. SECTION 4. SECTION 48C ADDITIONAL RULES.01 Section 48C Energy Communities. A § 48C Facility is determined to be located in a § 48C(e) Energy Community Census Tract at the time that DOE provides recommendations to the IRS. A § 48C Facility is treated as located within a § 48C(e) Energy Community Census Tract if the § 48C Facility satisfies the Footprint Test as provided in section 6.03 of Notice 2023-44. A taxpayer can determine whether its project is located within a § 48C(e) Energy Communities Census Tract by referring to the list of Section 48C(e) Energy Communities Census Tracts provided by Appendix C. Additionally, a map of § 48C(e) Energy Communities Census Tracts has been provided by the DOE and is available at www.energy.gov/infrastructure/48C..02 Selection Criteria for all projects seeking an allocation from the § 48C(e) program. Section 48C(d)(3) lists the selection criteria used to determine which qualifying advanced energy projects merit a DOE recommendation. Section 7 of Notice 2023-44 provides additional detail regarding these criteria, including how the criteria are used to evaluate concept papers and § 48C(e) applications. SECTION 5. PAPERWORK REDUCTION ACT Any collection burden associated with this notice is accounted for in OMB Control Number 1545-2151. This notice does not alter any previously accounted for information collection requirements and does not create new collection requirements not already approved by the Office of Management and Budget. SECTION 6. EFFECT ON OTHER DOCUMENTS Notice 2023-18 is clarified and modified. Notice 2023-44 is amplified and superseded. SECTION 7. DRAFTING INFORMATION.01 The principal author of this notice is Alan W. Tilley of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this notice contact Mr. Tilley on (202) 317-6853 (not a toll-free call)..02 Any questions or comments regarding the non-tax aspects of this notice can be submitted to DOE at 48CQuestions@hq.doe.gov. DOE may post questions and answers related to this notice at https://www.energy.gov/infrastructure/48C. Any questions or comments received under this notice are subject to public release pursuant to the Freedom of Information Act. DOE is under no obligation to respond to, or acknowledge receipt of, any questions or comments submitted under this notice and any responses provided do not constitute legal advice provided by either DOE or the IRS. Table of Contents APPENDIX A - Eligibility 1. Qualifying Advanced Energy Projects THIS APPENDIX A SUPERSEDES APPENDIX A OF NOTICE 2023-44. For the purposes of determining eligibility for the § 48C credit, a "qualifying advanced energy project" means: 1.1 Clean Energy Manufacturing and Recycling Projects A qualifying advanced energy project in this category involves re-equipping, expanding, or establishing an industrial or manufacturing facility. The facility must manufacture or recycle one or more of the specified advanced energy properties outlined below. Note: If only a portion of a facility will be used to manufacture or recycle eligible property as described in this Appendix, then the qualified investment proposed in the § 48C application should only include costs for the portion of the facility that will be used to manufacture or recycle eligible property. a. Property designed to be used to produce energy from the sun, water, wind, geothermal deposits (within the meaning of § 613(e)(2)), or other renewable resources. (i) Examples of eligible property include solar panels and their components and sub-components (e.g., solar cells, solar glass, wafers, and polysilicon) and their specialized support structures; wind turbines, towers, floating offshore platforms, and related equipment; power electronics designed for use with eligible solar or wind property; equipment to concentrate sunlight to generate heat for industrial processes or to convert it to electricity; geothermal turbines and heat pumps; hydropower turbines; and other products directly used to generate electrical and/or thermal energy from renewable resources, as well as the specialized components, subcomponents, and materials incorporated into any such eligible property, including equipment for sensing, communication, and control. (ii) Examples of ineligible property include equipment used for purposes other than converting energy from renewable resources into electricity, building heat, or industrial process heat. This includes gas turbine generator sets which burn natural gas, or boilers that heat water using fossil fuels. Also, clean energy development projects are ineligible. These include power generation projects that use solar panels, wind turbines, or hydropower turbines to generate electricity. b. Fuel cells, microturbines, or energy storage systems and components. (i) Examples of eligible property include stationary batteries; stationary hydrogen fuel cells; hydrogen storage vessels; microturbines for combined heat and power systems; pumps and turbines for pumped hydropower storage systems; and the specialized components of any such equipment, including equipment for sensing, communication, and control. (ii) Examples of ineligible property include heavy-duty gas turbines. (iii) Note: For electric vehicle batteries and fuel cells for vehicles see the "light-, medium-, or heavy-duty electric or fuel cell vehicles" project class. c. Electric grid modernization equipment or components. (i) Examples of eligible property include grid equipment for electricity delivery; power flow, control, and conversion, such as transformers, power electronics, advanced cables and conductors, advanced meters, breakers, switchgears, composite poles, converters, medium-voltage direct current (MVDC) and high-voltage direct current (HVDC) lines, grid-enhancing technologies, and electrical steel or alloys used in transformer cores. Examples of eligible property also include the specialized components of any such grid modernization equipment, including components for sensing communication, and control. (ii) Electric vehicle supply equipment qualifies under the "light-, medium-, or heavy-duty electric or fuel cell vehicles" project class. Storage technologies for grid applications qualify under the "fuel cells, microturbines, or energy storage systems and components" project class. d. Property designed to capture, remove, use, or sequester carbon oxide emissions. (i) Examples of eligible property include carbon capture equipment or other property necessary to compress, treat, process, liquefy, pump or perform some other physical action to capture carbon oxide emissions, including solvents; membranes; sorbents; chemical processing equipment; compressors; monitoring equipment; and injection equipment; and well components such as packers, casing strings, CO 2 -resistant concrete, steel tubulars, wellhead, valves, and sensors suitable for use in Underground Injection Control (UIC) Class VI wells. Eligible property also includes transportation equipment, as in a system of gathering and distribution infrastructure. These include pipelines, temporary or transportation-related carbon oxide storage tanks, valves, sensors, and control panels that serve in collecting carbon oxides captured from an industrial facility or multiple facilities for the purpose of transporting that carbon oxide. Additional examples include equipment to convert carbon oxides through mineralization, thermochemical, electrochemical, photochemical, plasma-assisted, or other catalytic process approaches to carbon-based products such as synthetic fuels, chemicals, solid carbon products, and inorganic materials. (ii) Examples of ineligible property include scrubbers for conventional air pollutants (except those that are required to remove pollutants upstream of carbon capture equipment for technical performance reasons), energy generation equipment (except as related to energy recovery at carbon capture systems), and refining equipment. Also, facilities that install equipment to capture, remove, use, or sequester carbon oxide emissions are not eligible under this category. These properties are considered deployments. The installation of CCUS equipment at existing facilities may be eligible under the Industrial decarbonization category (see Section 1.2, Industrial Decarbonization Projects ). e. Equipment designed to refine, electrolyze, or blend any fuel, chemical, or product which is renewable, or low-carbon and low-emission. For the purposes of Round 2 of the § 48C(e) program, a qualifying advanced energy project in this category must include projects that manufacture or recycle equipment used to produce the following: (i) Renewable transportation fuel that is (A) suitable for use as a fuel in a vehicle, marine vessel, or aircraft, (B) derived from or co-processed with (I) a biomass feedstock, or (II) hydrogen produced from renewable energy and inputs, and (C) not derived from palm fatty acid distillates or fossil fuels, including coal, natural gas, and petroleum. (ii) Clean hydrogen produced with a well-to-gate lifecycle greenhouse gas (GHG) emissions rate of not greater than 4 kg CO 2e per kg H 2, in accordance with the definition of qualified clean hydrogen under § 45V, Credit for Production of Clean Hydrogen. (iii) Other fuel that is (A) derived from or co-processed with a renewable feedstock or achieves at least a 50 percent reduction in lifecycle GHG emissions in comparison with the conventional alternative, (B) not a transportation fuel suitable for use in a vehicle, marine vessel, or aircraft, and (C) not derived from palm fatty acid distillates or fossil fuels, including coal, natural gas, and petroleum. (iv) Product or chemical that is (A) derived from or co-processed with a renewable feedstock or achieves at least a 50 percent reduction in lifecycle GHG emissions in comparison with the conventional alternative, (B) suitable for use as an industrial feedstock, and (C) not derived from palm fatty acid distillates or fossil fuels, including coal, natural gas, and petroleum. (v) Examples of eligible property include electrolyzers such as alkaline cells, proton-exchange membrane (PEM) cells, and solid-oxide electrolysis cells (SOECs). Other eligible equipment includes mixing devices, pumps, separation devices, bioprocessing equipment, biomass preprocessing equipment, and reactors. However, these pieces of equipment must be intended for use in the production of eligible fuels, chemicals, and products. Examples of these fuels, chemicals, and products include low-emissions ammonia, renewable biofuels, including sustainable aviation fuel, fuels designed to replace petroleum fuel in on-road and off-road applications. Equipment for the production of low-emissions chemicals, basic organic chemicals, polymers, and resins are also included, as long as their intended use is demonstrated through engineering specifications or offtake agreements. (vi) Examples of ineligible property include those designed to produce fuels and chemicals derived solely from fossil resources produced through conventional petroleum and natural gas refining. Additionally, facilities that manufacture or produce fuels, chemicals, or other industrial feedstocks, such as renewable biofuels, hydrogen, and low-emission ammonia, are also ineligible. These facilities are considered deployment facilities. For exceptions pertaining to deployment facilities that produce low carbon chemicals and are eligible in Round 2 refer to Section 1.1(i), Other advanced energy property designed to reduce greenhouse gas emissions as may be determined by the Secretary. Furthermore, it is important to note that a qualifying advanced energy project must exclude any portion of a project that involves the manufacturing or recycling of equipment used in the refining or blending of any fuel other than fuels described in this category. f. Property designed to produce energy conservation technologies (including residential, commercial, and industrial applications). (i) Examples of eligible energy conservation property include technologies and grid-interactive devices eligible for residential or commercial efficiency improvements for purposes of the § 25C credit or the § 179D tax deduction, as well as equipment that directly reduces net energy use in industrial applications, such as ultra-efficient heat pumps, insulation, ultra-efficient hot water systems, sensors, controls, and similar advanced efficiency technologies. (ii) Examples of ineligible energy conservation property include those that reduce electricity usage by increasing the facility's natural gas or other fossil fuel usage and/or lead to increased system-level emissions. g. Light-, medium-, or heavy-duty electric or fuel cell vehicles, as well as technologies, components, or materials for such vehicles, and associated charging or refueling infrastructure. (i) Examples of eligible property include battery electric, plug-in hybrid electric, or fuel cell cars, trucks, buses, and other vehicles, as well as the specialized components of those vehicles, such as batteries, anode and cathode components and materials, electric drive systems, fuel cells, and other materials and subcomponents. (ii) Examples of eligible charging or refueling infrastructure include electric vehicle supply equipment (EVSE), including EVSE with integrated energy storage, components from the grid connection to the vehicle, bidirectional charging equipment, and components used in hydrogen refueling stations (e.g., hydrogen compressors, pumps, storage vessels, and dispensing equipment). (iii) Examples of ineligible property include internal combustion engine vehicles of all sizes, non-plug-in hybrid vehicles of less than 14,000 pounds gross vehicle weight rating, and their components, as well as associated refueling infrastructure, such as petroleum, liquefied or compressed natural gas, or ethanol refueling stations. Examples of ineligible charging infrastructure property also include electrical components upstream of the charging station's service connection to the grid and components of charging or refueling stations, such as signage, that are not directly involved in the transfer of fuel or power to the vehicle. h. Hybrid vehicles with a gross vehicle weight rating of not less than 14,000 pounds, as well as technologies, components, or materials for such vehicles. (i) Examples of eligible property include traction batteries, converters, power electronics, and assembled hybrid vehicles of not less than 14,000 pounds themselves, but components and materials must be designed for large hybrid vehicles with a gross vehicle weight rating of not less than 14,000 pounds, as demonstrated through engineering specifications and/or offtake agreements. i. Other advanced energy property designed to reduce greenhouse gas emissions as may be determined by the Secretary. (i) Examples of eligible advanced energy property include specialized components and equipment for nuclear power reactors or their fuels (e.g., including components and equipment for fabrication of fuels, and manufacturing of equipment for conversion, enrichment, and deconversion), and equipment used to reduce the emissions of industrial facilities, such as heat and process emissions. Property may be determined to be designed to reduce GHG emissions either through published guidance or in the letter notifying an applicant that the IRS has accepted the applicant's application for § 48C(e) certification with respect to the property. (ii) Examples of eligible advanced energy properties in this category include energy-intensive materials that have a substantially lower carbon intensity when compared to an appropriate industry-specific benchmark. These materials must not be derived from primary feedstocks such as palm fatty acid distillates or fossil fuels including coal, natural gas, and petroleum. Eligible projects include but are not limited to projects that expand, re-equip, or establish facilities for manufacturing or recycling of low carbon cement, concrete or components such as supplementary cementitious materials, low carbon iron and steel, low carbon aluminum, low carbon chemicals, low carbon pulp or paper, and low carbon glass. The proposed projects should reduce carbon intensity on a life cycle basis by at least 30% compared to an appropriate industry-specific benchmark. Existing facilities are only eligible if they re-equip or expand their production lines to produce these materials or increase capacity respectively; otherwise, they do not qualify under this category. (iii) Advanced energy property that is designed to reduce greenhouse gas emissions by enabling the production of other greenhouse gas emission-reducing advanced energy property may be eligible under this category. For such "other advanced energy property," which is not designed to directly reduce GHG emissions, the applicant must demonstrate that the advanced energy property is highly specialized equipment necessary to strengthen U.S. resilience of critical domestic energy supply chains and the reduction of GHG emissions is a necessary ultimate outcome from the production of the advanced energy property. This can be demonstrated through the applicant's proposed business plan, including offtake agreements and any additional market analysis or other technical specialization, to show the advanced energy property that is produced or recycled by the applicant's industrial or manufacturing facility will primarily contribute toward reduction of GHG emissions. An example of such "other advanced energy property" that may be eligible is diamond wire saws necessary in the solar technology supply chain, so long as the applicant demonstrates the project's output will be used primarily for the purpose of manufacturing property designed to produce energy from the sun. (iv) Examples of ineligible properties include projects that re-equip, expand, or establish facilities that would be used for enrichment, conversion, or deconversion of uranium. Similarly, projects that produce uranium or procure equipment that would be used in the enrichment, conversion, or deconversion of uranium are not eligible under this category. 1.2 Industrial Decarbonization Projects An advanced energy project qualifies under this category if it involves retrofitting an industrial or manufacturing facility, particularly in energy-intensive sectors such as cement, iron and steel, aluminum, and chemicals. The retrofit must include the installation of equipment specifically designed to reduce greenhouse gas emissions by at least 20 percent. It's important to note that this category is exclusively focused on projects that upgrade the existing facilities to lower greenhouse gas emissions through the installation of one or more specified technologies below. Note: Investments aimed at expanding a facility such as those intended to increase manufacturing capacity are not considered eligible costs to be included as part of qualified investment under this category. Therefore, any such ineligible costs must be excluded from the qualified investment requested for projects within this category. However, these type projects may qualify under the section 1.1 Clean Energy Manufacturing and Recycling project category. In Round 1, this project category was referred to as "Greenhouse Gas Emissions Reduction Projects" (as described and defined in Appendix A of Notice 2023-44). The updated project category name "Industrial Decarbonization Projects" in Round 2 is a change in terminology only; eligibility under this project category remains unchanged between Round 1 and Round 2, although additional clarifications are provided below. a. Low- or zero-carbon process heat systems. Examples of eligible equipment include electric heat pumps, combined heat and power (CHP) systems, thermal storage technologies, and other heating systems based on electricity, clean hydrogen, biomass, or waste heat recovery. b. Carbon capture, transport, utilization, and storage systems. (i) Examples of eligible equipment include carbon capture equipment necessary to compress, treat, process, liquefy, pump, or perform some other physical action to capture carbon oxides, and specialized equipment and materials needed for the transport and storage of carbon oxides, including carbon dioxide pipelines, monitoring equipment, and injection equipment and well components such as packers, casing strings, CO 2 -resistant cement, steel tubulars, well heads, valves, and sensors suitable for use in Underground Injection Control Class VI wells. Additional examples include equipment to convert carbon oxides through mineralization, thermochemical, electrochemical, photochemical, plasma-assisted, or other catalytic process approaches to carbon-based products such as synthetic fuels, chemicals, solid carbon products, and inorganic materials. (ii) Examples of ineligible property include scrubbers for conventional air pollutants, except those that are required to remove pollutants upstream of carbon capture equipment to enhance the performance of the capture equipment; energy generation equipment, except as related to energy recovery at carbon capture systems; and refining equipment. c. Energy efficiency and reduction in waste from industrial processes. Examples of eligible equipment include technologies that reduce direct fuel use, electricity use, or waste in industrial applications, such as industrial heat pumps, CHP systems, insulation, sensors, controls, advanced recycling approaches, smart energy management, and similar advanced efficiency technologies. d. Any other industrial technology designed to reduce greenhouse gas emissions, as determined by the Secretary. (i) Examples of other eligible industrial technologies include electrification of direct fuel use processes, adoption of renewable or low-emissions fuels and feedstocks, and other equipment replacement or process redesigns that reduce process- or fuel-related emissions or otherwise contribute to reducing GHG emissions by at least 20 percent. (ii) Projects in this category may qualify by installing equipment designed to achieve a minimum of a 20 percent reduction in GHG emissions in one or more of the following ways: (A) Achieve a direct (Scope 1) GHG emissions reduction of 20 percent facility-wide; (B) Achieve an indirect fuel- or energy-related (Scope 2) GHG emissions reduction of 20 percent facility-wide; or (C) Achieve a direct or indirect fuel- or energy-related GHG emissions reduction of 20 percent at a facility subunit, such as a particular process step or fuel combustion unit. (iii) While facilities may be eligible under this project category by achieving a 20 percent reduction threshold within a particular element of their process or emissions profile, overall combined Scope 1 and Scope 2 GHG emissions impacts for the full qualifying facility will be taken into account when evaluating each project for the purposes of application scoring. Scope 1 and Scope 2 GHG emissions are further defined in section 2.2 of Appendix B, Glossary of Terms. Instructions for calculating and demonstrating an emissions reduction of 20 percent is provided in section 2.6.1 of Appendix B, Data Sheet. 1.3 Critical Material Projects A qualifying advanced energy project in this category re-equips, expands, or establishes an industrial facility for the processing, refining, or recycling of critical materials (as defined in § 7002(a) of the Energy Act of 2020 (30 U.S.C. § 1606(a)). For purposes of this Round 2, critical materials consist of: a. The currently effective final list of critical minerals as determined by the U.S. Geological Survey (see 2022 Final List of Critical Minerals for the list published in 2022 available at: https://www.energy.gov/cmm/what-are-critical-materials-and-critical-minerals); and b. Any additional critical materials as determined by the Secretary of Energy and for which a final determination is posted on the DOE's critical materials page on or before July 31, 2023, available at: http://www.energy.gov/criticalmaterials. A proposed determination was posted at this web address prior to the publication of this notice. Note: DOE reserves the right to extend the deadline for concept paper submissions based on any changes included in the final determination. Examples of eligible projects in this project category include the processing of raw ore, brines, mine tailings, end-of-life products, waste streams, and other source materials into critical materials. Note: These examples have been updated with additional clarifying language since the publication of Notice 2023-18. Examples of ineligible projects under this project category include the subsequent physical or chemical transformation of critical materials into derivative products, including metals manufacturing such as aluminum extrusion and chemical manufacturing such as anode and cathode materials production. However, projects involving such derivative products may be eligible under the Clean Energy Manufacturing and Recycling Projects category. Note: These examples have been updated with additional clarifying language since the publication of Notice 2023-18. 2 APPENDIX B - DOE Application Process DOE Application Process THIS APPENDIX B SUPERSEDES APPENDIX B OF NOTICE 2023-44. 2.1 Executive Summary Appendix B provides guidance on the DOE application process. The Appendix is organized as follows: - Section 2.2 Glossary of Terms defines key terms used throughout the guidance. - Section 2.3 DOE Review Process summarizes application process and program priorities. - Section 2.4 Stage 1, Concept Paper Guidance summarizes the concept paper submission requirements, the concept paper template, and the review process. - Section 2.5 Stage 2, 48C(e) Application Guidance summarizes the application submission requirements, application submission guidelines, and the review process. - Section 2.6 Additional Application Materials summarizes the data sheet and appendix files guidelines. - Section 2.7 Technical Review Criteria summarizes the criteria that DOE will use to evaluate applications. - Section 2.8 Submission and Registration Information and Requirements summarizes the logistics and requirements for submitting application materials. - Section 2.9 DOE Recommendation Process describes program policy factors DOE will use to evaluate applications. - Section 2.10 Post Allocation describes requirements for certification for successful applications after allocations have been made. - Section 2.11 Questions/Comments and Informational Webinar summarizes how to learn more about the 48C program. Below are the key dates for Round 2 of the 48C Program. Table 1: Program Key Dates 2.2 Glossary of Terms The following terms may be used throughout this appendix describing the DOE application process. 2.3 DOE Review Process 2.3.1 Program Process A two-stage technical evaluation process will be used for submissions: - Stage 1: Concept Paper. - Stage 2: § 48C(e) Application. In Stage 1, concept paper submission application materials will be available for applicants to download from the 48C portal and concept paper submissions will be accepted in the 48C portal beginning no later than May 28, 2024. DOE will only consider concept papers that are submitted by 5:00 PM Eastern Time, 30 days after the 48C portal opens. Section 48C(e) applications for Round 2 allocations will not be considered by DOE unless a Round 2 concept paper submission is received from an applicant by the specified deadline. Potential applicants will not be able to begin concept papers or submit concept papers for Round 2 after the deadline. In Stage 2, following DOE's review of concept papers and transmission of letters encouraging or discouraging the applicant to continue in the process, the 48C portal will reopen to receive § 48C(e) application submissions for subsequent evaluation by DOE. The date on which DOE will begin accepting § 48C(e) applications and the deadline by which they must be submitted will be conveyed to applicants through the 48C portal at a later date. In each stage, DOE will review the submitted materials for compliance and eligibility, and perform a thorough, consistent, and objective examination based on technical review criteria and other factors, as described below. After Stage 2 evaluations of § 48C(e) applications are complete, DOE will transmit allocation recommendations to the IRS for final consideration. The IRS will notify applicants of final allocation decisions for Round 2 no later than January 15, 2025. In conducting its review, DOE may utilize assistance and advice from qualified personnel from other federal agencies and/or contractors. DOE will obtain conflict of interest/non-disclosure acknowledgements from and administer required trainings in advance for all reviewers to assure that application information will be kept confidential and shall be used only for reviewing purposes, in accordance with applicable requirements. Reviewers will be required to report all personal and organizational conflicts of interest. DOE reserves the right to request clarifications and/or supplemental information from some or all applicants submitting applications through written submissions. DOE may determine whether to recommend or not recommend an application to the IRS at any time after the § 48C(e) application has been received, without further exchanges or discussions with the applicant. 2.3.2 Program Key Dates Table 2: Program Key Dates 2.3.3 Program Priorities There are three qualifying advanced energy project categories (defined in Appendix A): Clean Energy Manufacturing and Recycling Projects, Industrial Decarbonization Projects, and Critical Material Projects. Note that in Round 1, the Industrial Decarbonization Project category was referred to as "Greenhouse Gas Emissions Reduction Projects"; the updated project category name in Round 2 is a change in terminology only, and it is designed to avoid confusion with the second technical review criterion (detailed below). It is the applicant's responsibility to determine the most applicable qualifying advanced energy project category, according to the guidance in Section 2.8.2, Determining an Application's Project Category. For all three project categories, eligible applications will be evaluated by DOE against the four technical review criteria reflecting overall program objectives: - Criterion 1: Commercial Viability - Criterion 2: Greenhouse Gas Emissions Impacts - Criterion 3: Strengthening U.S. Supply Chains and Domestic Manufacturing for a Net-Zero Economy - Criterion 4: Workforce and Community Engagement A taxpayer with a qualified investment in any of the projects described as eligible in Appendix A of this guidance may apply for a § 48C(e) allocation. In determining whether to recommend a project for an allocation, DOE will consider whether the proposed project is located in § 48C(e) Energy Communities Census Tracts, as defined in section 5.06 of Notice 2023-18. In Round 2, DOE anticipates recommending approximately $2.5 billion in § 48C credits to projects located in these communities. DOE has identified the following priority areas for Round 2. Guidance for future rounds under § 48C(e) may include different priority areas. When evaluating Clean Energy Manufacturing and Recycling Projects, DOE will take into consideration whether the project addresses the following energy supply chain and manufacturing priority areas. These priority areas have been identified based on analytical criteria including an assessment of current and anticipated supply chain gaps in areas eligible under § 48C(e): Round 2 Priority Areas (in alphabetical order): - Clean Hydrogen: Manufacturing of electrolyzers, fuel cells, and associated components (including gas diffusion layers, bipolar plates, power electronics, membrane electrode assemblies and stacks, and catalysts). - Electric Grid: Manufacturing of distribution and large power transformers and associated subcomponents, materials (including grain-oriented electrical steel, amorphous steel), power electronics, HVDC cables, HV circuit breakers, and other grid components and equipment (including MVDC/HVDC converter station components and switchgears). - Electric Heat Pumps: Manufacturing of air-source or geothermal (ground-source) heat pump components and systems, particularly heat pumps for industrial or networked applications and/or those utilizing low-GWP refrigerants (such as natural refrigerants). - Electric Vehicles**: Manufacturing of power electronics (including semiconductors, modules, and circuits for EV motor traction drives, on-board EV chargers, DC/DC converters, and EV charging stations), permanent magnets, and specific battery components (separators, electrolyte salts and solvents, cathode and anode active materials and precursors). Manufacturing of capital equipment for battery manufacturing. Manufacturing of sub-components and components specific to medium- and/or heavy-duty (MDV/HDV) electric vehicles and final assembly of MDV/HDV electric vehicles. - Energy-intensive materials that have a substantially lower carbon intensity when compared to an appropriate industry-specific benchmark: Manufacturing or recycling of low carbon cement, concrete or components such as supplementary cementitious materials, low carbon iron and steel, and low carbon aluminum - Nuclear Energy: Manufacturing of specialized components and equipment for nuclear power reactors or their fuels (including fabrication of fuels, and manufacturing of equipment for conversion, enrichment, and deconversion), for both existing reactors and new reactor deployments. - Solar Energy**: Polysilicon, wafer production facilities, ingot and wafer production tools, and solar rolled glass production facilities. - Sustainable Aviation Fuels: Manufacturing of equipment needed for low-carbon aviation fuel production (including feedstock handling equipment and pre-treatment reactors). - Wind Energy**: Component production facilities and specialized steel production, particularly for offshore wind, such as monopile-grade steel and towers; recycling of wind components, particularly blades; offshore wind electrical balance of system component manufacturing, including submarine cables (AC and DC), large power transformers, and HVDC converter stations and converter station components. Federal Register: Section 45X Advanced Manufacturing Production Credit ** The production of some products under this section may be eligible for tax credits under § 45X and receiving an allocation under § 48C(e) may preclude an applicant from receiving tax credits under that program. Applicants are encouraged to evaluate which program may be most beneficial to their project before submitting a concept paper for consideration under § 48C(e). When evaluating Critical Material Manufacturing and Recycling Projects, DOE will take into consideration whether the project processes, refines, or recycles critical materials as determined by the Secretary of Energy, as described in section 1.3(b) of Appendix A. When evaluating Industrial Decarbonization Projects, DOE will give priority to projects that deeply reduce emissions to levels significantly below a reasonable domestic industry average (on a sector-specific basis) and the 20% reduction eligibility requirement stated in section 1.2 of Appendix A, Industrial Decarbonization Projects. DOE will give priority to Industrial Decarbonization Projects that advance the commercial viability and uptake of replicable decarbonization efforts in major industrial applications (e.g., cement, iron and steel, aluminum, chemicals, and other energy-intensive manufacturing sectors), including innovative solutions, and to projects that align with one or more cross-cutting industrial decarbonization techniques, such as energy efficiency, electrification, low-carbon fuels, feedstocks, and energy sources (LCFFES), material efficiency or substitution, and carbon capture utilization and storage (CCUS). 2.4 Stage 1, Concept Paper Guidance The first stage of DOE review requires applicants to submit concept papers describing the proposed project. This section describes the information applicants must include in concept papers and the format of the submission. Concept papers will undergo a multi-step evaluation by DOE. Applicants who applied in Round 1 and were not selected for an allocation are eligible to submit a concept paper in Round 2. 2.4.1 Concept Paper Submission Requirements This section outlines the format of the concept paper submission. See Appendix A for a description of the eligibility requirements for the § 48C credit under this notice. See Section 2.7, Technical Review Criteria, for a description of the technical review criteria that will be used to evaluate submitted concept papers. The purpose of the concept paper stage is to save applicants the considerable time and expense of preparing § 48C(e) applications for proposed projects that are unlikely to be selected for recommendation. The concept paper must conform to the following requirements: - Concept paper must be written in English. - Use Times New Roman typeface, a black font, and a font size of 11 points or larger (except in figures and tables). A symbol font may be used to insert Greek letters or special characters; the font size requirement still applies. - The control number must be prominently displayed on the upper right corner of the header of every page. Page numbers must be included in the footer of every page. - Each must be submitted in Adobe PDF format unless stated otherwise. Each concept paper should be limited to unique property within a distinct qualifying advanced energy project that does not overlap with a qualifying advanced energy project in any other application submitted by the same applicant: - For applicants applying under the Clean Energy Manufacturing and Recycling Project category, or the Critical Materials Project category, the applicant may submit more than one application involving the same facility. However, the qualified investment for each project at the same facility may not overlap in Round 2. - For applicants applying under the Industrial Decarbonization Project category, the applicant may submit only one application at the same facility in Round 2. If projects involve more than one qualifying advanced energy project listed in Appendix A, then applicants must choose a primary specified advanced energy property for their project. The entire concept paper submission includes two components: a template (there are unique forms for Clean Energy Manufacturing and Recycling Projects/Critical Materials Projects and Industrial Decarbonization Projects) and a data sheet. Note: The maximum file size that can be uploaded to the 48C portal is 25 MB. Files in excess of 25 MB cannot be uploaded, and hence cannot be submitted for review. If a file exceeds 25 MB but is still within the maximum page limit, it must be broken into parts and denoted to that effect in the naming convention of the file. For example: "[ControlNumber]-ConceptPaper_Part_1.pdf", "[ControlNumber]-ConceptPaper_Part_2.pdf. The full list of required files for concept paper submission is illustrated in the following table. Table 3: Files Required for Concept Paper Submission For all files, "[ControlNumber]" should be replaced by the application's control number. For example, for a control number of 1234, the file would be named, "1234-ConceptPaper.pdf". 2.4.2 Concept Paper Template At the Concept Paper stage, applicants may be asked to respond to the following questions in their submission. Additional questions may be added to this list when Concept Paper submissions open. In addition, applicants will be asked to submit an Excel data sheet. 2.4.2.1 Clean Energy Manufacturing and Recycling and Critical Materials Projects Concept Paper Template - Project Overview and Schedule o Describe your company and project team, including key personnel and any subcontractors on the project. o Describe whether the project will establish, re-equip, or expand a facility; whether the facility will support the manufacturing, processing, refining, or recycling of specified advanced energy property; and the extent to which innovative equipment and/or processes will be employed. o Describe the status of the project and provide any additional details that are helpful to understand the project schedule. o List local, state, and/or federal permits that are required for this project and specify which of these permits you already possess. For any permits you have yet to obtain, describe the remaining steps and provide an estimated timeline for their acquisition. - Commercial Viability o Describe the specified primary advanced energy property that will be produced by the facility, including how many units of specified advanced energy property will be produced annually and any technological or cost advantages over product competitors. o Provide an estimate of annual market demand for the facility's product over the next 5 to 10 years. o Describe the primary or target customers for your facility's product and the details of any existing offtake agreements or other demand commitments (e.g., with whom, for how many units, and for how long). o Describe the different sources of financing for this project, differentiating between secured financing and planned or expected financing. Describe the capital structure (e.g., debt/equity ratio) if multiple sources of capital will be used. If financing using the company's own funds, specify the amount of cash available to support this project. o Describe anticipated legal, financial, engineering, procurement, construction, and operational risk(s) that the project may experience. Explain what actions the project team will implement to mitigate these risks and achieve execution and commercial success. - Strengthening U.S. Supply Chains and Domestic Manufacturing for a Net-Zero Economy o Describe the supply chain segment that your project's specified advanced energy property will contribute to. Explain whether your project will mitigate current challenges that the U.S. is experiencing in maintaining a secure domestic supply chain, based on where the product is manufactured today and a comparison between the proposed manufacturing capacity and current and projected market demand. - Greenhouse Gas Emissions Impacts o Describe the impact of your facility's product and/or the technologies the product will enable on greenhouse gas emissions. - Workforce and Community Engagement o Provide the anticipated geographical location of the eligible manufacturing, processing, refining, or recycling facility, including the census tract the project is located in. Explain why you selected the project site. o Does the location qualify as a 48C energy community? (see Appendix C for the full list of 48C energy community Census tracts) o Does the location or community qualify as a disadvantaged community according to the Climate and Economic Justice Screening Tool (CEJST)? o Does the location or community qualify as a disadvantaged community according to a different federal, state, or local data tool? If yes, indicate which one(s). o If located in an energy community, describe the extent to which the project will (1) support transition opportunities for workers in the coal, automotive, and other energy sectors, and (2) use existing infrastructure in energy transition communities. o Describe the extent to which the project will secure job quality (e.g., wages, benefits, health and safety at the workplace, affirmative support of collective bargaining). o Describe what labor and community engagement has been completed and/or is planned. Summarize any formal agreements that are planned or have been executed (e.g., Project Labor Agreements, Community Benefits Agreements, Collective Bargaining Agreements). o Describe any pollutants that the project will introduce to the local community, and explain what specific, measurable steps the project is taking beyond compliance with environmental law to mitigate local environmental impact. 2.4.2.2 Industrial Decarbonization Projects Concept Paper Template - Project Overview and Schedule o Describe your company and project team, including key personnel and any subcontractors on the project. o Describe the retrofit project, including the equipment, technologies, or approaches the project will use to reduce greenhouse gas emissions from the industrial or manufacturing facility (e.g., low- or zero-carbon process heat systems, energy efficiency equipment, etc.). Explain the extent to which innovative equipment and/or processes will be employed. o Describe the status of the project and provide any additional details that are helpful to understand the project schedule. o List local, state, and/or federal permits that are required for this project. Specify which of these permits you already possess. For any permits you have yet to obtain, provide an estimated timeline for their acquisition. - Greenhouse Gas Emissions Impacts o Describe the impacts of the project on the facility's Scope 1 greenhouse gas emissions. o Describe the impacts of the project on the facility's Scope 2 greenhouse gas emissions. o Explain how the project will achieve a 20% reduction in greenhouse gas emissions, including interactions between Scope 1 and Scope 2 emissions (e.g., due to electrification). Estimate the greenhouse gas emissions reductions that will be achieved by the project in both absolute (e.g., million metric tons per year) and percentage terms. o Provide an estimate of the levelized cost of measured reduction in GHG emissions, based on total project costs. - Strengthening U.S. Supply Chains and Domestic Manufacturing for a Net-Zero Economy o Describe the extent to which the employed equipment, technologies, or approaches could be applied to reduce greenhouse gas emissions beyond the specific project location, within or across sectors. - Commercial Viability o Describe the facility's outputs, including how many units are produced annually today. Explain any anticipated impacts of the retrofit project on annual production from the facility. o Describe the primary or target customers for your facility's products and the details of any existing offtake agreements or other demand commitments for the lower-carbon product (e.g., with whom, for how many units, and for how long). o Describe how the retrofit project will impact the price of your product and provide an estimated price of your facility's products after the project is completed. Describe how the price of your lower-carbon product will compare to similar technologies or materials in the same market segment, including conventional and lower-carbon products. o Describe the different sources of financing for this project, differentiating between secured financing and planned or expected financing. Describe the capital structure (e.g. debt/equity ratio) if multiple sources of capital will be used. If financing using the company's own funds, specify the amount of cash available to support this project. o Describe anticipated legal, financial, engineering, procurement, construction, and operational risk(s) that the project may experience. Explain what actions the project team will implement to mitigate these risks and achieve execution and commercial success. - Workforce and Community Engagement o Provide the anticipated geographical location of the project, including the census tract (see Appendix C) the project is located in. o Does the location or community qualify as a disadvantaged community according to the Climate and Economic Justice Screening Tool (CEJST)? o Does the location or community qualify as a disadvantaged community according to a different federal, state, or local data tool? If yes, indicate which one(s). o Does the location qualify as a 48C energy community? o If located in an energy community, describe the extent to which the project will (1) support transition opportunities for workers in the coal, automotive, and other energy sectors, and (2) use existing infrastructure in energy transition communities. o Describe the impact of the project on jobs at the facility, including jobs associated with the retrofit and the extent to which the retrofit will retain or create jobs in manufacturing. o Describe the extent to which the project will secure job quality (e.g., wages, benefits, health and safety at the workplace, affirmative support of collective bargaining). o Describe what labor and community engagement has been completed and/or is planned. Summarize any formal agreements that are planned or have been executed (e.g., Project Labor Agreements, Community Benefits Agreements, Collective Bargaining Agreements). o Describe any pollutants that the project will introduce to the local community, and explain what specific, measurable steps the project is taking beyond compliance with environmental law to mitigate local environmental impact. 2.4.3 Concept Paper Review Process Overview 2.4.3.1 Compliance and Eligibility Review DOE will carry out an initial compliance review for concept papers to determine that (1) eligibility requirements have been met, (2) the required information has been submitted, (3) the proposed project is technically valid, and (4) all mandatory requirements of this notice are satisfied. As part of this review, DOE will determine whether the proposed project meets the definition of a qualifying advanced energy project, as described in Appendix A. If a concept paper fails to meet compliance or eligibility requirements or fails to provide sufficient information for evaluation, DOE reserves the right to request clarifications and/or missing information from some or all applicants through written submissions provided to DOE in a timely manner. Concept papers that fail to meet the compliance or eligibility requirements or do not provide sufficient information for evaluation will be considered non-responsive and will receive a discouragement letter. 2.4.3.2 Technical Review After the concept paper compliance and eligibility review, DOE will perform a technical review process based on four technical review criteria: - Criterion 1: Commercial Viability. - Criterion 2: Greenhouse Gas Emissions Impacts. - Criterion 3: Strengthening U.S. Supply Chains and Domestic Manufacturing for a Net-Zero Economy. - Criterion 4: Workforce and Community Engagement. See complete details of the technical review criteria in Section 2.7, Technical Review Criteria. All technical review criteria will be used in a thorough, consistent, and objective examination to develop scores for ranking applications and determining merit of each proposed project. The review of the Commercial Viability criterion will additionally inform eligibility by determining whether the project has a reasonable expectation of commercial viability, as described in § 48C(d)(3)(A). The information requested for each criterion will vary based on the qualifying advanced energy project category, as detailed in Section 2.7, Technical Review Criteria. 2.4.3.3 Final Outcome for Concept Papers Following the compliance, eligibility, and technical reviews, DOE may also consider program policy factors when determining the final portfolio of recommendations (see Section 2.9, DOE Recommendation Process ). After this review, DOE will issue a letter to applicants either encouraging them to submit a § 48C(e) application or discouraging them from submitting a § 48C(e) application. An applicant that receives a discouragement letter may still submit a § 48C(e) application in accordance with the § 48C(e) program and additional guidance. Receiving a discouragement letter in response to a submitted concept paper does not disqualify a taxpayer from submitting a § 48C(e) application but represents DOE's feedback that the project, as proposed, is unlikely to receive a recommendation based on the information provided in the concept paper. DOE expects to transmit encouragement and discouragement letters to applicants in the summer of 2024. Following the encouragement and discouragement notifications, DOE will publish a summary of general feedback based on the concept paper review process. 2.5 Stage 2, 48C(e) Application Guidance The second evaluation stage will consist of a review of § 48C(e) applications submitted after the concept paper stage. Sections 2.6, Additional Application Materials, 2.8, Submission and Registration Information and Requirements, and 2.9, DOE Recommendation Process describe the information about the submission process and additional instructions for applicants. Applicants may not submit a § 48C(e) application unless they submitted a concept paper by the specified deadline. The deadline for § 48C(e) applications will be communicated to applicants in the encouragement and discouragement letters and posted on the 48C portal. 2.5.1 Application Submission Requirements This section outlines the format of the § 48C(e) application submission. Section 48C(e) applications should be formatted and arranged as described in this section. Strict adherence is required. Content requirements for § 48C(e) applications and the technical review criteria used by DOE to evaluate them are listed in Section 2.7, Technical Review Criteria. The applicant's Control Number is used throughout the submitted files. The control number is a unique identifier generated by the 48C portal for your application and will be determined by the system when the applicant first begins your application process. Section 48C(e) applications must conform to the following requirements: 1. All § 48C(e) applications must be written in English. 2. All pages must be formatted to fit on 8-1/2 by 11-inch paper with margins not less than one inch on every side. Use Times New Roman typeface, a black font, and a font size of 11 points or larger (except in figures and tables). A symbol font may be used to insert Greek letters or special characters; the font size requirement still applies. 3. References must be included as footnotes or endnotes in a font size of 10 or larger. Footnotes and endnotes are counted toward the maximum page requirement. 4. The Control Number, which is the same number used for the concept paper, must be prominently displayed on the upper right corner of the header of every page. Page numbers must be included in the footer of every page. 5. Cash flow models should be submitted as a Microsoft Excel spreadsheet and must include calculation formulas and assumptions. 6. All § 48C(e) applications must be submitted in Adobe PDF format unless stated otherwise. Each § 48C(e) application should be limited to a unique project with a distinct qualified investment. If projects involve more than one specified advanced energy property listed in Appendix A, then applicants must choose a primary specified advanced energy property for their project. The entire § 48C(e) application submission includes five components: a narrative, a workforce and community engagement plan, a business entity certification, a data sheet, and appendices. The § 48C(e) application narrative must not exceed 30 pages when printed using the formatting requirements set forth above and single spaced. Pages in excess of the page limitation will not be considered for review. No material may be incorporated by reference as a means to circumvent the page limitation. Section 48C(e) application narratives should be submitted in Adobe PDF format with the file name [ControlNumber]- 48CApplication.pdf. The workforce and community engagement portion of the § 48C(e) application will be submitted in a separate file and must not exceed 5 pages when printed using the formatting requirements set forth above and single spaced. Pages in excess of the page limitation will not be considered for review. No material may be incorporated by reference as a means to circumvent the page limitation. The § 48C(e) application workforce and community engagement plan should be submitted as a separate file in Adobe PDF format with the file name [ControlNumber] -App-WCE.pdf. The 48C Business Entity Certification, which supports DOE's Due Diligence Review, should be completed and submitted as a separate file using the provided template or a comparable format including the same substantive information. Applicants must submit the file as a PDF with the file name [ControlNumber] -BusinessEntityCertification.pdf. The 48C Application Data Sheet should be completed and submitted as a separate Excel document with the file name [ControlNumber] -App-DataSheet.xlsx. Additional instructions for completing the 48C Application Data Sheet are included in Section 2.6, Additional Application Materials. Any supporting documents should be uploaded as separate, individual files, preferably in Adobe PDF format. Content provided as appendices do not count towards any page limits described above. Note: The maximum file size that can be uploaded to the 48C portal is 25 MB. Files in excess of 25 MB cannot be uploaded, and hence cannot be submitted for review. If a file exceeds 25 MB but is still within the maximum page limit, it must be broken into parts and denoted to that effect. For example: "48CApplication _Part_1.pdf", "48CApplication_Part_2.pdf". The full list of required files for § 48C(e) application submission is illustrated in the following table. Table 4: Files Required for § 48C(e) Application Submission For all files, "[ControlNumber]" should be replaced by the application's control number. For example, for a control number of 1234, the file would be named, "1234-ConceptPaper.pdf". See Sections 2.6, Additional Application Materials and 2.8, Submission and Registration Information and Requirements for information on which supporting documents should be submitted as appendix materials. 2.5.2 Application Submission Material Guidelines The following subsections contain detailed guidance for content requirements for each project category--Clean Energy Manufacturing and Recycling Projects, Industrial Decarbonization Projects, and Critical Material Projects--for the § 48C(e) application stage. Applicants should complete their application package using only the guidance in this section for their application's project category. The Workforce and Community Engagement application guidelines apply to and are consistent across all project types. 2.5.2.1 Clean Energy and Critical Materials Manufacturing and Recycling Projects Company Overview Describe your company, your team on the project, and prior experience producing proposed product(s). Project Summary - Describe the proposed facility, including anticipated number of employees, and geographic location. - Indicate the objectives of the investment or project, including: o Whether the project will establish, re-equip, or expand a facility. o The specified advanced energy property or project, and whether the facility will manufacture, process, refine, or recycle the specified advanced energy property. If the project involves more than one specified advanced energy property, indicate the project's primary advanced energy property, and any additional advanced energy properties the project will produce or recycle. o In the case of a recycling project, describe the facility's products and the clean energy supply chains they will support. - Describe the equipment and processes employed at the proposed facility to manufacture or recycle the proposed advanced energy property. o If the proposed project re-equips or expands an existing facility, describe clearly what the proposed project will add or change in the existing facility. o Provide a list of the anticipated eligible property that will make up the qualified investment of the qualifying advanced energy project. - Describe any significant changes to the project that have occurred since the concept paper stage. Project Management and Timeline - Provide a project schedule from construction through operation and achieving full production capacity, which demonstrates how certification requirements will be met within two (2) years of receiving an allocation decision from the IRS, and how the project will be placed in service within two (2) years of such certification. - Describe plans or strategies in place to ensure sufficient provision of crucial resources required for the project's successful execution. - Summarize status of the Engineering, Procurement, Construction Agreements, and Operations and Maintenance Agreements. Siting and Permitting - Explain the rationale for selecting the project site and illustrate the site can fully meet all environmental, water supply, transmission interconnection, and other necessary requirements. - Summarize the status and plans, including timeline to secure all required permits such as all federal, state, and local permits, including environmental authorizations (if applicable) or reviews necessary to commence construction of the project. Risk Management Plan - Identify project risks or challenges--including legal, financial, engineering, procurement, construction, and operational risks--and any relevant mitigation strategies. - Include a discussion of natural disasters (e.g., earthquakes), climate impacts and extreme weather patterns (e.g., tornadoes, hurricanes, heat and freezing temperatures, drought, wildfire, and floods) that may impact the resilience/sustainability of the project. Financial Information - Submit a cash flow model detailing investments in and cash flows anticipated over the facility's expected lifetime, including a description of the methodology and all assumptions used. - Describe the payback period, net present value (NPV), adjusted present value (APV) and break-even analysis for the project and other financial metrics including return on investment and return on assets. - Estimate the project's amount that will be treated as a qualified investment (as determined under § 48C) if the project is certified to receive a credit. The applicant may use any reasonable methodology and assumptions in estimating this amount. - Describe the amount of equity that will be invested in the project, including the sources of such equity and their strengths. - Describe the amount of total debt obligations that will be incurred and the funding sources of all such debt. - Describe any local, state, or other federal incentives or funds that are being pursued or have been awarded for the proposed project, such as grants, loan guarantees, or tax credits. o Include a description of any instances where any federal agencies or non-federal governmental entities have entered into an arrangement as a customer or offtaker of the project's products or services, or other federal contracts, including acquisitions, leases, and other arrangements, that may indirectly support the applicant's proposed project. Market Information - Describe the markets your products will serve, including the existing product market size and company market share in dollars and volume, and growth potential for the next 5 to 10 years. - Discuss the current and anticipated competitiveness of your product in the next 5 to 10 years, including competing products and competitors. Provide the estimated cost of your facility's product and how it compares to similar technologies or materials in the same market segment, including new and recycled products. This should be expressed in the same units as annual production (e.g., $/watt, $/kilowatt-hour, and $/ton), and applicants should include the absolute difference and percentage change from a reasonable domestic industry average. - Discuss your sales forecast, including details of any offtake agreements you may have to support your project. Identify confirmed or potential customers who will purchase, lease, or otherwise use the facility's product. Levelized Cost Information - For the facility's product, discuss the levelized cost of generated or stored energy (LCOE), or of GHG emissions abatement (LCEA), based on costs of the full supply chain. The reported LCOE/LCEA should assume that the facility's products are part of a final clean energy installation and, where appropriate, be based on the financial and resource assumptions provided in the 48C Application Data Sheet. LCOE should be expressed in nominal terms and should not include any federal, state, or other financial incentives. The following information should be provided as documentation: o Brief description of the methodology used as the basis for the calculation. o Identification and brief rationale for the source of key values used in the calculation, including capital or first costs, operating and maintenance costs, prices of commodity fuels or feedstocks, and carbon emissions associated with the operation of the end-use energy product. o Justification for any use of a resource-related parameter (e.g., capacity factor) different than the national averages provided in the data sheet. o In the case of LCEA, identification and brief rationale for the key values associated with the baseline energy mix, including the cost of generation and carbon emissions. o Explanation of any factors impacting the levelized cost that could not be quantified and included in the calculation, and their potential directional effect on the resulting cost (i.e., increase or decrease). Explanation of any relationship between the cost of the manufactured property and the performance of the end use energy product. Management Plan Provide the following information for the company and key management team members: - Describe the ownership structure of the company, including all beneficiaries. - List key management and senior personnel for the project, including the names, positions or titles, qualifications, and relevant experience. - Describe the unique capabilities and expertise of the applicant and any major project partners. - Include debt or equity sponsors, contractors/vendors (if known), and any other counterparty that the applicant believes will enable the project to be successful, as well as the prior experience of the applicant and any major project partners in similar undertakings to the proposed project. - Summarize any pending or threatened action, suit, proceeding, or investigation, including any action or proceeding by or before any governmental authority, that relates to the senior/key personnel, and the status of any appeals. - Describe any corporate health indicators, including legal claims or liabilities, planned debt restructuring, planned corporate actions, and other factors that could negatively affect the likelihood of project completion. End Product GHG Emissions Impacts - Describe the end-use application of the facility's products and how their use will avoid or reduce GHG emissions. Provide any details about the innovation and performance of the end product (e.g., efficiency, range, and economic life) that indicate its ability to facilitate deeper GHG emissions reductions than leading competitors or incumbents. Quantitative information regarding GHG emissions reductions enabled by the facility's product in typical use should be provided in the Data Sheet. o Note: For applicants applying for other advanced energy projects under section 1.1.i.(ii) of Appendix A, Other advanced energy property designed to reduce greenhouse gas emissions as may be determined by the Secretary, applicants must demonstrate a reduction of GHG emissions is an outcome of the manufacture of the advanced energy property. - Depending on the nature and application of the advanced energy property, applicants may choose to include the following information: o For facilities that produce critical materials, components of a large specified advanced energy product (e.g., blade in a wind tower), or technologies that provide indirect GHG emissions reductions (e.g., grid components, storage, or charging infrastructure), applicants should qualitatively describe the emissions impacts of the clean energy technologies that are enabled by the facility's products. Applicants should include internal or external analysis to substantiate indirect emissions benefits. o In the case of advanced energy property that reduces GHG emissions relative to incumbent technologies (e.g., clean vehicle technologies compared to conventional vehicle technologies), applicants should describe the assumptions associated with their estimated emissions impacts, including anticipated market shares, relative emissions intensities, etc. o In the case of recycling projects, applicants should qualitatively describe how the facility's products are expected to reduce emissions through their use and by reducing raw material needs or emissions associated with end-of-life. o In the case of advanced energy projects under section 1.1i of Appendix A, Other advanced energy property designed to reduce greenhouse gas emissions as may be determined by the Secretary, "low carbon energy intensive materials," applicants should report emissions and carbon intensity levels using facility-specific, material/product-specific cradle-to-gate Type III (third-party verified) Environmental Product Declarations (EPDs), in line with the specifications found in EPA's interim determination for the Buy Clean initiative for those relevant products. 1 The projects should reduce carbon intensity on a life cycle basis by at least 30% compared to an appropriate industry-specific benchmark. ******** 1 https://www.epa.gov/system/files/documents/2023-01/2022.12.22%20Interim%20Determination%20on%20Low%20Carbon%20Materials%20under% 20IRA%2060503%20and%2060506_508.pdf ******** GHG Emissions from the Facility - Qualitatively and quantitatively characterize the anticipated sources of Scope 1 or Scope 2 GHG emissions (defined in Section 2.2, Glossary of Terms ) in the manufacturing, processing, refining, or recycling process. Emissions estimates should be provided in the 48C Application Data Sheet using the methodology described in Section 2.6, Additional Application Materials where available, input assumptions should be justified with publicly available data and engineering studies. Explain any significant differences between direct emissions from the facility and industry averages. - Provide any details about the manufacturing, processing, refining, or recycling process (e.g., efficiency, lifetime, electrification, low-carbon fuels, etc.) that indicate its potential to result in lower emissions than leading competitors or incumbents. Wherever possible, the applicant should substantiate assessments of process improvements with descriptions of recent analysis or engineering studies. Describe any planned efforts to mitigate GHG emissions of the proposed facility. Impact on U.S. Supply Chains and Domestic Manufacturing - Indicate whether production from the facility covers multiple supply chain segments--processed material, subcomponents, components, systems/end products--and how those segments interact. - Indicate whether the facility's products will be used in multiple specified advanced energy technologies (e.g., wind, solar, and electric grid) or multiple sectors (e.g., transportation, industry, and electricity). Reference any offtake or sales arrangements provided in the Commercial Viability section to justify the end-use applications. - For Critical Material projects, describe whether the facility's products align with U.S. federal, state, or local domestic content requirements, such as those in the § 30D tax credit. Reference any offtake or sales arrangements provided in the Commercial Viability Criterion section to justify the end-use applications. - In the 48C Application Data Sheet, submit the relevant production capacity information for the facility's outputs and justify each in the § 48C(e) Application narrative. o Annual production capacity includes yield loss and throughput data wherever applicable and possible. o Manufacturing Contribution identifies the value added in the production of the facility's output, as a fraction. Applicants should transparently state and justify current and future pricing assumptions for all significant value chain segments, including the product produced at the proposed facility. o Share of Facility Output represents the portion of the facility output that was used in the production of eligible clean energy products as opposed to other applications. Where possible, applicants manufacturing multiple products (or products with multiple applications) should utilize offtake or sales agreements to demonstrate the portion that will go to eligible applications. o Deployed product lifetime represents the service lifetime of the facility's output (not the lifetime of the facility itself). The applicant should provide and substantiate assumptions with market reports and/or field data, where relevant. Supply Chain Resilience - Describe how your facility's products will help build resilience of domestic supply chains that are critical for energy products that facilitate progress towards a net-zero economy, from raw materials to end-of-life. For instance, critical materials producers intending to serve the battery market should indicate the extent to which their project supports the electric vehicle or stationary energy storage supply chains, as opposed to consumer electronics. - Describe key inputs needed for your manufacturing or recycling process. Describe any known sources for your inputs, including indicating domestic sources and any current or anticipated supply chain vulnerabilities. Workforce and Community Engagement (as a separate PDF document) In a separate PDF document, describe your plan for contributing to job creation and ensuring project viability, timely completion, and ultimate success by fostering a stable and supportive workforce and host community. The following sub-sections outline specific content to be included in the separate PDF document, all of which apply to all project types. Applicants are encouraged to use Specific, Measurable, Achievable, Relevant, and Timely (SMART) milestones wherever possible and where relevant. Job Creation and Workforce Continuity - Describe the applicant's approach to creating and maintaining high-quality jobs for both new and incumbent workers. Characterize and estimate the number and quality of jobs your project will create (e.g., mechanics and construction workers). o Include both direct and indirect jobs both during completion of the project (the credit period) and during operation of the facility after it is placed in service and any indicators of job quality. - Describe partnerships with apprenticeship readiness programs, registered apprenticeship programs, or community-based workforce training and support organizations serving displaced industrial workers. o Include the coal, other energy, and automotive sectors, and others facing systematic barriers to employment to facilitate participation in the project's construction and operations. - Summarize the applicant's plan to attract, train, and retain a skilled and well-qualified workforce both during construction/completion of the project (the credit period) and during operations/production activities of the facility after it is placed in service. o A collective bargaining agreement, labor-management partnership, or other similar agreement would provide evidence of such a plan. Alternatively, or additionally, applicants may describe: Wages, benefits, and other worker supports to be provided as benchmarked at or above prevailing wages for construction and the upper quartile of wages for the occupation and industry for operations/production 2; ******** 2 See BLS data on these wage rates here: List of SOC Occupations (bls.gov) ******** Commitments to invest in workforce education and training, including measures to reduce attrition, increase productivity from a committed and engaged workforce, and support the development of a resilient, skilled, and stable workforce for the project, including specific efforts to recruit, train, and retain workers underrepresented in the sector, local workers, and others facing systematic barriers to employment with measurable goals to achieve these outcomes; and Efforts to engage employees in the design and execution of workplace safety and health plans. - Describe employer commitments to support employees' ability to organize, bargain collectively, and participate, through labor organizations of their choosing, in decisions that affect them. This could include remaining neutral during any union organizing campaigns, permitting union recognition through card check (as opposed to requiring union elections), willingness to enter into binding arbitration to settle first contracts, refraining from holding captive audience meetings, or other supportive measures. Ensuring Timely Project Completion Through Workforce and Community Engagement Describe current and planned agreements, partnerships or other efforts to engage with community and labor stakeholders, including as it relates to strengthening support of the community, workforce recruitment and retention, and the ability to execute the project on schedule and with adequate workforce. - Provide a comprehensive list of stakeholders that the project has engaged or plans to engage from local governments, Tribal governments, labor unions, and community-based organizations. - Describe current and planned efforts to engage with listed stakeholders, including as it relates to the ability to complete the project in a timely and effective manner and with adequate workforce. - Describe current and planned efforts to ensure availability of the workforce needed to successfully complete the project and place it in service in a timely manner, including through training programs that serve workers currently underrepresented in the sector. - Describe any activities to strengthen support of the community such as through benefit-sharing agreements, consideration of environmental impact, and use of local resources. Discussions should reference any existing or draft agreements, commitments or plans to develop agreements such as Good Neighbor Agreements/Community Benefits Agreements, Collective Bargaining Agreements, Project Labor Agreements or Community Workforce Agreements. Existing agreements must be provided in the submission package as appendix files. Energy Community Transition Describe the extent to which the project will support energy communities. - Describe specific actions to support energy communities, including transition opportunities for workers in the coal, other energy, and automotive sectors. Discussion should reference engagement with unions, workforce boards, and/or community-based workforce training and support organizations serving displaced industrial workers. - If applicable, include discussion on plans to repurpose existing infrastructure/assets that have been abandoned due to the closing of a coal mine or coal plant. Local Environmental Impacts Describe the impact of your project on local air, water, and/or land quality, as well as any efforts to mitigate local pollution and waste. - Discuss any anticipated negative and cumulative environmental impacts of the project, including impacts on local air, water, and/or land quality. Describe any efforts to mitigate local pollution and waste. - Determine whether the location or community qualifies as a disadvantaged community according to the Climate and Economic Justice Screening Tool (CEJST). - Within the context of cumulative environmental impacts, applicants should use the U.S. Environmental Protection Agency's Environmental Justice Screening and Mapping (EJSCREEN) tool ( https://www.epa.gov/ejscreen ) to quantitatively discuss existing environmental impacts in the project area. - If anticipated project benefits will flow to an applicable disadvantaged community, identify applicable benefits that are quantifiable, measurable, and trackable, such as: 1. A decrease in energy burden; 2. A decrease in environmental exposure and burdens; 3. An increase in access to low-cost capital; 4. An increase in high-quality job creation, the clean energy job pipeline, and job training for individuals; 5. Increases in clean energy enterprise creation and contracting (e.g., through investment in underserved and underrepresented businesses); 6. Increases in energy democracy, including community ownership; 7. Increased parity in clean energy technology access and adoption; and 8. An increase in energy resilience. - Discuss how the project will maximize all the benefits listed above. - Describe how and when anticipated benefits are expected to flow to the disadvantaged community. For example, will the benefits be provided directly within the disadvantaged communities identified, or are the benefits expected to flow in another way? Further, will the benefits flow during project development or after project completion, and how will applicant track benefits delivered? 2.5.2.2 Industrial Decarbonization Projects Company Overview Describe your company, your team on the project, prior experience retrofitting technologies to reduce GHG emission, and any company commitments related to reducing GHG emissions from manufacturing, industrial, or recycling facilities. Project Summary - Describe the eligible industrial or manufacturing facility to be retrofitted, including, anticipated number of employees, geographical location, baseline emissions compared to peers in your industry. - Include a detailed description of the equipment and processes employed at the proposed facility. - Indicate which technologies or processes will be pursued to reduce the facility's GHG emissions by at least 20%, including low- or zero-carbon process heating systems; carbon capture, transport, utilization, or storage systems; energy efficiency and reduction in waste; or other industrial technology. - Estimate the project's anticipated emissions reductions in both absolute and percentage terms (relative to your facility's baseline emissions). Indicate whether the retrofit project will achieve the required 20% reduction in (a) Scope 1 emissions (defined in Section 2.2, Glossary of Terms ), Scope 2 emissions (defined in Section 2.2, Glossary of Terms ), or total (Scope 1 and Scope 2) emissions, and (b) subunit emissions or facility wide emissions. - Describe any significant changes to the project scope that have occurred since the concept paper stage. Project Management and Timeline - Provide a project schedule from construction through operation and achieving full production capacity, which demonstrates how certification requirements will be met within two (2) years of receiving an allocation decision from the IRS, and how the project will be placed in service within two (2) years of such certification. - Describe plans or strategies in place to ensure sufficient provision of crucial resources required for the project's successful execution. - Summarize status, e ngineering, procurement, c onstruction agreements, and Operations and Maintenance Agreements. Siting and Permitting - Explain the rationale for selecting the project site and illustrate that the site can fully meet all environmental, water supply, transmission interconnection, and other necessary requirements. - Summarize the status and plans to secure all required permits such as all federal, state, and local permits, including environmental authorizations (if applicable) or reviews necessary to commence construction of the project. Risk Management Plan - Identify project risks or challenges and any relevant mitigation strategies. - Include a discussion of natural disasters (e.g., earthquakes), climate impacts and extreme weather patterns (e.g., tornadoes, hurricanes, heat and freezing temperatures, drought, wildfire, and floods) that may impact the resilience/sustainability of the project. Financial Information - Describe the financial viability of the project and provide supporting metrics such as payback period, net present value (NPV), or return on investment and return on assets. - Estimate the project's qualified investment (as determined under § 48C) if the project is certified to receive a credit. The applicant may use any reasonable methodology and assumptions in estimating this amount. - Calculate the levelized cost of measured reduction in GHG emissions (based on costs of the full supply chain) that will be enabled by the project. Instructions for calculating levelized cost metrics are provided in Section 2.6, Additional Application Materials. - Explain the methodology and assumptions used in the § 48C(e) application narrative. Market Information - Discuss the current and anticipated competitiveness of your product in the next 5 to 10 years, after retrofitting and how it compares to similar technologies or materials in the same market segment, including conventional and lower-carbon products. This should be expressed in the same units as annual production (e.g., $/watt, $/kilowatt-hour, and $/ton) per the instructions in the 48C Application Data Sheet. Applicants should include the absolute difference and percentage change from a reasonable domestic industry average. Management Plan Provide the following information for the company and key management team members: - Describe the ownership structure of the company, including all beneficiaries. - List key management and senior personnel for the project, including the names, positions or titles, qualifications, and relevant experience. - Describe the unique capabilities and expertise of the applicant and any major project partners. - Include debt or equity sponsors, contractors/vendors (if known), and any other counterparty that the applicant believes will enable the project to be successful, as well as the prior experience of the applicant and any major project partners in similar undertakings to the proposed project. - Summarize any pending or threatened action, suit, proceeding, or investigation, including any action or proceeding by or before any governmental authority, that relates to the senior/key personnel, and the status of any appeals. - Describe any corporate health indicators, including legal claims or liabilities, planned debt restructuring, planned corporate actions, and other factors that could negatively affect the likelihood of project completion. GHG Emissions from the Facility - Describe the portions of the industrial or manufacturing process that will be re-equipped by the project, the nature of the improvements, and how the improvements drive emissions reductions. Include a description of the extent to which best-in-class technologies are deployed. - Describe and quantify the Scope 1 and Scope 2 GHG emissions (defined in Section 2.2, Glossary of Terms ) of the facility immediately before and after the retrofit project, including interactions between Scope 1 and Scope 2 emissions (e.g., electrification projects may reduce Scope 1 emissions but increase Scope 2 emissions). Express post-retrofit emissions reductions in both absolute and relative (% reduction) terms, where the latter must be at least 20%. - Applicants should report emissions levels using facility-specific, material/product-specific cradle-to-gate Type III (third-party verified) Environmental Product Declarations (EPDs), in line with the specifications found in EPA's interim determination for the Buy Clean initiative for those relevant products. 3 ******** 3 https://www.epa.gov/system/files/documents/2023-01/2022.12.22%20Interim%20Determination%20on%20Low%20Carbon%20Materials%20under% 20IRA%2060503%20and%2060506_508.pdf ******** - Emissions should be calculated and submitted in the 48C Application Data Sheet, which is based on the EPA Greenhouse Gas Reporting Protocol and EPA's Simplified GHG Emissions Calculator (https://www.epa.gov/climateleadership/simplified-ghg-emissions-calculator ). Large industrial facilities with existing GHGRP reports should also submit their GHG emissions figures from the most recent calendar year, expressed in metric tons of CO 2 equivalent. Explain any significant differences between direct emissions from the facility and a reasonable domestic industry average. Supply Chain Resilience - Describe the extent to which the equipment used to facilitate the GHG emissions reductions at your facility is produced domestically. For instance, a project utilizing carbon capture equipment should explain whether they are sourcing from domestic CCUS companies or manufacturers. - Describe how your project will help strengthen resilience of critical domestic supply chains that facilitate progress towards a net-zero economy, including by spurring or fulfilling the growing demand for low-carbon construction materials, such as those covered in the Buy Clean Initiative. - Describe the extent to which the retrofit project employs innovative solutions that can enhance U.S. leadership and industrial competitiveness. Include the use of advanced industrial or manufacturing approaches. Workforce and Community Engagement (as a separate PDF document) See the application material requirements in Section 2.5.2.1, Clean Energy and Critical Materials Manufacturing and Recycling Projects above. 2.5.3 Application Review Process Overview 2.5.3.1 Compliance and Eligibility Review DOE will carry out an initial compliance review for § 48C(e) applications to determine that (1) the eligibility requirements have been met, (2) the required information has been submitted, (3) the proposed project is technically valid, and (4) all mandatory requirements of this notice are satisfied. As part of this review, DOE will determine whether the proposed project meets the definition of a qualifying advanced energy project, as described in Appendix A. If a § 48C(e) application fails to meet compliance or eligibility requirements or fails to provide sufficient information for evaluation, DOE reserves the right to request clarifications and/or missing information from some or all applicants through written submissions provided to DOE in a timely manner. Section 48C(e) applications that fail to meet the compliance and eligibility requirements or do not provide sufficient information for evaluation will be considered non-responsive, and DOE will recommend a denial of allocation without proceeding to technical review. 2.5.3.2 Technical Review After the § 48C(e) application compliance and eligibility review, DOE will perform a technical review process based on four technical review criteria: - Criterion 1: Commercial Viability - Criterion 2: Greenhouse Gas Emissions Impacts - Criterion 3: Strengthening U.S. Supply Chains and Domestic Manufacturing for a Net-Zero Economy - Criterion 4: Workforce and Community Engagement See complete details of the technical review criteria for § 48C(e) applications in Section 2.7, Technical Review Criteria of this appendix. All technical review criteria will be used in a thorough, consistent, and objective examination to develop scores for ranking applications and determining merit of each proposed project. The review of the Commercial Viability criterion will additionally inform eligibility by determining whether the project has a reasonable expectation of commercial viability, as required by § 48C(d)(3)(A). The information requested for each criterion will vary based on the qualifying advanced energy project category, as detailed in Section 2.7, Technical Review Criteria. 2.5.3.3 Due Diligence Review To ensure the § 48C(e) program supports strengthening and securing U.S. supply chains and domestic manufacturing to the greatest extent possible, DOE may conduct a due diligence review to determine if an applicant has a connection with an entity that could put these goals at risk. 2.5.3.4 Final Recommendation for § 48C(e) Applications Following the compliance, eligibility, and technical reviews, DOE may also consider program policy factors and the results of the due diligence review when determining the final portfolio of recommendations (see Section 2.9.1, Program Policy Factors ). 2.6 Additional Application Materials 2.6.1 Data Sheet To capture and process information submitted in the concept paper and § 48C(e) application, applicants are required to fill out and submit the supplementary Concept Paper Data Sheet and 48C Application Data Sheet, respectively. The above sections on content and form of concept papers and § 48C(e) applications indicate which categories of information will be captured in the data sheet. This section provides explanations and examples on select terms for which the applicant may benefit from additional information. This list is not exhaustive, and there will be unique questions for each project category within the Data Sheet template for the concept paper and § 48C(e) application stages. Refer to the Data Sheet for specific information requested relevant to your project. Applicants should substantiate in their narrative any data which is inputted into either Data Sheet. It is essential that applicants conform to this process in order to ensure a competitive review of all applications. 2.6.1.1 Levelized Cost The 48C Application Data Sheet for Clean Energy Manufacturing and Recycling projects requires applicants to identify their levelized cost of energy (LCOE) and/or emissions abatement (LCEA). The 48C Application Data Sheet will provide stock information, such as inflation rates, taxes and insurance, and depreciation. LCOE should be expressed in nominal terms and should not include any federal, state, or other financial incentives. Further, plant and related cost values and prices of commodity fuels or feedstocks used in the calculation should reflect current national wholesale averages where possible. The following information should be provided as documentation: - Brief description of the methodology used as the basis for the calculation. This methodology should be a commonly accepted industry standard. - Identification and brief rationale for the source of key values used in the calculation, including capital or first costs, operating and maintenance costs, prices of commodity fuels or feedstocks, and carbon emissions associated with the operation of the end-use energy product. - Justification for any use of a resource-related parameter (e.g., capacity factor) different than the national averages provided. - In the case of LCEA, identification and brief rationale for the key values associated with the baseline energy mix, including the cost of generation and carbon emissions. - Explanation of any factors impacting the levelized cost that could not be quantified and included in the calculation, and their potential directional effect on the resulting cost (i.e., increase or decrease). - Explanation of any relationship between the cost of the manufactured property and the performance of the end use energy product. - If possible, an "unimproved" levelized cost calculation that does not reflect the input of the manufactured property (e.g., relies on the competitive standard of the day), based on the same financial and resource assumptions used in the "improved" calculation. If the applicant chooses to provide an LCOE or LCEA value for the closest comparable end use energy product from a published study, the following information should be provided as documentation: - Explanation of why a value either could not be calculated or was not appropriate to calculate for the end-use energy product. - Brief description of the methodology used in the cited study. - Identification of key assumptions used in the study, including the year basis for which the cost is reported (if the cost is reported in real terms; e.g., $2011), the year of costs and prices of fuel commodities, the year to which the end cost value is referenced (e.g., could be a future year), the extent of technology improvement assumed for the comparable end use energy product, the regional extent of the baseline assumed (e.g., global, the United States, or a region of United States), the carbon emissions associated with the baseline energy mix and the end-use energy product, the key financial assumptions (e.g., interest rates, taxes, and incentives included), and the resource-related parameters (e.g., capacity factors). - Explanation of how the above assumptions differ from those provided above for guiding the calculation of the cost of abatement, and the potential directional effect of these differences on the study's cost value (i.e., if the aforementioned assumptions required for cost of abatement calculation had been used, explain whether the study's cost value likely have increased or decreased). 2.6.2 Section 48C(e) Application Appendix Files In the § 48C(e) application stage, the applicant is required to include the following appendix materials and may include others at their discretion: - Cashflow model for project economic evaluation - If the project involves process improvement: Copy of internal or external analysis or engineering studies to substantiate assessments of process improvements. An example would be a front-end engineering and design (FEED) study for an industrial retrofit project. - Operations and Maintenance Agreements - A letter of approval for the project from the controlling shareholders or board of directors explicitly indicated their commitment to financing the project supported by an attachment of a certified project Engineering, Procurement and Construction (EPC) contract. - Copy of site plan, together with evidence that applicant owns or controls a site. Examples of evidence would include a deed, or an executed contract to purchase or lease the site. - Copy of audited financial statements for the applicant and other projected funding sources for the most recently ended three (3) fiscal years, and the unaudited quarterly interim financial statements for the current fiscal year. If all three years of audited statements are not available, provide all available statements and any additional documents that provide similar evidence of corporate health. - Lists of all federal, state, and local permits, including environmental authorizations or reviews, necessary to commence construction. - Any existing equity or debt funding commitments or expressions of interest from equity or debt financing sources for the project. - Expressions of interest or commitment letters from potential customers. - Offtake agreements (optional). - Diagrams, schematics, and/or images (e.g., process flow diagrams) to clearly illustrate the proposed facility or proposed changes to an existing facility. - Workforce and Community Engagement Agreements, such as Good Neighbor Agreements/Community Benefits Agreements, Collective Bargaining Agreements, Project Labor Agreements or Community Workforce Agreements. - Resumes for key management and senior personnel for the project, preferably submitted as a single Adobe PDF document labeled Resumes.pdf. - For energy-intensive materials that have a substantially lower carbon intensity projects: A life cycle assessment showing at least a 30% reduction in the carbon intensity of the product compared to the industry standard, using facility-specific, material/product-specific cradle-to-gate Type III (third-party verified) Environmental Product Declarations (EPDs), in line with the specifications found in EPA's interim determination for the Buy Clean initiative for those relevant products. 4 ******** 4 https://www.epa.gov/system/files/documents/2023-01/2022.12.22%20Interim%20Determination%20on%20Low%20Carbon%20Materials%20under% 20IRA%2060503%20and%2060506_508.pdf ******** 2.7 Technical Review Criteria 2.7.1 Clean Energy Manufacturing and Critical Materials Projects This section describes the technical review criteria that DOE will use to evaluate Clean Energy Manufacturing and Critical Materials Projects. The criteria below will apply for both concept papers and applications. Applicants should ONLY extend their materials to address italicized criteria during the § 48C(e) application, consistent with the application materials requested. Italicized criteria will not be considered during the concept paper stage. 2.7.1.1 Criterion 1: Commercial Viability Applicants should ONLY extend their materials to address italicized criteria during the § 48C(e) application, consistent with the application materials requested. Italicized criteria will not be considered during the concept paper stage. - Project schedule and time from certification to completion: o Readiness to proceed with the proposed project and reasonableness of the timeframe required for construction and commissioning of the project; o The extent to which tasks are well described and important risks and mitigation strategies are identified and addressed; and o Readiness to proceed with the proposed project as evidenced by firmness of site selection and progress towards securing required permits, contracts, reviews, agreements, and milestones for each identified task. - Strength of the proposed business plan, including: o The potential for commercial deployment, based on estimates of market share, market growth potential, and price competitiveness of the product. o The source and certainty of funding for the equity that will be invested in the project, including private financing, DOE funding, state and local incentives, and other sources. o The degree to which proposed budget is realistic based on spending plan and contingencies. o The degree to which the investment is profitable, based on the project economics as described in cash flow analysis of the project. o The strength of key arrangements, such as financing, acquisition/supply strategy, and power purchase agreements for the proposed project, as well as offtake (sales) arrangements for the facility's products. o The levelized cost of generated or stored energy, or of measured reduction in energy consumption or GHG emission (or similar metric) for the facility's products, compared to similar technologies or materials within the same market segment. - Strength of the proposed management plan, including the management team's track record of success in areas relevant to the project and corporate health of the applicant. In assessing each item above, the following will be considered: (a) the comprehensiveness, specificity, and accuracy of the information and plans provided, (b) the reasonableness of assumptions used in making estimations and projections, and (c) the extent to which the applicant demonstrates an understanding of relevant risks and the quality of the strategies put forward to mitigate and manage those risks. 2.7.1.2 Criterion 2: Greenhouse Gas Emissions Impacts Applicants should ONLY extend their materials to address italicized criteria during the § 48C(e) application, consistent with the application materials requested. Italicized criteria will not be considered during the concept paper stage. - End Product: The extent to which the end product will help avoid or reduce anthropogenic GHG emission and contribute to reaching the national target of net-zero emissions by 2050. For Critical Materials Projects, this includes the extent to which there is clear evidence that the produced critical material(s) will be used in the manufacturing of clean energy technologies that are needed in a net-zero economy. For low carbon energy-intensive materials, this includes the extent to which the technologies used to reduce production emissions contribute to reaching the national target of net-zero emissions. Preference will be given to projects that result in products in the lowest 20 percent of embodied greenhouse gas emissions when compared to similar products, in line with EPA's interim determination for what constitutes "substantially lower" embodied emissions for the Buy Clean initiative for those relevant materials. 5 ******** 5 https://www.epa.gov/system/files/documents/2023-01/2022.12.22%20Interim%20Determination%20on%20Low%20Carbon%20Materials%20under% 20IRA%2060503%20and%2060506_508.pdf ******** - Facility: The extent to which the project plan minimizes GHG emissions from the facility itself through best-in-class technologies or approaches that exceed those of incumbents or competitors, including activities to monitor facility emissions and energy use. - Upstream Supply Chain: The extent that the project plan includes strategies to reduce emissions in the upstream supply chain (e.g., through contracts with low-emissions suppliers). 2.7.1.3 Criterion 3: Strengthening U.S. Supply Chains and Domestic Manufacturing for a Net-Zero Economy Applicants should ONLY extend their materials to address italicized criteria during the § 48C(e) application, consistent with the application materials requested. Italicized criteria will not be considered during the concept paper stage. - Filling supply chain gap: The degree to which a project's product addresses a critical gap in the supply chain of technologies needed to achieve net-zero emissions. (For projects involving critical materials, evaluation will also consider the extent to which the project proposes to produce materials listed in the USGS/DOE Critical Materials assessment or demonstrates cost competitiveness through the production of a combination of critical and non-critical materials). - Federal tax credit efficiency: the extent to which federal tax credit support for the project will effectively enhance the development of the domestic supply chain and manufacturing and expedite the deployment of clean energy products. This includes: o 48C credit impact: The extent to which project demonstrates the need for 48C program support, describing how the resources will be leveraged, potentially including but not limited to increased output (as represented by added capacity per tax credit requested), minimized waste, optimized manufacturing processes, decreased product price, or improved product project economics; and o Support expansion of domestic supply chains: The extent to which the project expands manufacturing and accelerates deployment of clean energy products, as demonstrated by whether the proposed product will be used in the production of one or more clean energy products or technologies, domestic versus international production today, and capacity added compared to market gap. In the case of recycling projects, these technical review criteria will be evaluated based on which materials are produced at the recycling facility and evidence that those produced materials will serve as inputs to clean energy supply chains. 2.7.1.4 Criterion 4: Workforce and Community Engagement Applicants should ONLY extend their materials to address italicized criteria during the § 48C(e) application, consistent with the application materials requested. Italicized criteria will not be considered during the concept paper stage. - Job Creation and Workforce Continuity: o The number of domestic jobs created (both direct and indirect) (a) during completion of the project (the credit period) and (b) during operations of the facility after it is placed in service, including jobs within energy communities (if applicable) attained by locals or individuals previously employed by the local or regional coal industry. o The quality of new and/or retained jobs in construction and in operations/production (both hired directly and by third parties) including wages and employer-sponsored benefits for all classifications, employment statuses (i.e. full-time, part-time, contractor), health and safety programs and standards, and phases of work. o The extent to which the applicant engaged key stakeholders to develop partnerships to better serve local and underrepresented workers through training and support that may include a collective bargaining agreement, labor-management partnership, registered apprenticeship or pre-apprenticeship programs, or detailed workforce development and continuity plans. o The extent to which the project guarantees employees the ability to organize, bargain collectively, and participate, through labor organizations of their choosing, in decisions that affect them and that contribute to the effective conduct of business and facilitates amicable settlements of any potential disputes between employees and employers, providing assurances of project efficiency, continuity, and multiple public benefits. o The extent to which job quality and workforce continuity commitments are formalized in agreements for each phase of the project that may include Project Labor Agreements, Community Workforce Agreements, Collective Bargaining Agreements, or Community Benefits Agreements that include conditions of employment. o The extent to which applicant demonstrates sufficient supply of appropriately skilled labor, and an effective plan to minimize the risk of labor disputes or disruptions. - Ensuring Timely Project Completion Through Workforce and Community Engagement: o The extent of current and planned efforts to engage community and labor stakeholders and degree to which these engagements have led to or are likely to lead to formal agreements (e.g., project labor agreements, collective bargaining agreements, community benefits agreements). o The extent to which the applicant demonstrates community and labor engagement to date that results in support of the community for the proposed project and availability and continuity of the necessary workforce. o The extent to which the applicant has a clear and appropriately robust plan to engage with labor unions, Tribal entities, and community-based organizations that support or work with disadvantaged communities and other affected stakeholders and the degree to which these engagements have led to or are likely to lead to formal agreements. o The extent to which the applicant has considered accountability to affected workers and community stakeholders, including those most vulnerable to project activities with a plan to publicly share Workforce and Community Engagement commitments. - Energy Community Transition: o The extent to which the application includes specific actions to support energy communities, including transition opportunities for workers in the coal, other energy, and automotive sectors into clean energy sectors. o The extent to which a project will utilize existing local and regional resources that previously supported the local or regional coal industry or repurpose existing infrastructure/assets that have been abandoned due to closing of a coal mines or coal plant. - Local Environmental Impacts: o The extent to which the proposed project accounts for its environmental impact to the surrounding community by having clear plans to avoid or reduce local air pollution, land contamination, and/or water contamination. o The extent to which the application identifies specific, measurable benefits for disadvantaged communities, including energy communities, and how negative environmental impacts affecting disadvantaged communities would be mitigated. 2.7.2 Industrial Decarbonization Projects This section describes the technical review criteria that DOE will use to evaluate Industrial Decarbonization Projects. The criteria below will apply for both concept papers and applications. Applicants should ONLY extend their materials to address italicized criteria during the § 48C(e) application, consistent with the application materials requested. Italicized criteria will not be considered during the concept paper stage. 2.7.2.1 Criterion 1: Commercial Viability See the description of the Commercial Viability criterion in Section 2.7.1.1, Criterion 1: Commercial Viability. 2.7.2.2 Criterion 2: Greenhouse Gas Emissions Impacts Applicants should ONLY extend their materials to address italicized criteria during the § 48C(e) application, consistent with the application materials requested. Italicized criteria will not be considered during the concept paper stage. - Avoided Emissions: The extent to which the described emissions reductions are comprehensive, specific, reasonable, and significant (based on combined Scope 1 and Scope 2 emissions) and correspond to at least a 20% reduction in GHG emissions, accounting for any anticipated changes to the facility's production volumes. Preference will be given to projects that result in products in the lowest 20 percent of embodied greenhouse gas emissions when compared to similar products, in line with EPA's interim determination for what constitutes "substantially lower" embodied emissions for the Buy Clean initiative for those relevant materials. 6 ******** 6 https://www.epa.gov/system/files/documents/2023-01/2022.12.22%20Interim%20Determination%20on%20Low%20Carbon%20Materials%20under% 20IRA%2060503%20and%2060506_508.pdf ******** - Cost of Avoided Emissions: The extent to which the project achieves a low levelized cost of measured reduction in GHG emissions (based on capital expenditures and/or tax credit dollars requested). - Technology Innovation: The extent to which the project uses current best-in-class industrial or manufacturing approaches and innovative, low-emissions equipment, fuels, feedstocks, or processes. - Scalability: The extent to which the project will contribute to the achievement of net-zero emissions in the U.S. by 2050, including the potential for the approach to be applied beyond the specific project location. 2.7.2.3 Criterion 3: Strengthening U.S. Supply Chains and Domestic Manufacturing for a Net-Zero Economy Applicants should ONLY extend their materials to address italicized criteria during the § 48C(e) application, consistent with the application materials requested. Italicized criteria will not be considered during the concept paper stage. - The extent to which the proposed project enhances U.S. leadership in low emissions manufacturing as demonstrated by implementing innovative technologies such as installing energy efficient equipment that improve the U.S. competitive edge in low carbon manufacturing processes. - The extent to which the project will advance the commercial viability and uptake of replicable, cross-cutting decarbonization approaches in major industrial applications such as energy efficiency, electrification, LCFFES, material efficiency or substitution, and CCUS. 2.7.2.4 Criterion 4: Workforce and Community Engagement See the description of the Workforce and Community Engagement criterion in Section 2.7.1.4, Criterion 4: Workforce and Community Engagement. 2.8 Submission and Registration Information and Requirements 2.8.1 General Application Requirements Applicants must submit a concept paper at Stage 1 and a § 48C(e) application at Stage 2. All submitted materials must be prepared in accordance with the guidance in this notice to provide a standard basis for review and to ensure that each application will be uniform as to format and sequence. Concept papers and § 48C(e) applications should clearly address each of the eligibility requirements and applicable technical review criteria to demonstrate the applicant's capability, knowledge, and experience regarding the requirements described herein. Applicants should fully address the requirements of Notice 2023-18, Notice 2023-44 and this notice and not rely on any presumed background knowledge. DOE will discourage a concept paper or recommend the rejection of a § 48C(e) application that does not follow the instructions regarding the organization and content when the nature of the deviation and/or omission precludes meaningful review of the project. All concept papers and § 48C(e) applications must be submitted through the 48C portal to be considered for DOE recommendation under this notice. Concept papers and § 48C(e) applications received after the stated deadlines will not be reviewed or considered for DOE recommendation. 2.8.2 Determining an Application's Project Category Eligible projects under the § 48C(e) program, as described in Appendix A, are classified into three overarching project categories: Clean Energy Manufacturing and Recycling Projects, Industrial Decarbonization Projects, and Critical Material Projects. Before developing application materials, an applicant must determine which qualifying advanced energy project category is most applicable to their project. Section 2.5, Stage 2, 48C(e) Application Guidance, of this guidance contains instructions for content requirements for all project categories. Section 2.7, Technical Review Criteria of this guidance contains instructions for technical review criteria specific to each project category. Applicants should only complete their application package using the appropriate guidance in Section 2.5, Stage 2, 48C(e) Application Guidance, corresponding to the applicant's self-determined qualifying advanced energy project category. It is incumbent upon the applicant to adequately justify their determination of project category through application narratives. The following table may assist applicants in determining the qualifying advanced energy project category most appropriate for their proposed project. Table 5: Determining the qualifying advanced energy project category. 2.8.3 48C Portal for Submission of Application The 48C portal will provide a single interface for applicants through all steps of the § 48C(e) application process, including concept paper submission, receipt of concept paper feedback, § 48C(e) application submission, receipt of an allocation or denial letter from the IRS, submission of evidence documents to DOE for certification, receipt of a certification letter from the IRS, submission of notification to DOE that the project has been placed in service or otherwise disposed, and receipt of notification from the IRS that the applicant may claim the credit. Files required for submission of concept papers, including concept paper templates and data sheets, are available for applicants at https://eco.energy.gov/48C/ on the date of this notice. DOE cannot accept any application materials outside of the formal 48C portal, including via email. The 48C portal will be open for registration and submission of concept papers no later than May 28, 2024. 2.8.3.1 Submission of Application All § 48C(e) application materials must be submitted through the 48C portal at https://eco.energy.gov/48C/ to be considered by DOE. Section 48C(e) applications submitted by any other means will not be accepted. Note: The 48C portal website address has been modified since Notice 2023-44 was published, and the address specified in this guidance must be used. The applicant will receive an automated response when the concept paper or § 48C(e) application is received. This will serve as confirmation of receipt. Do not reply to the automated response. It is the responsibility of the applicant to verify successful transmission prior to the concept paper and § 48C(e) application deadlines. In order to submit concept papers and § 48C(e) applications, all applicants must register an account in the 48C portal at https://eco.energy.gov/48C/. It is recommended that each applicant organization designate a primary contact point responsible for each submission. The primary user may specify an additional contact within their organization who may register in the portal as a backup user. Potential applicants will be required to have an ID.me account to access the 48C portal. As part of the 48C portal registration process, new users will be directed to create an account in ID.me. Note: The email address associated with ID.me must match the email address associated with the 48C portal account. For more information, refer to the 48C Login Guide, which will be available in the Manuals section of the 48C portal at https://eco.energy.gov/48C/ no later than May 28, 2024. 2.8.3.2 Help with 48C Portal Applicants may email 48CQuestions@hq.doe.gov for questions regarding the registration process or submitting your application on the 48C portal. For questions regarding other non-tax aspects of the § 48C(e) program unrelated to the 48C portal, see Section 2.11, Questions/Comments and Informational Webinar. 2.8.4 Application Forms and Format of Submissions Applicants must log in to the 48C portal to download all required forms and submit concept papers and § 48C(e) applications to be considered for a § 48C(e) credit allocation. The applicant will have the opportunity to re-submit revised application materials for any reason as long as the revision is submitted by the specified deadline. 2.8.5 Electronic Authorization of Applications Submission of § 48C(e) application materials through electronic systems used by DOE, including the 48C portal or its successor, will constitute the authorized representative's approval and electronic signature. 2.8.6 Markings of Confidential Information If elements of a § 48C(e) application contain information the taxpayer considers to be trade secrets, confidential, privileged, or otherwise exempt from disclosure under the Freedom of Information Act (FOIA, 5 U.S.C. § 552), the taxpayer may assert a claim of exemption at the time of application by placing the following text on the first page of the § 48C(e) application, and specifying the page or pages of the § 48C(e) application to be restricted: "Pages [list applicable pages] of this document may contain trade secrets, confidential, proprietary, or privileged information that is exempt from public disclosure. Such information shall be used or disclosed only for evaluation purposes. The Government may use or disclose any information that is not appropriately marked or otherwise restricted, regardless of source. [End of Notice]" The header and footer of every page that contains confidential, proprietary, or privileged information must be marked as follows: "Contains Trade Secrets, Confidential, Proprietary, or Privileged Information Exempt from Public Disclosure." In addition, each line or paragraph containing proprietary, privileged, or trade secret information must be clearly marked with double brackets or highlighting. 2.9 DOE Recommendation Process The final outcome of each stage of the DOE review process is to develop a recommendation and ranking (DOE recommendation) of projects. DOE will provide a recommendation and ranking for a project only if it determines that the application meets all requirements described in this guidance, and that the project is eligible, has a reasonable expectation of commercial viability, merits a recommendation, and supports program policy factors when considering the full portfolio of recommended projects. 2.9.1 Program Policy Factors In addition to the criteria described in Section 2.7, Technical Review Criteria DOE may also consider the following program policy factors when determining the DOE recommendation. - The degree to which the proposed project contributes to a portfolio that optimizes the use of available credit amounts to address existing or anticipated gaps, vulnerabilities, or opportunities and to expand domestic manufacturing capacity in priority supply chains in a timely manner. - The degree to which the proposed project contributes to a portfolio that efficiently uses available credit amounts to enable significant additional reductions in industrial GHG emissions, such as projects with low levelized cost of abatement of GHG emissions and those that are close to the margins of being cost effective but would not be without support of the 48C program. - The degree to which the proposed project contributes to a portfolio that enhances American industrial and manufacturing competitiveness in a global net-zero economy. - The degree to which the proposed project exhibits technological and product diversity when compared to other projects recommended for allocation. - The degree to which the proposed project contributes to portfolio diversity within a project category and across project categories. - The degree to which the proposed project contributes to a portfolio that supports a diversity of organizational sizes, including small- and medium-sized manufacturers. - The degree to which the proposed project is likely to contribute to a long-term, place-based, coordinated, and collaborative regional economic development strategy. - The degree to which the project will contribute to follow-on supply chain investments in the region. - The degree to which the proposed project, or group of projects, represent a desired geographic distribution, when compared to other projects recommended for allocation. - The degree to which the proposed project will accelerate transformational technological advances in areas that industry by itself is not likely to undertake because of financial uncertainty. - The degree to which the proposed project contributes to a portfolio of recommended projects with at least 40% of credits allocated to projects in energy communities, as described in § 48C(e)(2). - The degree to which the proposed project, and other projects recommended for allocation, contributes to the total portfolio meeting the goals reflected in the Workforce and Community Engagement technical review criterion. - The degree to which the proposed project has broad public support from the communities most directly impacted by the project. - The degree to which the project contributes to a portfolio that meets the goals reflected in the Workforce and Community Engagement technical review criterion by producing additional benefits to communities, particularly disadvantaged communities, such as reducing co-pollutants and other environmental (e.g., air and water) burdens. 2.9.2 DOE Recommendations 2.9.2.1 Concept Paper Recommendations For the concept paper stage, the DOE recommendation will include all projects that are encouraged to submit a § 48C(e) application. Projects that are not included in the DOE recommendation will receive a letter of discouragement. An applicant that receives a letter of discouragement in response to a submitted concept paper may still submit a § 48C(e) application in accordance with this guidance. Receiving such a letter does not disqualify an applicant from submitting a § 48C(e) application but represents DOE's feedback that the project is unlikely to receive a recommendation based on the information provided in the concept paper. 2.9.2.2 Section 48C(e) Application Recommendations For the § 48C(e) application stage, the DOE recommendation will include the portfolio of projects that help to achieve the goals of the program. This recommendation will be based on a combination of the numeric score from the technical review process, as well as the application of the above program policy factors. 2.10 Post Allocation 2.10.1 Requirements for Certification As described in this notice, applications receiving allocation letters must provide evidence that they have met the requirements for certification, such as all permits necessary to commence construction and any other documents that support metrics on production capacity, job creation, GHG emissions reduction, and overall commercial viability of the project. Applicants will upload documents providing this evidence to the 48C portal not later than 2 years from the date the IRS notified the applicant that they have received an allocation. DOE's recommendation is based in part on commitments and other claims stated by the applicant in the § 48C(e) application. The evidence provided by the applicant for certification must therefore also include documents demonstrating that any commitments or other claims in the § 48C(e) application have been met. These documents could include Community Benefits Agreements, collective bargaining agreements, contracts, offtake agreements, or any other commitments or arrangements claimed in the § 48C(e) applications that may have had an impact on the evaluation of the application. Documents already provided as appendices in the § 48C(e) application do not need to be submitted again for certification. Additional documents may be required, which will be shared at or after the time of allocation. 2.10.2 Request for Debriefing Upon receiving a denial letter from the IRS, applicants can request a debriefing with DOE on its review of the § 48C(e) application. The denial letter will include instructions for requesting a debriefing. Upon request, DOE will offer a debriefing to an applicant that submitted a § 48C(e) application (after submitting a concept paper and being encouraged to submit such § 48C(e) application) and subsequently, was not allocated a credit in Round 2 of the § 48C(e) program. Debriefings will not be available to applicants that receive a letter of discouragement. Debriefings will be held by DOE after the application period ends. Requests for a debriefing must be received by DOE no later than 30 business days from the date of the Denial Letter issued to the applicant. The sole purpose of the debriefing is to provide DOE's impression of the strengths and weaknesses of the rejected § 48C(e) application to enable applicants to improve § 48C(e) applications for future rounds of the § 48C(e) program or § 48C credit allocation programs. 2.11 Questions/Comments and Informational Webinar 2.11.1 Questions and Comments Any questions or comments regarding the non-tax aspects of this notice can be submitted to the Department of Energy at 48CQuestions@hq.doe.gov. DOE may post questions and answers related to this notice in the Frequently Asked Questions (FAQs) section at https://www.energy.gov/infrastructure/48C. Any questions or comments received under this notice are subject to public release pursuant to the Freedom of Information Act. DOE is under no obligation to respond to, or acknowledge receipt of, any questions or comments submitted under this notice and any responses provided do not constitute legal advice provided by either DOE or the IRS. Questions related to the 48C portal should be directed to 48CQuestions@hq.doe.gov. This includes questions about account registration or using the portal. Questions regarding application materials, eligibility, the DOE review process, or other programmatic questions not about the portal should not be sent to this email address. 2.11.2 Informational Webinar DOE will conduct one or more informational webinars during the application process. They will be held before the due date for the § 48C(e) application. Attendance is not mandatory and will not positively or negatively impact the review of any applicant submissions. As the webinar will be open to all applicants who wish to participate, applicants should refrain from asking questions or communicating information that would reveal confidential and/or proprietary information specific to their project. The informational webinar will be held no later than May 31, 2024. Additional information including a link for registration can be found at https://www.energy.gov/infrastructure/48C. APPENDIX C Section 48C(e) Energy Communities Census Tracts Census tracts that have ever had, since December 31, 1999, a closed coal mine or have ever had, since December 31, 2009, a retired coal-fired electric generating unit, and directly adjoining tracts, except for census tracts with applicants that previously received a § 48C credit allocation prior to the date of enactment of the IRA. This Appendix C supersedes Appendix C of Notice 2023-44 State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Alabama Baldwin County 01003010100 Directly adjoining Alabama Bibb County 01007010001 Mine closure, Directly adjoining Alabama Bibb County 01007010005 Directly adjoining Alabama Bibb County 01007010006 Mine closure, Directly adjoining Alabama Bibb County 01007010007 Directly adjoining Alabama Bibb County 01007010008 Mine closure, Directly adjoining Alabama Bibb County 01007010009 Directly adjoining Alabama Bibb County 01007010010 Directly adjoining Alabama Bibb County 01007010011 Directly adjoining Alabama Blount County 01009050104 Directly adjoining Alabama Blount County 01009050200 Directly adjoining Alabama Blount County 01009050502 Directly adjoining Alabama Blount County 01009050601 Directly adjoining Alabama Blount County 01009050603 Directly adjoining Alabama Blount County 01009050701 Directly adjoining Alabama Blount County 01009050702 Mine closure Alabama Cherokee County 01019955701 Directly adjoining Alabama Cherokee County 01019956101 Directly adjoining Alabama Chilton County 01021060404 Directly adjoining Alabama Clarke County 01025957901 Directly adjoining Alabama Clarke County 01025957902 Directly adjoining Alabama Clarke County 01025958003 Directly adjoining Alabama Colbert County 01033020500 Directly adjoining Alabama Colbert County 01033020600 Directly adjoining Alabama Colbert County 01033020901 Directly adjoining Alabama Colbert County 01033020902 Generating unit retirement Alabama Colbert County 01033021000 Directly adjoining Alabama Cullman County 01043965501 Directly adjoining Alabama Cullman County 01043965502 Directly adjoining Alabama Cullman County 01043965600 Directly adjoining Alabama Cullman County 01043965700 Mine closure, Directly adjoining Alabama DeKalb County 01049960101 Directly adjoining Alabama DeKalb County 01049960102 Directly adjoining Alabama DeKalb County 01049960200 Mine closure, Directly adjoining Alabama DeKalb County 01049960301 Directly adjoining Alabama DeKalb County 01049960303 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Alabama DeKalb County 01049960401 Directly adjoining Alabama DeKalb County 01049960402 Mine closure Alabama DeKalb County 01049960500 Directly adjoining Alabama DeKalb County 01049960900 Directly adjoining Alabama DeKalb County 01049961100 Directly adjoining Alabama DeKalb County 01049961200 Directly adjoining Alabama DeKalb County 01049961400 Directly adjoining Alabama Fayette County 01057020000 Directly adjoining Alabama Fayette County 01057020100 Directly adjoining Alabama Fayette County 01057020300 Directly adjoining Alabama Fayette County 01057020400 Mine closure, Directly adjoining Alabama Franklin County 01059973100 Directly adjoining Alabama Franklin County 01059973702 Directly adjoining Alabama Franklin County 01059973703 Directly adjoining Alabama Jackson County 01071950101 Directly adjoining Alabama Jackson County 01071950102 Mine closure, Directly adjoining Alabama Jackson County 01071950200 Directly adjoining Alabama Jackson County 01071950301 Mine closure, Directly adjoining Alabama Jackson County 01071950302 Generating unit retirement, Directly adjoining Alabama Jackson County 01071950400 Directly adjoining Alabama Jackson County 01071950601 Directly adjoining Alabama Jackson County 01071950901 Directly adjoining Alabama Jackson County 01071951000 Mine closure, Directly adjoining Alabama Jackson County 01071951101 Directly adjoining Alabama Jefferson County 01073011206 Directly adjoining Alabama Jefferson County 01073011301 Directly adjoining Alabama Jefferson County 01073011303 Directly adjoining Alabama Jefferson County 01073011304 Mine closure, Directly adjoining Alabama Jefferson County 01073011401 Directly adjoining Alabama Jefferson County 01073011402 Mine closure, Directly adjoining Alabama Jefferson County 01073011500 Directly adjoining Alabama Jefferson County 01073011600 Mine closure, Directly adjoining Alabama Jefferson County 01073011704 Mine closure, Directly adjoining Alabama Jefferson County 01073011706 Directly adjoining Alabama Jefferson County 01073011707 Directly adjoining Alabama Jefferson County 01073011708 Directly adjoining Alabama Jefferson County 01073011710 Directly adjoining Alabama Jefferson County 01073012001 Directly adjoining Alabama Jefferson County 01073012103 Directly adjoining Alabama Jefferson County 01073012104 Mine closure, Directly adjoining Alabama Jefferson County 01073012200 Directly adjoining Alabama Jefferson County 01073012302 Mine closure, Directly adjoining Alabama Jefferson County 01073012304 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Alabama Jefferson County 01073012307 Directly adjoining Alabama Jefferson County 01073012403 Directly adjoining Alabama Jefferson County 01073012500 Directly adjoining Alabama Jefferson County 01073014001 Directly adjoining Alabama Jefferson County 01073014002 Directly adjoining Alabama Jefferson County 01073014104 Directly adjoining Alabama Jefferson County 01073014106 Mine closure, Directly adjoining Alabama Jefferson County 01073014107 Directly adjoining Alabama Jefferson County 01073014207 Directly adjoining Alabama Lamar County 01075030000 Mine closure Alabama Lamar County 01075030101 Directly adjoining Alabama Lamar County 01075030102 Directly adjoining Alabama Lauderdale County 01077011200 Directly adjoining Alabama Marion County 01093964001 Mine closure, Directly adjoining Alabama Marion County 01093964002 Directly adjoining Alabama Marion County 01093964100 Directly adjoining Alabama Marion County 01093964300 Directly adjoining Alabama Marion County 01093964401 Directly adjoining Alabama Marion County 01093964402 Directly adjoining Alabama Marion County 01093964500 Mine closure, Directly adjoining Alabama Marion County 01093964600 Directly adjoining Alabama Marion County 01093964701 Directly adjoining Alabama Marion County 01093964702 Mine closure, Directly adjoining Alabama Mobile County 01097005702 Directly adjoining Alabama Mobile County 01097005800 Generating unit retirement Alabama Mobile County 01097005900 Directly adjoining Alabama Mobile County 01097006000 Directly adjoining Alabama Randolph County 01111000200 Directly adjoining Alabama Shelby County 01117030337 Directly adjoining Alabama Shelby County 01117030350 Directly adjoining Alabama Shelby County 01117030405 Directly adjoining Alabama Shelby County 01117030406 Directly adjoining Alabama Shelby County 01117030407 Directly adjoining Alabama Shelby County 01117030408 Mine closure, Directly adjoining Alabama Shelby County 01117030607 Directly adjoining Alabama Shelby County 01117030610 Directly adjoining Alabama Shelby County 01117030611 Mine closure, Directly adjoining Alabama Shelby County 01117030613 Directly adjoining Alabama Tuscaloosa County 01125010101 Directly adjoining Alabama Tuscaloosa County 01125010102 Mine closure, Directly adjoining Alabama Tuscaloosa County 01125010104 Directly adjoining Alabama Tuscaloosa County 01125010105 Directly adjoining Alabama Tuscaloosa County 01125010203 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Alabama Tuscaloosa County 01125010500 Directly adjoining Alabama Tuscaloosa County 01125010601 Mine closure, Directly adjoining Alabama Tuscaloosa County 01125010603 Directly adjoining Alabama Tuscaloosa County 01125010604 Directly adjoining Alabama Tuscaloosa County 01125010703 Directly adjoining Alabama Tuscaloosa County 01125010706 Mine closure, Directly adjoining Alabama Tuscaloosa County 01125010707 Directly adjoining Alabama Tuscaloosa County 01125010802 Directly adjoining Alabama Tuscaloosa County 01125010803 Directly adjoining Alabama Tuscaloosa County 01125010804 Directly adjoining Alabama Walker County 01127020100 Mine closure, Directly adjoining Alabama Walker County 01127020200 Directly adjoining Alabama Walker County 01127020302 Directly adjoining Alabama Walker County 01127020400 Directly adjoining Alabama Walker County 01127020600 Directly adjoining Alabama Walker County 01127020700 Directly adjoining Alabama Walker County 01127020801 Directly adjoining Alabama Walker County 01127020802 Mine closure, Directly adjoining Alabama Walker County 01127020900 Mine closure, Directly adjoining Alabama Walker County 01127021000 Mine closure, Directly adjoining Alabama Walker County 01127021100 Mine closure, Directly adjoining Alabama Walker County 01127021200 Mine closure, Directly adjoining Alabama Walker County 01127021300 Mine closure, Directly adjoining Alabama Walker County 01127021400 Mine closure, Directly adjoining Alabama Walker County 01127021500 Mine closure, Generating unit retirement, Directly adjoining Alabama Walker County 01127021600 Mine closure, Directly adjoining Alabama Walker County 01127021700 Mine closure, Directly adjoining Alabama Walker County 01127021800 Mine closure, Directly adjoining Alabama Walker County 01127021900 Mine closure, Directly adjoining Alabama Washington County 01129044000 Directly adjoining Alabama Washington County 01129044100 Generating unit retirement Alabama Washington County 01129044200 Directly adjoining Alabama Washington County 01129044300 Directly adjoining Alabama Winston County 01133965501 Directly adjoining Alabama Winston County 01133965502 Directly adjoining Alabama Winston County 01133965503 Directly adjoining Alabama Winston County 01133965601 Mine closure, Directly adjoining Alabama Winston County 01133965602 Directly adjoining Alabama Winston County 01133965700 Directly adjoining Alabama Winston County 01133965800 Mine closure, Directly adjoining Alabama Winston County 01133965900 Mine closure, Directly adjoining Alaska Fairbanks North Star Borough 02090001501 Directly adjoining Alaska Fairbanks North Star Borough 02090001700 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Alaska Fairbanks North Star Borough 02090001902 Directly adjoining Alaska Fairbanks North Star Borough 02090980100 Generating unit retirement Arizona Apache County 04001970201 Directly adjoining Arizona Apache County 04001970300 Directly adjoining Arizona Apache County 04001970502 Directly adjoining Arizona Coconino County 04005001500 Directly adjoining Arizona Coconino County 04005002000 Directly adjoining Arizona Coconino County 04005002101 Directly adjoining Arizona Coconino County 04005002102 Directly adjoining Arizona Coconino County 04005942201 Directly adjoining Arizona Coconino County 04005942202 Generating unit retirement Arizona Mohave County 04015950103 Directly adjoining Arizona Mohave County 04015951404 Directly adjoining Arizona Mohave County 04015951601 Directly adjoining Arizona Mohave County 04015951602 Directly adjoining Arizona Mohave County 04015951702 Directly adjoining Arizona Navajo County 04017940014 Directly adjoining Arizona Navajo County 04017940015 Directly adjoining Arizona Navajo County 04017942300 Directly adjoining Arizona Navajo County 04017960100 Directly adjoining Arizona Navajo County 04017960200 Directly adjoining Arizona Navajo County 04017960400 Directly adjoining Arizona Navajo County 04017960500 Generating unit retirement, Directly adjoining Arizona Navajo County 04017960600 Directly adjoining Arizona Navajo County 04017963300 Generating unit retirement, Directly adjoining Arizona Navajo County 04017963400 Directly adjoining Arizona Navajo County 04017963800 Directly adjoining Arizona Navajo County 04017964202 Directly adjoining Arkansas Crittenden County 05035030602 Directly adjoining Arkansas Franklin County 05047950201 Directly adjoining Arkansas Johnson County 05071951700 Directly adjoining Arkansas Johnson County 05071951800 Mine closure Arkansas Johnson County 05071951900 Directly adjoining Arkansas Johnson County 05071952000 Directly adjoining Arkansas Logan County 05083950100 Directly adjoining Arkansas Logan County 05083950200 Directly adjoining Arkansas Scott County 05127950100 Directly adjoining Arkansas Sebastian County 05131010102 Directly adjoining Arkansas Sebastian County 05131010202 Directly adjoining Arkansas Sebastian County 05131010301 Directly adjoining Arkansas Sebastian County 05131010303 Mine closure, Directly adjoining Arkansas Sebastian County 05131010304 Mine closure, Directly adjoining California Inyo County 06027000800 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code California Kern County 06029000102 Directly adjoining California Kern County 06029000104 Directly adjoining California Kern County 06029000105 Directly adjoining California Kern County 06029000106 Directly adjoining California Kern County 06029000201 Directly adjoining California Kern County 06029000300 Directly adjoining California Kern County 06029000400 Directly adjoining California Kern County 06029000601 Directly adjoining California Kern County 06029000702 Directly adjoining California Kern County 06029000800 Directly adjoining California Kern County 06029000902 Directly adjoining California Kern County 06029000914 Directly adjoining California Kern County 06029003900 Directly adjoining California Kern County 06029004605 Directly adjoining California Kern County 06029005103 Generating unit retirement, Directly adjoining California Kern County 06029005104 Directly adjoining California Kern County 06029005205 Directly adjoining California Kern County 06029005206 Directly adjoining California Kern County 06029005207 Directly adjoining California Kern County 06029005208 Generating unit retirement, Directly adjoining California Kern County 06029005300 Directly adjoining California Kern County 06029005410 Directly adjoining California Kern County 06029005509 Directly adjoining California Kern County 06029006500 Directly adjoining California Riverside County 06065030104 Directly adjoining California Riverside County 06065040101 Directly adjoining California Riverside County 06065042300 Directly adjoining California San Bernardino County 06071003606 Directly adjoining California San Bernardino County 06071003609 Directly adjoining California San Bernardino County 06071003612 Directly adjoining California San Bernardino County 06071004001 Directly adjoining California San Bernardino County 06071004003 Directly adjoining California San Bernardino County 06071004004 Generating unit retirement California San Bernardino County 06071006601 Directly adjoining California San Bernardino County 06071007107 Directly adjoining California San Bernardino County 06071008901 Generating unit retirement California San Bernardino County 06071010300 Directly adjoining California San Bernardino County 06071011602 Directly adjoining California San Bernardino County 06071012500 Directly adjoining California San Bernardino County 06071025000 Directly adjoining California San Joaquin County 06077002100 Directly adjoining California San Joaquin County 06077002201 Directly adjoining California San Joaquin County 06077002202 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code California San Joaquin County 06077002300 Directly adjoining California San Joaquin County 06077002800 Generating unit retirement California San Joaquin County 06077003700 Directly adjoining California San Joaquin County 06077003803 Directly adjoining California Tulare County 06107002701 Directly adjoining California Tulare County 06107004301 Directly adjoining California Tulare County 06107004500 Directly adjoining Colorado Adams County 08001008802 Directly adjoining Colorado Adams County 08001008901 Directly adjoining Colorado Adams County 08001009001 Directly adjoining Colorado Adams County 08001009003 Directly adjoining Colorado Adams County 08001009004 Directly adjoining Colorado Adams County 08001009103 Directly adjoining Colorado Adams County 08001009104 Directly adjoining Colorado Adams County 08001009307 Directly adjoining Colorado Adams County 08001009553 Directly adjoining Colorado Adams County 08001015000 Generating unit retirement Colorado Arapahoe County 08005005551 Directly adjoining Colorado Arapahoe County 08005005701 Directly adjoining Colorado Baca County 08009964600 Directly adjoining Colorado Baca County 08009964700 Directly adjoining Colorado Bent County 08011966702 Directly adjoining Colorado Boulder County 08013012207 Directly adjoining Colorado Boulder County 08013012208 Directly adjoining Colorado Boulder County 08013012603 Directly adjoining Colorado Boulder County 08013012701 Directly adjoining Colorado Boulder County 08013012705 Directly adjoining Colorado Boulder County 08013012707 Generating unit retirement Colorado Boulder County 08013012708 Directly adjoining Colorado Boulder County 08013012709 Directly adjoining Colorado Boulder County 08013012710 Directly adjoining Colorado Boulder County 08013012801 Directly adjoining Colorado Boulder County 08013012802 Directly adjoining Colorado Boulder County 08013012903 Directly adjoining Colorado Boulder County 08013013003 Directly adjoining Colorado Costilla County 08023972700 Directly adjoining Colorado Custer County 08027970101 Directly adjoining Colorado Custer County 08027970102 Directly adjoining Colorado Delta County 08029964600 Mine closure, Directly adjoining Colorado Delta County 08029964700 Directly adjoining Colorado Delta County 08029964800 Directly adjoining Colorado Delta County 08029965001 Directly adjoining Colorado Delta County 08029965002 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Colorado Delta County 08029965202 Directly adjoining Colorado Denver County 08031001402 Directly adjoining Colorado Denver County 08031001403 Directly adjoining Colorado Denver County 08031001500 Directly adjoining Colorado Denver County 08031004602 Directly adjoining Colorado Denver County 08031004603 Directly adjoining Colorado Denver County 08031015600 Generating unit retirement Colorado Denver County 08031015700 Directly adjoining Colorado Dolores County 08033000100 Directly adjoining Colorado El Paso County 08041001500 Directly adjoining Colorado El Paso County 08041001600 Directly adjoining Colorado El Paso County 08041001700 Directly adjoining Colorado El Paso County 08041002200 Directly adjoining Colorado El Paso County 08041002300 Generating unit retirement Colorado El Paso County 08041002802 Directly adjoining Colorado El Paso County 08041003001 Directly adjoining Colorado Fremont County 08043978100 Directly adjoining Colorado Fremont County 08043978200 Directly adjoining Colorado Fremont County 08043978300 Mine closure Colorado Fremont County 08043978400 Directly adjoining Colorado Fremont County 08043978500 Directly adjoining Colorado Fremont County 08043978600 Directly adjoining Colorado Fremont County 08043978800 Directly adjoining Colorado Fremont County 08043979001 Directly adjoining Colorado Fremont County 08043979002 Directly adjoining Colorado Fremont County 08043979100 Directly adjoining Colorado Fremont County 08043979200 Generating unit retirement Colorado Fremont County 08043979400 Directly adjoining Colorado Fremont County 08043980100 Directly adjoining Colorado Fremont County 08043980300 Directly adjoining Colorado Garfield County 08045951901 Directly adjoining Colorado Garfield County 08045952003 Directly adjoining Colorado Garfield County 08045952100 Mine closure, Directly adjoining Colorado Gunnison County 08051963601 Directly adjoining Colorado Gunnison County 08051963800 Directly adjoining Colorado Gunnison County 08051963900 Mine closure, Directly adjoining Colorado Hinsdale County 08053973100 Directly adjoining Colorado Huerfano County 08055960902 Directly adjoining Colorado Jefferson County 08059009806 Directly adjoining Colorado Jefferson County 08059009842 Directly adjoining Colorado Jefferson County 08059009852 Directly adjoining Colorado Jefferson County 08059009854 Directly adjoining Colorado Jefferson County 08059009855 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Colorado Jefferson County 08059009857 Directly adjoining Colorado Jefferson County 08059009901 Generating unit retirement Colorado Jefferson County 08059010001 Directly adjoining Colorado Jefferson County 08059980800 Directly adjoining Colorado Kiowa County 08061960100 Directly adjoining Colorado La Plata County 08067940400 Directly adjoining Colorado La Plata County 08067970701 Mine closure Colorado La Plata County 08067970703 Directly adjoining Colorado La Plata County 08067970705 Directly adjoining Colorado La Plata County 08067970900 Directly adjoining Colorado La Plata County 08067971000 Directly adjoining Colorado La Plata County 08067971100 Directly adjoining Colorado Las Animas County 08071000100 Directly adjoining Colorado Las Animas County 08071000200 Directly adjoining Colorado Las Animas County 08071000300 Mine closure, Directly adjoining Colorado Las Animas County 08071000400 Directly adjoining Colorado Las Animas County 08071000500 Generating unit retirement Colorado Las Animas County 08071000800 Directly adjoining Colorado Mesa County 08077001102 Directly adjoining Colorado Mesa County 08077001200 Directly adjoining Colorado Mesa County 08077001302 Directly adjoining Colorado Mesa County 08077001303 Directly adjoining Colorado Mesa County 08077001402 Directly adjoining Colorado Mesa County 08077001403 Directly adjoining Colorado Mesa County 08077001404 Directly adjoining Colorado Mesa County 08077001502 Directly adjoining Colorado Mesa County 08077001504 Directly adjoining Colorado Mesa County 08077001600 Directly adjoining Colorado Mesa County 08077001702 Generating unit retirement, Directly adjoining Colorado Mesa County 08077001703 Directly adjoining Colorado Mesa County 08077001705 Directly adjoining Colorado Mesa County 08077001706 Directly adjoining Colorado Mesa County 08077001800 Mine closure, Directly adjoining Colorado Mesa County 08077001900 Mine closure, Directly adjoining Colorado Moffat County 08081000300 Directly adjoining Colorado Moffat County 08081000600 Mine closure, Directly adjoining Colorado Montezuma County 08083941100 Directly adjoining Colorado Montezuma County 08083969000 Directly adjoining Colorado Montezuma County 08083969100 Directly adjoining Colorado Montrose County 08085966100 Mine closure, Generating unit retirement, Directly adjoining Colorado Montrose County 08085966201 Directly adjoining Colorado Montrose County 08085966202 Directly adjoining Colorado Montrose County 08085966501 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Colorado Montrose County 08085966602 Directly adjoining Colorado Ouray County 08091967601 Directly adjoining Colorado Ouray County 08091967602 Directly adjoining Colorado Pitkin County 08097000101 Directly adjoining Colorado Pitkin County 08097000102 Directly adjoining Colorado Prowers County 08099000100 Directly adjoining Colorado Prowers County 08099000200 Directly adjoining Colorado Prowers County 08099000300 Directly adjoining Colorado Prowers County 08099000600 Directly adjoining Colorado Prowers County 08099000700 Generating unit retirement Colorado Pueblo County 08101002804 Directly adjoining Colorado Pueblo County 08101003103 Directly adjoining Colorado Pueblo County 08101003104 Directly adjoining Colorado Pueblo County 08101003105 Directly adjoining Colorado Pueblo County 08101003106 Generating unit retirement Colorado Pueblo County 08101003200 Directly adjoining Colorado Rio Blanco County 08103951100 Directly adjoining Colorado Rio Blanco County 08103951200 Directly adjoining Colorado Routt County 08107000100 Directly adjoining Colorado Routt County 08107000200 Directly adjoining Colorado Routt County 08107000300 Mine closure, Directly adjoining Colorado Routt County 08107000400 Directly adjoining Colorado Routt County 08107000500 Directly adjoining Colorado Routt County 08107000800 Directly adjoining Colorado Saguache County 08109977600 Directly adjoining Colorado San Juan County 08111972600 Directly adjoining Colorado San Miguel County 08113968103 Directly adjoining Colorado San Miguel County 08113968200 Directly adjoining Colorado Teller County 08119010203 Directly adjoining Connecticut Fairfield County 09001070400 Directly adjoining Connecticut Fairfield County 09001070500 Directly adjoining Connecticut Fairfield County 09001070600 Generating unit retirement Connecticut Fairfield County09001070900 Directly adjoining Connecticut Fairfield County09001071200 Directly adjoining Connecticut Fairfield County09001071300 Directly adjoining Connecticut Fairfield County09001071600 Directly adjoining Connecticut Fairfield County09001073900 Directly adjoining Connecticut Fairfield County09001074000 Directly adjoining Connecticut Fairfield County 09001074400 Directly adjoining Connecticut Fairfield County 09001257200 Directly adjoining Connecticut New London County 09011693600 Directly adjoining Connecticut New London County 09011693700 Directly adjoining Connecticut New London County 09011695201 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Connecticut New London County 09011701200 Directly adjoining Connecticut New London County 09011870501 Directly adjoining Connecticut New London County 09011870502 Generating unit retirement Delaware New Castle County 10003990100 Directly adjoining Delaware Sussex County 10005050601 Directly adjoining Delaware Sussex County 10005050604 Directly adjoining Delaware Sussex County 10005050703 Directly adjoining Delaware Sussex County 10005051308 Directly adjoining Delaware Sussex County 10005051400 Directly adjoining Delaware Sussex County 10005051501 Directly adjoining Delaware Sussex County 10005051502 Generating unit retirement Delaware Sussex County 10005051702 Directly adjoining District of District of Columbia 11001007301 Directly adjoining Columbia District of District of Columbia 11001010900 Directly adjoining Columbia Florida Bay County 12005000201 Directly adjoining Florida Bay County 12005000203 Directly adjoining Florida Bay County 12005000204 Generating unit retirement Florida Bay County 12005000402 Directly adjoining Florida Bay County 12005001403 Directly adjoining Florida Bay County 12005001404 Directly adjoining Florida Bay County 12005001501 Directly adjoining Florida Bay County 12005002500 Directly adjoining Florida Bay County 12005002609 Directly adjoining Florida Bay County 12005002703 Directly adjoining Florida Bay County 12005002706 Directly adjoining Florida Bay County 12005002709 Directly adjoining Florida Bay County 12005002710 Directly adjoining Florida Calhoun County 12013010100 Directly adjoining Florida Citrus County 12017450305 Directly adjoining Florida Citrus County 12017450401 Directly adjoining Florida Citrus County 12017450402 Generating unit retirement Florida Citrus County 12017450501 Directly adjoining Florida Citrus County 12017990000 Directly adjoining Florida Clay County 12019031500 Directly adjoining Florida Duval County 12031000101 Directly adjoining Florida Duval County 12031010101 Directly adjoining Florida Duval County 12031010104 Generating unit retirement Florida Duval County 12031010105 Directly adjoining Florida Duval County 12031010106 Directly adjoining Florida Duval County 12031010202 Generating unit retirement Florida Duval County 12031010203 Directly adjoining Florida Duval County 12031010204 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Florida Duval County 12031010307 Directly adjoining Florida Duval County 12031010402 Directly adjoining Florida Duval County 12031014601 Directly adjoining Florida Duval County 12031014703 Directly adjoining Florida Gadsden County 12039020400 Directly adjoining Florida Hillsborough County 12057013604 Directly adjoining Florida Hillsborough County 12057013801 Generating unit retirement Florida Hillsborough County 12057013802 Directly adjoining Florida Hillsborough County 12057013803 Directly adjoining Florida Hillsborough County 12057013804 Directly adjoining Florida Hillsborough County 12057014106 Directly adjoining Florida Hillsborough County 12057014117 Directly adjoining Florida Hillsborough County 12057014119 Directly adjoining Florida Hillsborough County 12057990000 Directly adjoining Florida Jackson County 12063210901 Generating unit retirement Florida Jackson County 12063210902 Directly adjoining Florida Jackson County 12063211000 Directly adjoining Florida Levy County 12075970700 Directly adjoining Florida Liberty County 12077950202 Directly adjoining Florida Martin County 12085001803 Directly adjoining Florida Martin County 12085001804 Generating unit retirement Florida Martin County 12085001805 Directly adjoining Florida Martin County 12085001806 Directly adjoining Florida Polk County 12105010300 Directly adjoining Florida Polk County 12105011300 Directly adjoining Florida Polk County 12105011400 Directly adjoining Florida Polk County 12105011501 Directly adjoining Florida Polk County 12105011502 Generating unit retirement Florida Polk County 12105011605 Directly adjoining Florida Polk County 12105011606 Directly adjoining Florida Polk County 12105012207 Directly adjoining Florida Polk County 12105012209 Directly adjoining Florida Polk County 12105012304 Directly adjoining Florida Putnam County 12107950100 Generating unit retirement Florida Putnam County 12107950202 Directly adjoining Florida Putnam County 12107950600 Directly adjoining Florida Putnam County 12107950700 Directly adjoining Florida Putnam County 12107951000 Directly adjoining Florida St. Johns County 12109990100 Directly adjoining Florida Walton County 12131950501 Directly adjoining Florida Walton County 12131950610 Directly adjoining Georgia Baldwin County 13009970202 Directly adjoining Georgia Baldwin County 13009970301 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Georgia Burke County 13033950102 Directly adjoining Georgia Butts County 13035150102 Directly adjoining Georgia Carroll County 13045910800 Directly adjoining Georgia Carroll County 13045910900 Directly adjoining Georgia Carroll County 13045911202 Directly adjoining Georgia Chatham County 13051010601 Directly adjoining Georgia Chatham County 13051010603 Directly adjoining Georgia Chatham County 13051010701 Generating unit retirement, Directly adjoining Georgia Chatham County 13051010702 Directly adjoining Georgia Chatham County 13051010703 Directly adjoining Georgia Chatham County 13051010704 Directly adjoining Georgia Chatham County 13051010811 Directly adjoining Georgia Chatham County 13051980000 Directly adjoining Georgia Chattooga County 13055010600 Directly adjoining Georgia Cobb County 13067031213 Directly adjoining Georgia Cobb County 13067031214 Generating unit retirement Georgia Cobb County 13067031215 Directly adjoining Georgia Cobb County 13067031314 Directly adjoining Georgia Coweta County 13077170101 Generating unit retirement Georgia Coweta County 13077170102 Directly adjoining Georgia Coweta County 13077170200 Directly adjoining Georgia Coweta County 13077170303 Directly adjoining Georgia Coweta County 13077170304 Directly adjoining Georgia Dougherty County 13095000101 Directly adjoining Georgia Dougherty County 13095000102 Directly adjoining Georgia Dougherty County 13095000200 Directly adjoining Georgia Dougherty County 13095010302 Directly adjoining Georgia Dougherty County 13095010602 Directly adjoining Georgia Dougherty County 13095010900 Directly adjoining Georgia Dougherty County 13095011000 Generating unit retirement Georgia Dougherty County 13095011200 Generating unit retirement Georgia Dougherty County 13095011300 Directly adjoining Georgia Dougherty County 13095011600 Directly adjoining Georgia Effingham County 13103030303 Directly adjoining Georgia Effingham County 13103030306 Directly adjoining Georgia Effingham County 13103030307 Directly adjoining Georgia Effingham County 13103030308 Directly adjoining Georgia Effingham County 13103030309 Generating unit retirement, Directly adjoining Georgia Floyd County 13115000300 Directly adjoining Georgia Floyd County 13115000402 Directly adjoining Georgia Floyd County 13115001200 Directly adjoining Georgia Floyd County 13115001301 Directly adjoining Georgia Floyd County 13115001302 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Georgia Floyd County 13115001400 Generating unit retirement Georgia Floyd County 13115002000 Directly adjoining Georgia Floyd County 13115002100 Directly adjoining Georgia Fulton County 13121008701 Directly adjoining Georgia Fulton County 13121008801 Directly adjoining Georgia Fulton County 13121008802 Directly adjoining Georgia Fulton County 13121008903 Directly adjoining Georgia Fulton County 13121010402 Directly adjoining Georgia Hancock County 13141480300 Directly adjoining Georgia Heard County 13149970100 Directly adjoining Georgia Heard County 13149970200 Generating unit retirement Georgia Heard County 13149970300 Directly adjoining Georgia Jasper County 13159010503 Directly adjoining Georgia Jones County 13169030101 Directly adjoining Georgia Jones County 13169030200 Directly adjoining Georgia Lee County 13177020101 Directly adjoining Georgia Mitchell County 13205090100 Directly adjoining Georgia Monroe County 13207050101 Directly adjoining Georgia Monroe County 13207050102 Generating unit retirement Georgia Monroe County 13207050200 Directly adjoining Georgia Monroe County 13207050302 Directly adjoining Georgia Putnam County 13237960101 Directly adjoining Georgia Putnam County 13237960301 Directly adjoining Georgia Putnam County 13237960302 Generating unit retirement Georgia Worth County 13321950100 Directly adjoining Georgia Worth County 13321950201 Directly adjoining Georgia Worth County 13321950500 Directly adjoining Hawaii Honolulu County 15003008502 Directly adjoining Hawaii Honolulu County 15003008610 Directly adjoining Hawaii Honolulu County 15003980300 Generating unit retirement Hawaii Honolulu County 15003990001 Directly adjoining Illinois Adams County 17001010200 Directly adjoining Illinois Bond County 17005951200 Directly adjoining Illinois Bond County 17005951400 Directly adjoining Illinois Brown County 17009970400 Directly adjoining Illinois Bureau County 17011965000 Directly adjoining Illinois Bureau County 17011965500 Directly adjoining Illinois Calhoun County 17013951200 Directly adjoining Illinois Cass County 17017960100 Directly adjoining Illinois Cass County 17017960200 Directly adjoining Illinois Cass County 17017960300 Directly adjoining Illinois Champaign County 17019010400 Directly adjoining Illinois Champaign County 17019010702 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Illinois Champaign County 17019010800 Directly adjoining Illinois Clark County 17023060100 Directly adjoining Illinois Clark County 17023060400 Directly adjoining Illinois Clay County 17025971900 Directly adjoining Illinois Coles County 17029000100 Directly adjoining Illinois Cook County 17031301600 Directly adjoining Illinois Cook County 17031301702 Directly adjoining Illinois Cook County 17031301801 Directly adjoining Illinois Cook County 17031301803 Directly adjoining Illinois Cook County 17031310200 Directly adjoining Illinois Cook County 17031310300 Directly adjoining Illinois Cook County 17031310400 Directly adjoining Illinois Cook County 17031310500 Directly adjoining Illinois Cook County 17031310600 Directly adjoining Illinois Cook County 17031310700 Directly adjoining Illinois Cook County 17031310800 Directly adjoining Illinois Cook County 17031310900 Directly adjoining Illinois Cook County 17031330200 Directly adjoining Illinois Cook County 17031520100 Directly adjoining Illinois Cook County 17031520400 Directly adjoining Illinois Cook County 17031520500 Directly adjoining Illinois Cook County 17031550100 Directly adjoining Illinois Cook County 17031560100 Directly adjoining Illinois Cook County 17031570100 Directly adjoining Illinois Cook County 17031570200 Directly adjoining Illinois Cook County 17031580200 Directly adjoining Illinois Cook County 17031580300 Directly adjoining Illinois Cook County 17031600600 Directly adjoining Illinois Cook County 17031600700 Directly adjoining Illinois Cook County 17031814200 Directly adjoining Illinois Cook County 17031825700 Directly adjoining Illinois Cook County 17031830500 Generating unit retirement Illinois Cook County 17031840200 Directly adjoining Illinois Cook County 17031840300 Directly adjoining Illinois Cook County 17031840400 Directly adjoining Illinois Cook County 17031840800 Directly adjoining Illinois Cook County 17031841100 Directly adjoining Illinois Cook County 17031841200 Directly adjoining Illinois Cook County 17031841300 Directly adjoining Illinois Cook County 17031841900 Directly adjoining Illinois Cook County 17031843200 Generating unit retirement Illinois Cook County 17031843500 Directly adjoining Illinois Crawford County 17033880100 Generating unit retirement State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Illinois Crawford County 17033880200 Directly adjoining Illinois Crawford County 17033880300 Directly adjoining Illinois Crawford County 17033880500 Directly adjoining Illinois Crawford County 17033880600 Directly adjoining Illinois Douglas County 17041952000 Mine closure, Directly adjoining Illinois Douglas County 17041952100 Directly adjoining Illinois Douglas County 17041952400 Directly adjoining Illinois Edgar County 17045070100 Directly adjoining Illinois Edgar County 17045070200 Directly adjoining Illinois Edgar County 17045070500 Directly adjoining Illinois Edwards County 17047956900 Directly adjoining Illinois Edwards County 17047957000 Directly adjoining Illinois Effingham County 17049950100 Directly adjoining Illinois Effingham County 17049950500 Directly adjoining Illinois Fayette County 17051950700 Directly adjoining Illinois Franklin County 17055040100 Directly adjoining Illinois Franklin County 17055040200 Directly adjoining Illinois Franklin County 17055040400 Directly adjoining Illinois Franklin County 17055040500 Directly adjoining Illinois Franklin County 17055040700 Directly adjoining Illinois Franklin County 17055040800 Mine closure, Directly adjoining Illinois Franklin County 17055040900 Directly adjoining Illinois Franklin County 17055041000 Directly adjoining Illinois Franklin County 17055041100 Directly adjoining Illinois Franklin County 17055041200 Directly adjoining Illinois Fulton County 17057952800 Directly adjoining Illinois Fulton County 17057952900 Directly adjoining Illinois Fulton County 17057953000 Directly adjoining Illinois Fulton County 17057953100 Directly adjoining Illinois Fulton County 17057953200 Directly adjoining Illinois Fulton County 17057953500 Directly adjoining Illinois Fulton County 17057953600 Directly adjoining Illinois Fulton County 17057953700 Generating unit retirement, Directly adjoining Illinois Fulton County 17057953800 Directly adjoining Illinois Fulton County 17057953900 Directly adjoining Illinois Gallatin County 17059972700 Mine closure, Directly adjoining Illinois Gallatin County 17059972800 Mine closure, Directly adjoining Illinois Greene County 17061973800 Directly adjoining Illinois Hamilton County 17065973200 Directly adjoining Illinois Hancock County 17067953700 Directly adjoining Illinois Hancock County 17067954300 Directly adjoining Illinois Hardin County 17069970900 Directly adjoining Illinois Hardin County 17069971000 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Illinois Jackson County 17077010100 Directly adjoining Illinois Jackson County 17077010200 Mine closure, Directly adjoining Illinois Jackson County 17077010400 Directly adjoining Illinois Jackson County 17077010800 Directly adjoining Illinois Jackson County 17077010900 Directly adjoining Illinois Jackson County 17077011200 Directly adjoining Illinois Jackson County 17077011600 Directly adjoining Illinois Jasper County 17079977300 Directly adjoining Illinois Jasper County 17079977400 Directly adjoining Illinois Jasper County 17079977500 Generating unit retirement Illinois Jefferson County 17081050100 Directly adjoining Illinois Jefferson County 17081050300 Mine closure, Directly adjoining Illinois Jefferson County 17081050400 Directly adjoining Illinois Jefferson County 17081050500 Directly adjoining Illinois Jefferson County 17081051100 Directly adjoining Illinois Jo Daviess County 17085020200 Directly adjoining Illinois Johnson County 17087977600 Directly adjoining Illinois Johnson County 17087977700 Directly adjoining Illinois Johnson County 17087977800 Directly adjoining Illinois Knox County 17095000100 Directly adjoining Illinois Knox County 17095000200 Directly adjoining Illinois Knox County 17095001200 Directly adjoining Illinois Knox County 17095001400 Directly adjoining Illinois Knox County 17095001600 Mine closure Illinois Lake County 17097861701 Directly adjoining Illinois Lake County 17097861702 Directly adjoining Illinois Lake County 17097862100 Directly adjoining Illinois Lake County 17097862200 Generating unit retirement Illinois Lake County 17097862300 Directly adjoining Illinois Lake County 17097862401 Directly adjoining Illinois Lake County 17097862402 Directly adjoining Illinois Lake County 17097866000 Directly adjoining Illinois Lake County 17097990000 Directly adjoining Illinois LaSalle County 17099964100 Directly adjoining Illinois Lawrence County 17101880800 Directly adjoining Illinois McDonough County 17109010200 Directly adjoining Illinois McDonough County 17109010300 Directly adjoining Illinois McDonough County 17109011000 Directly adjoining Illinois McDonough County 17109011100 Mine closure, Directly adjoining Illinois Macoupin County 17117956000 Directly adjoining Illinois Macoupin County 17117956100 Mine closure Illinois Macoupin County 17117956200 Directly adjoining Illinois Macoupin County 17117956300 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Illinois Madison County 17119401200 Directly adjoining Illinois Madison County 17119401300 Directly adjoining Illinois Madison County 17119401500 Directly adjoining Illinois Madison County 17119402100 Directly adjoining Illinois Madison County 17119402200 Directly adjoining Illinois Madison County 17119402300 Directly adjoining Illinois Madison County 17119402400 Generating unit retirement Illinois Madison County 17119402500 Directly adjoining Illinois Madison County 17119402600 Directly adjoining Illinois Marshall County 17123961100 Directly adjoining Illinois Marshall County 17123961200 Directly adjoining Illinois Marshall County 17123961300 Directly adjoining Illinois Mason County 17125956400 Directly adjoining Illinois Mason County 17125956500 Directly adjoining Illinois Mason County 17125956600 Generating unit retirement Illinois Mason County 17125956700 Directly adjoining Illinois Massac County 17127970100 Generating unit retirement, Directly adjoining Illinois Massac County 17127970200 Directly adjoining Illinois Massac County 17127970300 Directly adjoining Illinois Massac County 17127970400 Directly adjoining Illinois Menard County 17129010300 Directly adjoining Illinois Monroe County 17133600102 Directly adjoining Illinois Monroe County 17133600402 Directly adjoining Illinois Monroe County 17133600502 Directly adjoining Illinois Montgomery County 17135957400 Directly adjoining Illinois Montgomery County 17135957500 Directly adjoining Illinois Montgomery County 17135957600 Directly adjoining Illinois Montgomery County 17135957900 Directly adjoining Illinois Montgomery County 17135958000 Generating unit retirement Illinois Morgan County 17137951400 Generating unit retirement Illinois Morgan County 17137951500 Directly adjoining Illinois Morgan County 17137951600 Directly adjoining Illinois Morgan County 17137951700 Directly adjoining Illinois Morgan County 17137951800 Directly adjoining Illinois Morgan County 17137951900 Directly adjoining Illinois Morgan County 17137952000 Generating unit retirement Illinois Morgan County 17137952100 Directly adjoining Illinois Morgan County 17137952200 Directly adjoining Illinois Peoria County 17143000200 Directly adjoining Illinois Peoria County 17143000300 Directly adjoining Illinois Peoria County 17143000600 Directly adjoining Illinois Peoria County 17143000900 Directly adjoining Illinois Peoria County 17143003800 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Illinois Peoria County 17143003900 Directly adjoining Illinois Peoria County 17143004000 Directly adjoining Illinois Peoria County 17143004600 Directly adjoining Illinois Peoria County 17143004801 Directly adjoining Illinois Peoria County 17143004802 Directly adjoining Illinois Peoria County 17143004901 Generating unit retirement, Directly adjoining Illinois Peoria County 17143004902 Directly adjoining Illinois Peoria County 17143005000 Directly adjoining Illinois Peoria County 17143005100 Generating unit retirement Illinois Perry County 17145030100 Directly adjoining Illinois Perry County 17145030200 Directly adjoining Illinois Perry County 17145030300 Mine closure, Directly adjoining Illinois Perry County 17145030400 Mine closure, Directly adjoining Illinois Perry County 17145030500 Directly adjoining Illinois Perry County 17145030600 Mine closure, Directly adjoining Illinois Pike County 17149952400 Directly adjoining Illinois Pike County 17149952500 Directly adjoining Illinois Pike County 17149952600 Directly adjoining Illinois Pike County 17149952700 Directly adjoining Illinois Pike County 17149952800 Generating unit retirement Illinois Pope County 17151971200 Directly adjoining Illinois Pope County 17151971300 Directly adjoining Illinois Pulaski County 17153971000 Directly adjoining Illinois Putnam County 17155954500 Directly adjoining Illinois Putnam County 17155954600 Generating unit retirement Illinois Randolph County 17157950500 Directly adjoining Illinois Randolph County 17157950600 Directly adjoining Illinois Randolph County 17157950700 Mine closure, Generating unit retirement, Directly adjoining Illinois Randolph County 17157950800 Directly adjoining Illinois Randolph County 17157950900 Directly adjoining Illinois Randolph County 17157951000 Directly adjoining Illinois Randolph County 17157951100 Directly adjoining Illinois Richland County 17159977900 Directly adjoining Illinois Richland County 17159978300 Directly adjoining Illinois Rock Island County 17161020302 Directly adjoining Illinois Rock Island County 17161020400 Directly adjoining Illinois Rock Island County 17161020600 Generating unit retirement, Directly adjoining Illinois Rock Island County 17161020700 Directly adjoining Illinois Rock Island County 17161020800 Directly adjoining Illinois Rock Island County 17161021400 Directly adjoining Illinois Rock Island County 17161024103 Directly adjoining Illinois St. Clair County 17163504002 Directly adjoining Illinois Saline County 17165955100 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Illinois Saline County 17165955500 Directly adjoining Illinois Saline County 17165955600 Mine closure, Directly adjoining Illinois Saline County 17165955700 Mine closure, Directly adjoining Illinois Saline County 17165955800 Directly adjoining Illinois Saline County 17165955900 Directly adjoining Illinois Saline County 17165956000 Directly adjoining Illinois Saline County 17165956100 Directly adjoining Illinois Saline County 17165956200 Mine closure, Directly adjoining Illinois Sangamon County 17167000600 Directly adjoining Illinois Sangamon County 17167002400 Directly adjoining Illinois Sangamon County 17167002500 Directly adjoining Illinois Sangamon County 17167002700 Directly adjoining Illinois Sangamon County 17167003000 Directly adjoining Illinois Sangamon County 17167003100 Generating unit retirement Illinois Sangamon County 17167003201 Directly adjoining Illinois Sangamon County 17167003203 Directly adjoining Illinois Sangamon County 17167003300 Directly adjoining Illinois Sangamon County 17167003400 Directly adjoining Illinois Sangamon County 17167003500 Directly adjoining Illinois Sangamon County 17167003901 Directly adjoining Illinois Sangamon County 17167003902 Directly adjoining Illinois Schuyler County 17169970100 Mine closure, Directly adjoining Illinois Schuyler County 17169970200 Directly adjoining Illinois Schuyler County 17169970300 Directly adjoining Illinois Scott County 17171970600 Directly adjoining Illinois Scott County 17171970700 Directly adjoining Illinois Tazewell County 17179020100 Directly adjoining Illinois Tazewell County 17179020400 Directly adjoining Illinois Tazewell County 17179020500 Directly adjoining Illinois Tazewell County 17179020800 Directly adjoining Illinois Tazewell County 17179020900 Directly adjoining Illinois Tazewell County 17179021802 Directly adjoining Illinois Union County 17181950100 Directly adjoining Illinois Vermilion County 17183000100 Directly adjoining Illinois Vermilion County 17183000200 Generating unit retirement Illinois Vermilion County 17183000300 Directly adjoining Illinois Vermilion County 17183000500 Directly adjoining Illinois Vermilion County 17183000600 Directly adjoining Illinois Vermilion County 17183000700 Directly adjoining Illinois Vermilion County 17183000800 Directly adjoining Illinois Vermilion County 17183000900 Directly adjoining Illinois Vermilion County 17183001300 Directly adjoining Illinois Vermilion County 17183010100 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Illinois Vermilion County 17183010300 Generating unit retirement Illinois Vermilion County 17183010400 Directly adjoining Illinois Vermilion County 17183010500 Directly adjoining Illinois Vermilion County 17183010600 Directly adjoining Illinois Vermilion County 17183010701 Directly adjoining Illinois Vermilion County 17183010702 Directly adjoining Illinois Vermilion County 17183010800 Directly adjoining Illinois Vermilion County 17183010900 Mine closure, Directly adjoining Illinois Vermilion County 17183011000 Mine closure, Directly adjoining Illinois Vermilion County 17183011100 Directly adjoining Illinois Wabash County 17185957200 Mine closure, Directly adjoining Illinois Wabash County 17185957300 Directly adjoining Illinois Wabash County 17185957400 Directly adjoining Illinois Wabash County 17185957500 Directly adjoining Illinois Washington County 17189950100 Directly adjoining Illinois Washington County 17189950200 Directly adjoining Illinois Washington County 17189950300 Directly adjoining Illinois Washington County 17189950400 Mine closure, Directly adjoining Illinois Wayne County 17191954900 Directly adjoining Illinois White County 17193958000 Directly adjoining Illinois White County 17193958100 Directly adjoining Illinois White County 17193958200 Mine closure, Directly adjoining Illinois White County 17193958300 Directly adjoining Illinois White County 17193958400 Directly adjoining Illinois Will County 17197880202 Directly adjoining Illinois Will County 17197880203 Directly adjoining Illinois Will County 17197880426 Directly adjoining Illinois Will County 17197880428 Directly adjoining Illinois Will County 17197880502 Directly adjoining Illinois Will County 17197880503 Directly adjoining Illinois Will County 17197880508 Directly adjoining Illinois Will County 17197880509 Directly adjoining Illinois Will County 17197880510 Directly adjoining Illinois Will County 17197880511 Directly adjoining Illinois Will County 17197880602 Directly adjoining Illinois Will County 17197880901 Directly adjoining Illinois Will County 17197884101 Generating unit retirement Illinois Will County 17197884103 Directly adjoining Illinois Williamson County 17199020100 Mine closure, Directly adjoining Illinois Williamson County 17199020201 Directly adjoining Illinois Williamson County 17199020202 Directly adjoining Illinois Williamson County 17199020300 Directly adjoining Illinois Williamson County 17199020600 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Illinois Williamson County 17199020700 Directly adjoining Illinois Williamson County 17199020801 Mine closure, Directly adjoining Illinois Williamson County 17199020802 Mine closure, Directly adjoining Illinois Williamson County 17199020900 Directly adjoining Illinois Williamson County 17199021002 Directly adjoining Illinois Williamson County 17199021200 Directly adjoining Illinois Williamson County 17199021300 Directly adjoining Illinois Williamson County 17199021400 Mine closure, Generating unit retirement, Directly adjoining Indiana Cass County 18017950900 Directly adjoining Indiana Cass County 18017951200 Directly adjoining Indiana Cass County 18017951400 Directly adjoining Indiana Cass County 18017951500 Generating unit retirement Indiana Cass County 18017951600 Directly adjoining Indiana Cass County 18017951700 Directly adjoining Indiana Clay County 18021040300 Directly adjoining Indiana Clay County 18021040400 Directly adjoining Indiana Clay County 18021040500 Mine closure, Directly adjoining Indiana Clay County 18021040600 Mine closure, Directly adjoining Indiana Daviess County 18027954300 Directly adjoining Indiana Daviess County 18027954400 Mine closure, Directly adjoining Indiana Daviess County 18027954501 Directly adjoining Indiana Daviess County 18027954502 Mine closure, Directly adjoining Indiana Daviess County 18027954600 Directly adjoining Indiana Daviess County 18027954700 Directly adjoining Indiana Daviess County 18027954800 Directly adjoining Indiana Daviess County 18027954900 Directly adjoining Indiana Dearborn County 18029080301 Generating unit retirement Indiana Dearborn County 18029080302 Directly adjoining Indiana Dearborn County 18029080400 Directly adjoining Indiana Dearborn County 18029080500 Directly adjoining Indiana Dubois County 18037953200 Mine closure, Directly adjoining Indiana Dubois County 18037953301 Directly adjoining Indiana Dubois County 18037953302 Directly adjoining Indiana Dubois County 18037953400 Generating unit retirement, Directly adjoining Indiana Dubois County 18037953500 Directly adjoining Indiana Dubois County 18037953701 Mine closure, Directly adjoining Indiana Dubois County 18037953702 Directly adjoining Indiana Dubois County 18037953800 Directly adjoining Indiana Floyd County 18043070500 Directly adjoining Indiana Floyd County 18043070600 Generating unit retirement Indiana Floyd County 18043070700 Directly adjoining Indiana Floyd County 18043070801 Directly adjoining Indiana Floyd County 18043071104 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Indiana Floyd County 18043071200 Directly adjoining Indiana Gibson County 18051050100 Directly adjoining Indiana Gibson County 18051050201 Directly adjoining Indiana Gibson County 18051050202 Directly adjoining Indiana Gibson County 18051050300 Mine closure, Directly adjoining Indiana Gibson County 18051050401 Mine closure, Directly adjoining Indiana Gibson County 18051050402 Mine closure, Directly adjoining Indiana Gibson County 18051050501 Directly adjoining Indiana Gibson County 18051050502 Directly adjoining Indiana Greene County 18055954701 Directly adjoining Indiana Greene County 18055954702 Directly adjoining Indiana Greene County 18055954800 Directly adjoining Indiana Greene County 18055954900 Mine closure, Directly adjoining Indiana Greene County 18055955000 Directly adjoining Indiana Greene County 18055955100 Directly adjoining Indiana Greene County 18055955200 Directly adjoining Indiana Greene County 18055955300 Mine closure, Directly adjoining Indiana Greene County 18055955400 Directly adjoining Indiana Harrison County 18061060601 Directly adjoining Indiana Jasper County 18073100800 Generating unit retirement Indiana Jasper County 18073100901 Directly adjoining Indiana Jasper County 18073101000 Directly adjoining Indiana Jasper County 18073101200 Directly adjoining Indiana Knox County 18083955000 Directly adjoining Indiana Knox County 18083955100 Mine closure, Generating unit retirement, Directly adjoining Indiana Knox County 18083955201 Directly adjoining Indiana Knox County 18083955202 Directly adjoining Indiana Knox County 18083955700 Directly adjoining Indiana Knox County 18083955800 Mine closure, Directly adjoining Indiana Knox County 18083955900 Directly adjoining Indiana Lake County 18089010203 Directly adjoining Indiana Lake County 18089010302 Directly adjoining Indiana Lake County 18089010304 Generating unit retirement Indiana Lake County 18089011000 Directly adjoining Indiana Lake County 18089020100 Directly adjoining Indiana Lake County 18089020200 Directly adjoining Indiana Lake County 18089020300 Generating unit retirement Indiana Lake County 18089020400 Directly adjoining Indiana Lake County 18089021000 Directly adjoining Indiana Lake County 18089030100 Directly adjoining Indiana Lake County 18089030300 Directly adjoining Indiana Lake County 18089030400 Directly adjoining Indiana Lake County 18089030500 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Indiana Lake County 18089030700 Directly adjoining Indiana Lake County 18089030900 Directly adjoining Indiana Lake County 18089040100 Directly adjoining Indiana Lake County 18089990000 Directly adjoining Indiana LaPorte County 18091042900 Directly adjoining Indiana Martin County 18101950100 Directly adjoining Indiana Martin County 18101950200 Directly adjoining Indiana Martin County 18101950300 Directly adjoining Indiana Miami County 18103952100 Directly adjoining Indiana Miami County 18103952200 Directly adjoining Indiana Miami County 18103952300 Directly adjoining Indiana Miami County 18103952400 Generating unit retirement Indiana Miami County 18103952500 Directly adjoining Indiana Miami County 18103952700 Directly adjoining Indiana Montgomery County 18107956800 Directly adjoining Indiana Montgomery County 18107956900 Directly adjoining Indiana Montgomery County 18107957000 Generating unit retirement Indiana Montgomery County 18107957200 Directly adjoining Indiana Morgan County 18109510500 Directly adjoining Indiana Morgan County 18109510701 Directly adjoining Indiana Morgan County 18109510703 Generating unit retirement Indiana Morgan County 18109510704 Directly adjoining Indiana Morgan County 18109510800 Directly adjoining Indiana Morgan County 18109510900 Directly adjoining Indiana Morgan County 18109511001 Directly adjoining Indiana Owen County 18119955600 Directly adjoining Indiana Owen County 18119955701 Directly adjoining Indiana Owen County 18119955702 Mine closure, Directly adjoining Indiana Owen County 18119955900 Directly adjoining Indiana Parke County 18121030100 Directly adjoining Indiana Parke County 18121030200 Directly adjoining Indiana Parke County 18121030300 Directly adjoining Indiana Parke County 18121030401 Mine closure Indiana Parke County 18121030402 Directly adjoining Indiana Perry County 18123952300 Directly adjoining Indiana Perry County 18123952400 Directly adjoining Indiana Pike County 18125953900 Mine closure, Directly adjoining Indiana Pike County 18125954000 Directly adjoining Indiana Pike County 18125954100 Mine closure, Generating unit retirement, Directly adjoining Indiana Pike County 18125954200 Mine closure, Directly adjoining Indiana Porter County 18127050302 Directly adjoining Indiana Porter County 18127051102 Directly adjoining Indiana Porter County 18127980001 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Indiana Porter County 18127980002 Generating unit retirement Indiana Porter County 18127990000 Directly adjoining Indiana Posey County 18129040100 Directly adjoining Indiana Posey County 18129040200 Directly adjoining Indiana Posey County 18129040300 Directly adjoining Indiana Posey County 18129040400 Generating unit retirement, Directly adjoining Indiana Posey County 18129040500 Generating unit retirement, Directly adjoining Indiana Posey County 18129040600 Directly adjoining Indiana Posey County 18129040700 Directly adjoining Indiana Pulaski County 18131959100 Directly adjoining Indiana Pulaski County 18131959200 Directly adjoining Indiana Putnam County 18133956100 Directly adjoining Indiana Putnam County 18133956600 Directly adjoining Indiana Spencer County 18147952701 Directly adjoining Indiana Spencer County 18147952702 Mine closure, Directly adjoining Indiana Spencer County 18147952800 Directly adjoining Indiana Spencer County 18147952900 Directly adjoining Indiana Spencer County 18147953000 Directly adjoining Indiana Spencer County 18147953100 Directly adjoining Indiana Starke County 18149954200 Directly adjoining Indiana Sullivan County 18153050101 Mine closure, Directly adjoining Indiana Sullivan County 18153050102 Mine closure, Directly adjoining Indiana Sullivan County 18153050200 Directly adjoining Indiana Sullivan County 18153050301 Directly adjoining Indiana Sullivan County 18153050302 Directly adjoining Indiana Sullivan County 18153050400 Mine closure, Directly adjoining Indiana Sullivan County 18153050501 Directly adjoining Indiana Sullivan County 18153050502 Mine closure, Directly adjoining Indiana Vanderburgh County 18163010404 Directly adjoining Indiana Vanderburgh County 18163010406 Directly adjoining Indiana Vanderburgh County 18163010502 Directly adjoining Indiana Vanderburgh County 18163010701 Directly adjoining Indiana Vermillion County 18165020400 Directly adjoining Indiana Vigo County 18167000300 Directly adjoining Indiana Vigo County 18167000900 Directly adjoining Indiana Vigo County 18167001000 Directly adjoining Indiana Vigo County 18167010201 Directly adjoining Indiana Vigo County 18167010202 Directly adjoining Indiana Vigo County 18167010300 Mine closure, Generating unit retirement Indiana Vigo County 18167010400 Directly adjoining Indiana Vigo County 18167010601 Directly adjoining Indiana Vigo County 18167010602 Directly adjoining Indiana Vigo County 18167010702 Mine closure, Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Indiana Vigo County 18167010703 Directly adjoining Indiana Vigo County 18167010704 Directly adjoining Indiana Vigo County 18167011000 Directly adjoining Indiana Vigo County 18167011202 Directly adjoining Indiana Warren County 18171951100 Directly adjoining Indiana Warrick County 18173030100 Mine closure, Directly adjoining Indiana Warrick County 18173030200 Mine closure, Directly adjoining Indiana Warrick County 18173030300 Directly adjoining Indiana Warrick County 18173030400 Directly adjoining Indiana Warrick County 18173030501 Mine closure, Directly adjoining Indiana Warrick County 18173030502 Mine closure, Directly adjoining Indiana Warrick County 18173030601 Directly adjoining Indiana Warrick County 18173030602 Directly adjoining Indiana Warrick County 18173030703 Mine closure Indiana Warrick County 18173030704 Directly adjoining Indiana Warrick County 18173030706 Directly adjoining Indiana Warrick County 18173030707 Directly adjoining Indiana Warrick County 18173030709 Directly adjoining Indiana Warrick County 18173030801 Directly adjoining Iowa Allamakee County 19005960100 Generating unit retirement, Directly adjoining Iowa Allamakee County 19005960200 Directly adjoining Iowa Allamakee County 19005960400 Directly adjoining Iowa Allamakee County 19005960500 Directly adjoining Iowa Cedar County 19031450400 Directly adjoining Iowa Cedar County 19031450500 Directly adjoining Iowa Clayton County 19043070400 Directly adjoining Iowa Clayton County 19043070500 Directly adjoining Iowa Dubuque County 19061000100 Generating unit retirement, Directly adjoining Iowa Dubuque County 19061000300 Directly adjoining Iowa Dubuque County 19061000400 Directly adjoining Iowa Dubuque County 19061000500 Directly adjoining Iowa Dubuque County 19061000600 Directly adjoining Iowa Dubuque County 19061000701 Directly adjoining Iowa Dubuque County 19061000702 Directly adjoining Iowa Dubuque County 19061000801 Directly adjoining Iowa Dubuque County 19061001104 Directly adjoining Iowa Dubuque County 19061010103 Generating unit retirement, Directly adjoining Iowa Dubuque County 19061010104 Directly adjoining Iowa Dubuque County 19061010600 Directly adjoining Iowa Linn County 19113000800 Directly adjoining Iowa Linn County 19113000902 Directly adjoining Iowa Linn County 19113001102 Directly adjoining Iowa Linn County 19113001200 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Iowa Linn County 19113001300 Generating unit retirement Iowa Linn County 19113001400 Directly adjoining Iowa Linn County 19113001800 Directly adjoining Iowa Linn County 19113001900 Directly adjoining Iowa Linn County 19113002900 Directly adjoining Iowa Linn County 19113003003 Directly adjoining Iowa Linn County 19113003004 Generating unit retirement Iowa Linn County 19113003005 Directly adjoining Iowa Linn County 19113010700 Directly adjoining Iowa Marion County 19125030101 Directly adjoining Iowa Marion County 19125030202 Directly adjoining Iowa Marion County 19125030300 Generating unit retirement Iowa Marshall County 19127950100 Directly adjoining Iowa Marshall County 19127950400 Directly adjoining Iowa Marshall County 19127950500 Directly adjoining Iowa Marshall County 19127950600 Directly adjoining Iowa Marshall County 19127950900 Generating unit retirement Iowa Marshall County 19127951000 Directly adjoining Iowa Mills County 19129040201 Directly adjoining Iowa Mills County 19129040202 Directly adjoining Iowa Monona County 19133960100 Directly adjoining Iowa Monona County 19133960200 Directly adjoining Iowa Muscatine County 19139050100 Generating unit retirement Iowa Muscatine County 19139050200 Directly adjoining Iowa Muscatine County 19139050700 Directly adjoining Iowa Pottawattamie County 19155021400 Directly adjoining Iowa Pottawattamie County 19155021602 Directly adjoining Iowa Pottawattamie County 19155031300 Directly adjoining Iowa Pottawattamie County 19155031400 Directly adjoining Iowa Pottawattamie County 19155031601 Directly adjoining Iowa Pottawattamie County 19155031602 Directly adjoining Iowa Pottawattamie County 19155031800 Directly adjoining Iowa Pottawattamie County 19155031900 Generating unit retirement Iowa Scott County 19163010103 Directly adjoining Iowa Scott County 19163010300 Directly adjoining Iowa Scott County 19163010401 Directly adjoining Iowa Scott County 19163013300 Directly adjoining Iowa Scott County 19163013400 Directly adjoining Iowa Scott County 19163013500 Directly adjoining Iowa Scott County 19163013702 Generating unit retirement, Directly adjoining Iowa Scott County 19163013705 Directly adjoining Iowa Scott County 19163013706 Directly adjoining Iowa Woodbury County 19193003100 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Iowa Woodbury County 19193003200 Directly adjoining Iowa Woodbury County 19193003301 Directly adjoining Iowa Woodbury County 19193003302 Directly adjoining Iowa Woodbury County 19193003500 Generating unit retirement Iowa Woodbury County 19193003600 Directly adjoining Iowa Woodbury County 19193940200 Directly adjoining Iowa Wright County 19197680200 Directly adjoining Iowa Wright County 19197680500 Generating unit retirement Kansas Allen County 20001952600 Directly adjoining Kansas Anderson County 20003953700 Directly adjoining Kansas Bourbon County 20011955600 Directly adjoining Kansas Bourbon County 20011955700 Mine closure Kansas Bourbon County 20011955800 Directly adjoining Kansas Bourbon County 20011955900 Directly adjoining Kansas Cherokee County 20021958100 Directly adjoining Kansas Cherokee County 20021958200 Directly adjoining Kansas Cherokee County 20021958300 Directly adjoining Kansas Cherokee County 20021958400 Generating unit retirement, Directly adjoining Kansas Cherokee County 20021958500 Directly adjoining Kansas Cherokee County 20021958600 Directly adjoining Kansas Crawford County 20037956600 Directly adjoining Kansas Crawford County 20037956700 Directly adjoining Kansas Crawford County 20037957601 Directly adjoining Kansas Douglas County 20045000100 Directly adjoining Kansas Douglas County 20045000501 Directly adjoining Kansas Douglas County 20045000603 Directly adjoining Kansas Douglas County 20045000604 Directly adjoining Kansas Douglas County 20045001400 Directly adjoining Kansas Douglas County 20045001500 Generating unit retirement, Directly adjoining Kansas Jefferson County 20087020101 Directly adjoining Kansas Jefferson County 20087020102 Directly adjoining Kansas Jefferson County 20087020300 Directly adjoining Kansas Labette County 20099950600 Directly adjoining Kansas Labette County 20099950800 Directly adjoining Kansas Linn County 20107955101 Directly adjoining Kansas Linn County 20107955102 Directly adjoining Kansas Linn County 20107955200 Mine closure, Directly adjoining Kansas Miami County 20121100400 Directly adjoining Kansas Neosho County 20133951600 Directly adjoining Kansas Shawnee County 20177000900 Directly adjoining Kansas Shawnee County 20177003002 Directly adjoining Kansas Shawnee County 20177003100 Directly adjoining Kansas Shawnee County 20177003901 Generating unit retirement, Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Kansas Shawnee County 20177003902 Directly adjoining Kentucky Anderson County 21005950102 Directly adjoining Kentucky Ballard County 21007950100 Directly adjoining Kentucky Bell County 21013960100 Mine closure, Directly adjoining Kentucky Bell County 21013960200 Directly adjoining Kentucky Bell County 21013960300 Mine closure, Directly adjoining Kentucky Bell County 21013960400 Mine closure, Directly adjoining Kentucky Bell County 21013960500 Mine closure, Directly adjoining Kentucky Bell County 21013960600 Mine closure, Directly adjoining Kentucky Bell County 21013960700 Mine closure, Directly adjoining Kentucky Bell County 21013960800 Mine closure, Directly adjoining Kentucky Bell County 21013961100 Mine closure, Directly adjoining Kentucky Boone County 21015070403 Directly adjoining Kentucky Boone County 21015070405 Directly adjoining Kentucky Boone County 21015070502 Directly adjoining Kentucky Boyd County 21019030900 Directly adjoining Kentucky Boyd County 21019031001 Directly adjoining Kentucky Boyd County 21019031004 Directly adjoining Kentucky Boyd County 21019031101 Directly adjoining Kentucky Boyd County 21019031102 Directly adjoining Kentucky Boyd County 21019031200 Directly adjoining Kentucky Boyle County 21021930100 Directly adjoining Kentucky Bracken County 21023950200 Directly adjoining Kentucky Breathitt County 21025920200 Mine closure, Directly adjoining Kentucky Breathitt County 21025920301 Directly adjoining Kentucky Breathitt County 21025920302 Directly adjoining Kentucky Breathitt County 21025920500 Mine closure, Directly adjoining Kentucky Breathitt County 21025920600 Mine closure, Directly adjoining Kentucky Breathitt County 21025920700 Mine closure, Directly adjoining Kentucky Breathitt County 21025920800 Mine closure, Directly adjoining Kentucky Breckinridge County 21027960400 Directly adjoining Kentucky Butler County 21031930100 Mine closure, Directly adjoining Kentucky Butler County 21031930200 Directly adjoining Kentucky Butler County 21031930301 Directly adjoining Kentucky Butler County 21031930302 Directly adjoining Kentucky Butler County 21031930400 Directly adjoining Kentucky Butler County 21031930500 Mine closure, Directly adjoining Kentucky Caldwell County 21033920100 Directly adjoining Kentucky Caldwell County 21033920302 Directly adjoining Kentucky Campbell County 21037051901 Directly adjoining Kentucky Carter County 21043960200 Directly adjoining Kentucky Carter County 21043960300 Directly adjoining Kentucky Carter County 21043960400 Mine closure State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Kentucky Carter County 21043960500 Directly adjoining Kentucky Carter County 21043960601 Directly adjoining Kentucky Carter County 21043960602 Directly adjoining Kentucky Carter County 21043960700 Mine closure, Directly adjoining Kentucky Christian County 21047200902 Directly adjoining Kentucky Christian County 21047201000 Mine closure, Directly adjoining Kentucky Christian County 21047201100 Directly adjoining Kentucky Clark County 21049020103 Directly adjoining Kentucky Clark County 21049020105 Directly adjoining Kentucky Clark County 21049020400 Directly adjoining Kentucky Clark County 21049020500 Generating unit retirement Kentucky Clark County 21049020600 Directly adjoining Kentucky Clay County 21051950100 Mine closure, Directly adjoining Kentucky Clay County 21051950201 Mine closure, Directly adjoining Kentucky Clay County 21051950202 Mine closure, Directly adjoining Kentucky Clay County 21051950301 Mine closure, Directly adjoining Kentucky Clay County 21051950302 Mine closure, Directly adjoining Kentucky Clay County 21051950400 Mine closure, Directly adjoining Kentucky Clay County 21051950500 Mine closure, Directly adjoining Kentucky Clay County 21051950600 Mine closure, Directly adjoining Kentucky Crittenden County 21055930100 Directly adjoining Kentucky Daviess County 21059000100 Directly adjoining Kentucky Daviess County 21059000200 Directly adjoining Kentucky Daviess County 21059000401 Directly adjoining Kentucky Daviess County 21059000402 Directly adjoining Kentucky Daviess County 21059000600 Directly adjoining Kentucky Daviess County 21059001300 Mine closure, Directly adjoining Kentucky Daviess County 21059001401 Generating unit retirement Kentucky Daviess County 21059001402 Directly adjoining Kentucky Daviess County 21059001501 Directly adjoining Kentucky Daviess County 21059001502 Mine closure, Directly adjoining Kentucky Daviess County 21059001601 Directly adjoining Kentucky Daviess County 21059001602 Directly adjoining Kentucky Daviess County 21059001701 Directly adjoining Kentucky Daviess County 21059001703 Directly adjoining Kentucky Daviess County 21059001800 Mine closure, Directly adjoining Kentucky Elliott County 21063920101 Directly adjoining Kentucky Elliott County 21063920102 Mine closure, Directly adjoining Kentucky Elliott County 21063920200 Mine closure, Directly adjoining Kentucky Estill County 21065920100 Directly adjoining Kentucky Estill County 21065920400 Directly adjoining Kentucky Fayette County 21067003701 Directly adjoining Kentucky Fayette County 21067003918 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Kentucky Fayette County 21067004007 Directly adjoining Kentucky Floyd County 21071920100 Mine closure, Directly adjoining Kentucky Floyd County 21071920200 Mine closure, Directly adjoining Kentucky Floyd County 21071920301 Mine closure, Directly adjoining Kentucky Floyd County 21071920302 Mine closure, Directly adjoining Kentucky Floyd County 21071920401 Mine closure, Directly adjoining Kentucky Floyd County 21071920402 Mine closure, Directly adjoining Kentucky Floyd County 21071920500 Mine closure, Directly adjoining Kentucky Floyd County 21071920600 Mine closure, Directly adjoining Kentucky Floyd County 21071920700 Mine closure, Directly adjoining Kentucky Floyd County 21071920801 Mine closure, Directly adjoining Kentucky Floyd County 21071920802 Mine closure, Directly adjoining Kentucky Floyd County 21071920900 Mine closure, Directly adjoining Kentucky Floyd County 21071921001 Mine closure, Directly adjoining Kentucky Floyd County 21071921002 Mine closure, Directly adjoining Kentucky Franklin County 21073070703 Directly adjoining Kentucky Franklin County 21073071001 Directly adjoining Kentucky Garrard County 21079970101 Directly adjoining Kentucky Garrard County 21079970102 Directly adjoining Kentucky Grayson County 21085950600 Directly adjoining Kentucky Grayson County 21085950700 Directly adjoining Kentucky Greenup County 21089040100 Directly adjoining Kentucky Greenup County 21089040202 Directly adjoining Kentucky Greenup County 21089040300 Directly adjoining Kentucky Greenup County 21089040400 Mine closure, Directly adjoining Kentucky Greenup County 21089040502 Directly adjoining Kentucky Greenup County 21089040700 Directly adjoining Kentucky Hancock County 21091960100 Directly adjoining Kentucky Hancock County 21091960200 Generating unit retirement Kentucky Hancock County 21091960300 Directly adjoining Kentucky Harlan County 21095970100 Mine closure, Directly adjoining Kentucky Harlan County 21095970200 Mine closure, Directly adjoining Kentucky Harlan County 21095970300 Mine closure, Directly adjoining Kentucky Harlan County 21095970400 Mine closure, Directly adjoining Kentucky Harlan County 21095970500 Mine closure, Directly adjoining Kentucky Harlan County 21095970600 Mine closure, Directly adjoining Kentucky Harlan County 21095970700 Mine closure, Directly adjoining Kentucky Harlan County 21095970800 Directly adjoining Kentucky Harlan County 21095970900 Mine closure, Directly adjoining Kentucky Harlan County 21095971000 Mine closure, Directly adjoining Kentucky Harlan County 21095971300 Mine closure, Directly adjoining Kentucky Henderson County 21101020602 Directly adjoining Kentucky Henderson County 21101020701 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Kentucky Henderson County 21101020703 Directly adjoining Kentucky Henderson County 21101020704 Mine closure, Directly adjoining Kentucky Henderson County 21101020800 Mine closure, Directly adjoining Kentucky Henderson County 21101020901 Directly adjoining Kentucky Henderson County 21101020902 Directly adjoining Kentucky Hopkins County 21107970100 Mine closure, Directly adjoining Kentucky Hopkins County 21107970200 Mine closure, Directly adjoining Kentucky Hopkins County 21107970301 Directly adjoining Kentucky Hopkins County 21107970302 Directly adjoining Kentucky Hopkins County 21107970400 Directly adjoining Kentucky Hopkins County 21107970500 Mine closure, Directly adjoining Kentucky Hopkins County 21107970600 Mine closure, Directly adjoining Kentucky Hopkins County 21107970700 Mine closure, Directly adjoining Kentucky Hopkins County 21107970800 Directly adjoining Kentucky Hopkins County 21107970900 Directly adjoining Kentucky Hopkins County 21107971000 Directly adjoining Kentucky Hopkins County 21107971100 Directly adjoining Kentucky Hopkins County 21107971300 Mine closure, Directly adjoining Kentucky Jackson County 21109960101 Mine closure, Directly adjoining Kentucky Jackson County 21109960102 Mine closure, Directly adjoining Kentucky Jackson County 21109960200 Directly adjoining Kentucky Jackson County 21109960301 Mine closure, Directly adjoining Kentucky Jackson County 21109960302 Mine closure, Directly adjoining Kentucky Jefferson County 21111000400 Directly adjoining Kentucky Jefferson County 21111000800 Directly adjoining Kentucky Jefferson County 21111012103 Directly adjoining Kentucky Jefferson County 21111012407 Directly adjoining Kentucky Jefferson County 21111012409 Directly adjoining Kentucky Jefferson County 21111012412 Directly adjoining Kentucky Jefferson County 21111012413 Directly adjoining Kentucky Jefferson County 21111012503 Directly adjoining Kentucky Jefferson County 21111012702 Directly adjoining Kentucky Jefferson County 21111012703 Generating unit retirement Kentucky Jessamine County 21113060402 Directly adjoining Kentucky Johnson County 21115960100 Mine closure, Directly adjoining Kentucky Johnson County 21115960200 Mine closure, Directly adjoining Kentucky Johnson County 21115960300 Mine closure, Directly adjoining Kentucky Johnson County 21115960401 Mine closure, Directly adjoining Kentucky Johnson County 21115960402 Mine closure, Directly adjoining Kentucky Johnson County 21115960500 Mine closure, Directly adjoining Kentucky Johnson County 21115960600 Mine closure, Directly adjoining Kentucky Knott County 21119960100 Mine closure, Directly adjoining Kentucky Knott County 21119960200 Mine closure, Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Kentucky Knott County 21119960300 Mine closure, Directly adjoining Kentucky Knott County 21119960400 Mine closure, Directly adjoining Kentucky Knott County 21119960500 Mine closure, Directly adjoining Kentucky Knox County 21121930100 Mine closure, Directly adjoining Kentucky Knox County 21121930200 Mine closure, Directly adjoining Kentucky Knox County 21121930300 Mine closure, Directly adjoining Kentucky Knox County 21121930401 Mine closure, Directly adjoining Kentucky Knox County 21121930402 Directly adjoining Kentucky Knox County 21121930501 Mine closure, Directly adjoining Kentucky Knox County 21121930502 Mine closure, Directly adjoining Kentucky Knox County 21121930602 Mine closure, Directly adjoining Kentucky Knox County 21121930603 Directly adjoining Kentucky Knox County 21121930604 Mine closure, Directly adjoining Kentucky Knox County 21121930700 Mine closure, Directly adjoining Kentucky Laurel County 21125970100 Mine closure, Directly adjoining Kentucky Laurel County 21125970201 Directly adjoining Kentucky Laurel County 21125970202 Directly adjoining Kentucky Laurel County 21125970300 Directly adjoining Kentucky Laurel County 21125970400 Directly adjoining Kentucky Laurel County 21125970500 Mine closure, Directly adjoining Kentucky Laurel County 21125970600 Directly adjoining Kentucky Laurel County 21125970700 Directly adjoining Kentucky Laurel County 21125970800 Directly adjoining Kentucky Laurel County 21125970900 Mine closure, Directly adjoining Kentucky Laurel County 21125971001 Directly adjoining Kentucky Laurel County 21125971003 Directly adjoining Kentucky Laurel County 21125971004 Directly adjoining Kentucky Laurel County 21125971101 Directly adjoining Kentucky Laurel County 21125971104 Directly adjoining Kentucky Lawrence County 21127930101 Generating unit retirement, Directly adjoining Kentucky Lawrence County 21127930102 Mine closure, Directly adjoining Kentucky Lawrence County 21127930200 Mine closure, Directly adjoining Kentucky Lawrence County 21127930300 Mine closure, Directly adjoining Kentucky Lawrence County 21127930400 Mine closure, Directly adjoining Kentucky Lawrence County 21127930500 Mine closure, Directly adjoining Kentucky Lee County 21129950100 Mine closure, Directly adjoining Kentucky Lee County 21129950200 Mine closure, Directly adjoining Kentucky Lee County 21129950300 Directly adjoining Kentucky Leslie County 21131920101 Mine closure, Directly adjoining Kentucky Leslie County 21131920102 Mine closure, Directly adjoining Kentucky Leslie County 21131920200 Mine closure, Directly adjoining Kentucky Leslie County 21131920300 Mine closure, Directly adjoining Kentucky Letcher County 21133950100 Mine closure, Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Kentucky Letcher County 21133950201 Mine closure, Directly adjoining Kentucky Letcher County 21133950202 Mine closure, Directly adjoining Kentucky Letcher County 21133950300 Mine closure, Directly adjoining Kentucky Letcher County 21133950401 Mine closure, Directly adjoining Kentucky Letcher County 21133950403 Mine closure, Directly adjoining Kentucky Letcher County 21133950404 Mine closure, Directly adjoining Kentucky Letcher County 21133950500 Mine closure, Directly adjoining Kentucky Letcher County 21133950601 Mine closure, Directly adjoining Kentucky Letcher County 21133950602 Mine closure, Directly adjoining Kentucky Lewis County 21135930100 Directly adjoining Kentucky Lewis County 21135930300 Directly adjoining Kentucky Lewis County 21135930400 Directly adjoining Kentucky Logan County 21141960200 Directly adjoining Kentucky McCracken County 21145031401 Directly adjoining Kentucky McCracken County 21145031501 Generating unit retirement, Directly adjoining Kentucky McCracken County 21145031502 Directly adjoining Kentucky McCreary County 21147960100 Directly adjoining Kentucky McCreary County 21147960200 Directly adjoining Kentucky McCreary County 21147960301 Directly adjoining Kentucky McCreary County 21147960302 Directly adjoining Kentucky McCreary County 21147960401 Directly adjoining Kentucky McCreary County 21147960402 Mine closure, Directly adjoining Kentucky McLean County 21149970100 Directly adjoining Kentucky McLean County 21149970200 Mine closure, Directly adjoining Kentucky McLean County 21149970500 Mine closure, Directly adjoining Kentucky Madison County 21151010101 Directly adjoining Kentucky Madison County 21151010104 Directly adjoining Kentucky Magoffin County 21153970100 Mine closure, Directly adjoining Kentucky Magoffin County 21153970201 Directly adjoining Kentucky Magoffin County 21153970202 Mine closure, Directly adjoining Kentucky Magoffin County 21153970300 Mine closure, Directly adjoining Kentucky Magoffin County 21153970400 Mine closure, Directly adjoining Kentucky Martin County 21159950100 Mine closure, Directly adjoining Kentucky Martin County 21159950201 Mine closure, Directly adjoining Kentucky Martin County 21159950202 Mine closure, Directly adjoining Kentucky Martin County 21159950300 Mine closure, Directly adjoining Kentucky Mason County 21161960100 Directly adjoining Kentucky Menifee County 21165960100 Directly adjoining Kentucky Mercer County 21167960100 Directly adjoining Kentucky Mercer County 21167960400 Directly adjoining Kentucky Mercer County 21167960500 Generating unit retirement Kentucky Morgan County 21175950100 Mine closure, Directly adjoining Kentucky Morgan County 21175950200 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Kentucky Morgan County 21175950300 Directly adjoining Kentucky Morgan County 21175950400 Mine closure, Directly adjoining Kentucky Morgan County 21175950500 Directly adjoining Kentucky Muhlenberg County 21177960100 Mine closure, Directly adjoining Kentucky Muhlenberg County 21177960201 Directly adjoining Kentucky Muhlenberg County 21177960202 Generating unit retirement, Directly adjoining Kentucky Muhlenberg County 21177960300 Mine closure, Directly adjoining Kentucky Muhlenberg County 21177960400 Mine closure, Directly adjoining Kentucky Muhlenberg County 21177960500 Directly adjoining Kentucky Muhlenberg County 21177960600 Mine closure, Directly adjoining Kentucky Muhlenberg County 21177960700 Generating unit retirement, Directly adjoining Kentucky Muhlenberg County 21177960800 Directly adjoining Kentucky Muhlenberg County 21177960900 Directly adjoining Kentucky Ohio County 21183920100 Mine closure, Directly adjoining Kentucky Ohio County 21183920200 Mine closure, Directly adjoining Kentucky Ohio County 21183920300 Directly adjoining Kentucky Ohio County 21183920400 Directly adjoining Kentucky Ohio County 21183920501 Directly adjoining Kentucky Ohio County 21183920502 Mine closure, Directly adjoining Kentucky Ohio County 21183920600 Mine closure, Directly adjoining Kentucky Ohio County 21183920700 Mine closure, Directly adjoining Kentucky Owsley County 21189930100 Mine closure, Directly adjoining Kentucky Owsley County 21189930200 Mine closure, Directly adjoining Kentucky Pendleton County 21191930101 Directly adjoining Kentucky Perry County 21193970300 Mine closure, Directly adjoining Kentucky Perry County 21193970400 Mine closure, Directly adjoining Kentucky Perry County 21193970501 Mine closure, Directly adjoining Kentucky Perry County 21193970502 Directly adjoining Kentucky Perry County 21193970601 Mine closure, Directly adjoining Kentucky Perry County 21193970602 Directly adjoining Kentucky Perry County 21193970700 Mine closure, Directly adjoining Kentucky Perry County 21193970800 Mine closure, Directly adjoining Kentucky Perry County 21193970900 Mine closure, Directly adjoining Kentucky Perry County 21193971000 Mine closure, Directly adjoining Kentucky Pike County 21195930100 Mine closure, Directly adjoining Kentucky Pike County 21195930201 Mine closure, Directly adjoining Kentucky Pike County 21195930202 Mine closure, Directly adjoining Kentucky Pike County 21195930301 Mine closure, Directly adjoining Kentucky Pike County 21195930302 Directly adjoining Kentucky Pike County 21195930400 Mine closure, Directly adjoining Kentucky Pike County 21195930500 Mine closure, Directly adjoining Kentucky Pike County 21195930600 Mine closure, Directly adjoining Kentucky Pike County 21195930700 Mine closure, Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Kentucky Pike County 21195930800 Mine closure, Directly adjoining Kentucky Pike County 21195930900 Mine closure, Directly adjoining Kentucky Pike County 21195931000 Mine closure, Directly adjoining Kentucky Pike County 21195931101 Mine closure, Directly adjoining Kentucky Pike County 21195931102 Mine closure, Directly adjoining Kentucky Pike County 21195931200 Mine closure, Directly adjoining Kentucky Pike County 21195931300 Mine closure, Directly adjoining Kentucky Pike County 21195931400 Mine closure, Directly adjoining Kentucky Pike County 21195931500 Mine closure, Directly adjoining Kentucky Pike County 21195931600 Mine closure, Directly adjoining Kentucky Pike County 21195931700 Mine closure, Directly adjoining Kentucky Pike County 21195931800 Mine closure, Directly adjoining Kentucky Pike County 21195931900 Mine closure, Directly adjoining Kentucky Powell County 21197970101 Directly adjoining Kentucky Pulaski County 21199930102 Directly adjoining Kentucky Pulaski County 21199930404 Directly adjoining Kentucky Pulaski County 21199930802 Directly adjoining Kentucky Pulaski County 21199930900 Mine closure Kentucky Pulaski County 21199931000 Directly adjoining Kentucky Pulaski County 21199931101 Directly adjoining Kentucky Pulaski County 21199931103 Mine closure Kentucky Pulaski County 21199931104 Directly adjoining Kentucky Rockcastle County 21203950300 Directly adjoining Kentucky Rockcastle County 21203950400 Directly adjoining Kentucky Rowan County 21205950400 Directly adjoining Kentucky Trigg County 21221970100 Directly adjoining Kentucky Union County 21225950100 Mine closure, Directly adjoining Kentucky Union County 21225950201 Mine closure, Directly adjoining Kentucky Union County 21225950202 Mine closure, Directly adjoining Kentucky Union County 21225950300 Mine closure, Directly adjoining Kentucky Wayne County 21231920702 Directly adjoining Kentucky Webster County 21233960100 Mine closure, Generating unit retirement, Directly adjoining Kentucky Webster County 21233960200 Directly adjoining Kentucky Webster County 21233960300 Mine closure, Directly adjoining Kentucky Webster County 21233960400 Mine closure, Directly adjoining Kentucky Whitley County 21235920100 Directly adjoining Kentucky Whitley County 21235920200 Mine closure, Directly adjoining Kentucky Whitley County 21235920301 Directly adjoining Kentucky Whitley County 21235920302 Mine closure, Directly adjoining Kentucky Whitley County 21235920401 Directly adjoining Kentucky Whitley County 21235920402 Directly adjoining Kentucky Whitley County 21235920501 Mine closure, Directly adjoining Kentucky Whitley County 21235920502 Mine closure, Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Kentucky Whitley County 21235920601 Directly adjoining Kentucky Whitley County 21235920602 Mine closure, Directly adjoining Kentucky Whitley County 21235920700 Mine closure, Directly adjoining Kentucky Whitley County 21235920800 Mine closure, Directly adjoining Kentucky Wolfe County 21237930100 Mine closure, Directly adjoining Kentucky Wolfe County 21237930200 Directly adjoining Kentucky Woodford County 21239050103 Directly adjoining Kentucky Woodford County 21239050104 Directly adjoining Kentucky Woodford County 21239050107 Directly adjoining Kentucky Woodford County 21239050200 Directly adjoining Kentucky Woodford County 21239050300 Generating unit retirement Kentucky Woodford County 21239050400 Directly adjoining Louisiana Bienville Parish 22013970300 Directly adjoining Louisiana Bienville Parish 22013970400 Directly adjoining Louisiana Bossier Parish 22015011002 Directly adjoining Louisiana Caddo Parish 22017024002 Directly adjoining Louisiana De Soto Parish 22031950101 Directly adjoining Louisiana De Soto Parish 22031950102 Directly adjoining Louisiana De Soto Parish 22031950200 Directly adjoining Louisiana De Soto Parish 22031950300 Mine closure, Generating unit retirement, Directly adjoining Louisiana De Soto Parish 22031950400 Directly adjoining Louisiana De Soto Parish 22031950600 Directly adjoining Louisiana De Soto Parish 22031950700 Directly adjoining Louisiana Natchitoches Parish 22069000100 Directly adjoining Louisiana Natchitoches Parish 22069000200 Directly adjoining Louisiana Natchitoches Parish 22069000300 Directly adjoining Louisiana Red River Parish 22081960100 Mine closure, Directly adjoining Louisiana Red River Parish 22081960300 Directly adjoining Maryland Allegany County 24001001401 Directly adjoining Maryland Allegany County 24001001502 Directly adjoining Maryland Allegany County 24001001503 Directly adjoining Maryland Allegany County 24001001600 Directly adjoining Maryland Allegany County 24001001700 Directly adjoining Maryland Allegany County 24001001800 Mine closure, Directly adjoining Maryland Allegany County 24001001900 Mine closure, Directly adjoining Maryland Allegany County 24001002000 Directly adjoining Maryland Allegany County 24001002100 Mine closure, Directly adjoining Maryland Allegany County 24001002200 Mine closure, Generating unit retirement, Directly adjoining Maryland Anne Arundel County 24003730101 Directly adjoining Maryland Anne Arundel County 24003730102 Generating unit retirement Maryland Anne Arundel County 24003730204 Directly adjoining Maryland Anne Arundel County 24003730206 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Maryland Anne Arundel County 24003731308 Directly adjoining Maryland Anne Arundel County 24003731309 Directly adjoining Maryland Anne Arundel County 24003751102 Directly adjoining Maryland Anne Arundel County 24003751103 Directly adjoining Maryland Anne Arundel County 24003990000 Directly adjoining Maryland Baltimore County 24005451801 Directly adjoining Maryland Baltimore County 24005451802 Directly adjoining Maryland Baltimore County 24005451803 Generating unit retirement Maryland Calvert County 24009860200 Directly adjoining Maryland Calvert County 24009860600 Directly adjoining Maryland Calvert County 24009860701 Directly adjoining Maryland Charles County 24017850201 Generating unit retirement Maryland Charles County 24017850202 Directly adjoining Maryland Charles County 24017850300 Directly adjoining Maryland Charles County 24017850400 Directly adjoining Maryland Charles County 24017850802 Directly adjoining Maryland Charles County 24017851100 Directly adjoining Maryland Charles County 24017851200 Generating unit retirement Maryland Charles County 24017851301 Directly adjoining Maryland Charles County 24017851401 Directly adjoining Maryland Charles County 24017851402 Directly adjoining Maryland Charles County 24017851403 Directly adjoining Maryland Charles County 24017990000 Directly adjoining Maryland Frederick County 24021752201 Directly adjoining Maryland Frederick County 24021752302 Directly adjoining Maryland Garrett County 24023000100 Directly adjoining Maryland Garrett County 24023000200 Directly adjoining Maryland Garrett County 24023000300 Mine closure, Directly adjoining Maryland Garrett County 24023000400 Mine closure, Directly adjoining Maryland Garrett County 24023000501 Directly adjoining Maryland Garrett County 24023000502 Directly adjoining Maryland Garrett County 24023000601 Mine closure, Directly adjoining Maryland Garrett County 24023000602 Directly adjoining Maryland Garrett County 24023000700 Mine closure, Directly adjoining Maryland Montgomery County 24031700400 Directly adjoining Maryland Montgomery County 24031700500 Generating unit retirement Maryland Montgomery County 24031700604 Directly adjoining Maryland Montgomery County 24031700611 Directly adjoining Maryland Prince George's County 24033800800 Directly adjoining Maryland Prince George's County 24033800900 Generating unit retirement Maryland Prince George's County 24033801003 Directly adjoining Maryland St. Mary's County 24037875202 Directly adjoining Maryland St. Mary's County 24037875300 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Maryland Washington County 24043001001 Directly adjoining Maryland Washington County 24043001002 Directly adjoining Maryland Washington County 24043010802 Generating unit retirement Maryland Washington County 24043010803 Directly adjoining Maryland Washington County 24043010901 Directly adjoining Maryland Washington County 24043010902 Directly adjoining Maryland Washington County 24043011700 Directly adjoining Maryland Baltimore city 24510250500 Directly adjoining Massachusetts Bristol County 25005640300 Directly adjoining Massachusetts Bristol County 25005640400 Directly adjoining Massachusetts Bristol County 25005640500 Directly adjoining Massachusetts Bristol County 25005641000 Directly adjoining Massachusetts Bristol County 25005642000 Directly adjoining Massachusetts Bristol County 25005642100 Directly adjoining Massachusetts Bristol County 25005644101 Directly adjoining Massachusetts Bristol County 25005644200 Generating unit retirement Massachusetts Bristol County 25005645101 Directly adjoining Massachusetts Bristol County 25005645102 Directly adjoining Massachusetts Essex County 25009203200 Directly adjoining Massachusetts Essex County 25009203301 Directly adjoining Massachusetts Essex County 25009203302 Directly adjoining Massachusetts Essex County 25009204300 Directly adjoining Massachusetts Essex County 25009204400 Generating unit retirement Massachusetts Essex County 25009204500 Directly adjoining Massachusetts Essex County 25009217402 Directly adjoining Massachusetts Essex County 25009217500 Directly adjoining Massachusetts Essex County 25009217602 Directly adjoining Massachusetts Essex County 25009990100 Directly adjoining Massachusetts Hampden County 25013811700 Directly adjoining Massachusetts Hampden County 25013811800 Directly adjoining Massachusetts Hampden County 25013811900 Generating unit retirement Massachusetts Hampden County 25013812001 Directly adjoining Massachusetts Hampden County 25013812002 Directly adjoining Massachusetts Hampden County 25013812101 Directly adjoining Massachusetts Hampshire County 25015821101 Directly adjoining Massachusetts Hampshire County 25015821300 Directly adjoining Massachusetts Hampshire County 25015821400 Directly adjoining Massachusetts Hampshire County 25015822300 Directly adjoining Massachusetts Hampshire County 25015822401 Directly adjoining Michigan Bay County 26017285100 Directly adjoining Michigan Bay County 26017285201 Directly adjoining Michigan Bay County 26017285202 Generating unit retirement Michigan Bay County 26017285900 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Michigan Bay County 26017990000 Directly adjoining Michigan Branch County 26023950100 Directly adjoining Michigan Branch County 26023950800 Directly adjoining Michigan Calhoun County 26025003000 Directly adjoining Michigan Calhoun County 26025003100 Directly adjoining Michigan Delta County 26041970400 Directly adjoining Michigan Delta County 26041970500 Directly adjoining Michigan Delta County 26041970700 Directly adjoining Michigan Delta County 26041970800 Directly adjoining Michigan Delta County 26041970900 Generating unit retirement Michigan Delta County 26041971000 Directly adjoining Michigan Delta County 26041971100 Directly adjoining Michigan Delta County 26041990000 Directly adjoining Michigan Eaton County 26045020102 Directly adjoining Michigan Eaton County 26045020103 Directly adjoining Michigan Eaton County 26045020201 Directly adjoining Michigan Eaton County 26045020202 Directly adjoining Michigan Eaton County 26045020302 Directly adjoining Michigan Eaton County 26045020303 Generating unit retirement Michigan Eaton County 26045020305 Directly adjoining Michigan Eaton County 26045020306 Directly adjoining Michigan Eaton County 26045021401 Directly adjoining Michigan Hillsdale County 26059050200 Directly adjoining Michigan Hillsdale County 26059050300 Generating unit retirement Michigan Hillsdale County 26059050400 Directly adjoining Michigan Hillsdale County 26059050500 Directly adjoining Michigan Huron County 26063950200 Directly adjoining Michigan Huron County 26063950900 Directly adjoining Michigan Huron County 26063951200 Generating unit retirement Michigan Huron County 26063990000 Directly adjoining Michigan Ingham County 26065000400 Directly adjoining Michigan Ingham County 26065001703 Directly adjoining Michigan Ingham County 26065002000 Directly adjoining Michigan Ingham County 26065003400 Directly adjoining Michigan Ingham County 26065003500 Directly adjoining Michigan Ingham County 26065006700 Directly adjoining Michigan Ingham County 26065006800 Directly adjoining Michigan Ingham County 26065007000 Directly adjoining Michigan Ingham County 26065980200 Generating unit retirement Michigan Jackson County 26075006403 Directly adjoining Michigan Marquette County 26103000200 Directly adjoining Michigan Marquette County 26103000300 Directly adjoining Michigan Marquette County 26103000500 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Michigan Marquette County 26103000600 Generating unit retirement Michigan Marquette County 26103000700 Directly adjoining Michigan Marquette County 26103001100 Directly adjoining Michigan Marquette County 26103001300 Directly adjoining Michigan Marquette County 26103002801 Directly adjoining Michigan Marquette County 26103002802 Generating unit retirement Michigan Marquette County 26103002901 Directly adjoining Michigan Marquette County 26103990000 Directly adjoining Michigan Menominee County 26109960500 Directly adjoining Michigan Menominee County 26109960600 Directly adjoining Michigan Menominee County 26109960700 Generating unit retirement Michigan Menominee County 26109990000 Directly adjoining Michigan Monroe County 26115832600 Directly adjoining Michigan Monroe County 26115833600 Directly adjoining Michigan Monroe County 26115833700 Generating unit retirement Michigan Monroe County 26115990000 Directly adjoining Michigan Muskegon County 26121000900 Directly adjoining Michigan Muskegon County 26121001000 Generating unit retirement Michigan Muskegon County 26121001500 Directly adjoining Michigan Muskegon County 26121001600 Directly adjoining Michigan Muskegon County 26121001700 Directly adjoining Michigan Muskegon County 26121001800 Generating unit retirement Michigan Muskegon County 26121001901 Directly adjoining Michigan Muskegon County 26121002300 Directly adjoining Michigan Muskegon County 26121003200 Directly adjoining Michigan Muskegon County 26121003300 Directly adjoining Michigan Muskegon County 26121003400 Directly adjoining Michigan Muskegon County 26121004200 Directly adjoining Michigan Muskegon County 26121990000 Directly adjoining Michigan Ontonagon County 26131970100 Directly adjoining Michigan Ontonagon County 26131970200 Generating unit retirement Michigan Ontonagon County 26131970300 Directly adjoining Michigan Ontonagon County 26131990100 Directly adjoining Michigan Ottawa County 26139020600 Directly adjoining Michigan Ottawa County 26139020900 Generating unit retirement Michigan Ottawa County 26139021000 Directly adjoining Michigan Ottawa County 26139021100 Directly adjoining Michigan Ottawa County 26139021203 Directly adjoining Michigan Ottawa County 26139024901 Directly adjoining Michigan Ottawa County 26139024902 Generating unit retirement Michigan Ottawa County 26139025101 Directly adjoining Michigan St. Clair County 26147620000 Directly adjoining Michigan St. Clair County 26147637100 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Michigan St. Clair County 26147637200 Directly adjoining Michigan St. Clair County 26147637300 Generating unit retirement Michigan St. Clair County 26147640100 Directly adjoining Michigan St. Clair County 26147640200 Directly adjoining Michigan St. Clair County 26147641000 Directly adjoining Michigan St. Clair County 26147642000 Directly adjoining Michigan St. Clair County 26147643000 Generating unit retirement Michigan St. Clair County 26147644000 Directly adjoining Michigan Sanilac County 26151970100 Directly adjoining Michigan Sanilac County 26151970200 Directly adjoining Michigan Sanilac County 26151990000 Directly adjoining Michigan Tuscola County 26157000300 Directly adjoining Michigan Tuscola County 26157990000 Directly adjoining Michigan Wayne County 26163524600 Directly adjoining Michigan Wayne County 26163579100 Directly adjoining Michigan Wayne County 26163579200 Directly adjoining Michigan Wayne County 26163594401 Directly adjoining Michigan Wayne County 26163596100 Directly adjoining Michigan Wayne County 26163596300 Directly adjoining Michigan Wayne County 26163597000 Directly adjoining Michigan Wayne County 26163982301 Generating unit retirement Michigan Wayne County 26163982302 Directly adjoining Michigan Wayne County 26163984100 Directly adjoining Michigan Wayne County 26163985600 Generating unit retirement Michigan Wayne County 26163987000 Directly adjoining Minnesota Benton County 27009020202 Directly adjoining Minnesota Benton County 27009020205 Directly adjoining Minnesota Benton County 27009020206 Generating unit retirement Minnesota Benton County 27009020300 Directly adjoining Minnesota Benton County 27009021103 Directly adjoining Minnesota Benton County 27009021104 Directly adjoining Minnesota Cass County 27021960100 Directly adjoining Minnesota Cook County 27031480101 Directly adjoining Minnesota Cook County 27031480102 Generating unit retirement Minnesota Cook County 27031480200 Directly adjoining Minnesota Cook County 27031990000 Directly adjoining Minnesota Crow Wing County 27035950901 Directly adjoining Minnesota Crow Wing County 27035951000 Directly adjoining Minnesota Crow Wing County 27035951100 Directly adjoining Minnesota Crow Wing County 27035951200 Generating unit retirement Minnesota Crow Wing County 27035951301 Directly adjoining Minnesota Crow Wing County 27035951303 Directly adjoining Minnesota Crow Wing County 27035951304 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Minnesota Dakota County 27037060710 Directly adjoining Minnesota Dakota County 27037060711 Directly adjoining Minnesota Dakota County 27037060714 Directly adjoining Minnesota Dakota County 27037060721 Directly adjoining Minnesota Dakota County 27037060725 Directly adjoining Minnesota Dakota County 27037060737 Directly adjoining Minnesota Dakota County 27037060738 Directly adjoining Minnesota Dakota County 27037060747 Directly adjoining Minnesota Dakota County 27037060748 Generating unit retirement Minnesota Hennepin County 27053025100 Directly adjoining Minnesota Hennepin County 27053025301 Directly adjoining Minnesota Hennepin County 27053025801 Directly adjoining Minnesota Houston County 27055020200 Directly adjoining Minnesota Houston County 27055020900 Directly adjoining Minnesota Itasca County 27061480301 Directly adjoining Minnesota Itasca County 27061480302 Directly adjoining Minnesota Itasca County 27061480701 Directly adjoining Minnesota Itasca County 27061480702 Generating unit retirement Minnesota Itasca County 27061480801 Directly adjoining Minnesota Itasca County 27061480804 Directly adjoining Minnesota Itasca County 27061480805 Directly adjoining Minnesota Itasca County 27061480902 Directly adjoining Minnesota Itasca County 27061940000 Directly adjoining Minnesota Lake County 27075370101 Directly adjoining Minnesota Olmsted County 27109000100 Directly adjoining Minnesota Olmsted County 27109000200 Directly adjoining Minnesota Olmsted County 27109000500 Directly adjoining Minnesota Olmsted County 27109000600 Generating unit retirement Minnesota Olmsted County 27109001301 Directly adjoining Minnesota Olmsted County 27109001401 Directly adjoining Minnesota Olmsted County 27109001502 Directly adjoining Minnesota Olmsted County 27109001503 Directly adjoining Minnesota Olmsted County 27109001601 Directly adjoining Minnesota Olmsted County 27109002300 Directly adjoining Minnesota Otter Tail County 27111960800 Directly adjoining Minnesota Otter Tail County 27111960900 Directly adjoining Minnesota Otter Tail County 27111961000 Directly adjoining Minnesota Otter Tail County 27111961100 Generating unit retirement Minnesota Otter Tail County 27111961700 Directly adjoining Minnesota Sherburne County 27141030201 Directly adjoining Minnesota Sherburne County 27141030202 Directly adjoining Minnesota Sherburne County 27141030302 Directly adjoining Minnesota Sherburne County 27141030406 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Minnesota Sherburne County 27141030407 Generating unit retirement Minnesota Sherburne County 27141030408 Directly adjoining Minnesota Sherburne County 27141030410 Directly adjoining Minnesota Stearns County 27145010101 Directly adjoining Minnesota Stearns County 27145010103 Directly adjoining Minnesota Wabasha County 27157490100 Directly adjoining Minnesota Wabasha County 27157490200 Directly adjoining Minnesota Wright County 27171100203 Directly adjoining Minnesota Wright County 27171100205 Directly adjoining Minnesota Wright County 27171100300 Directly adjoining Mississippi DeSoto County 28033070101 Directly adjoining Mississippi Forrest County 28035000800 Directly adjoining Mississippi Forrest County 28035010601 Directly adjoining Mississippi Kemper County 28069030100 Directly adjoining Mississippi Kemper County 28069030200 Mine closure Mississippi Lamar County 28073020203 Directly adjoining Mississippi Lamar County 28073020204 Directly adjoining Mississippi Lamar County 28073020206 Directly adjoining Mississippi Lamar County 28073020303 Generating unit retirement Mississippi Lamar County 28073020304 Directly adjoining Mississippi Lamar County 28073020305 Directly adjoining Mississippi Lamar County 28073020402 Directly adjoining Mississippi Lauderdale County 28075010205 Directly adjoining Mississippi Lauderdale County 28075010301 Directly adjoining Mississippi Lauderdale County 28075010304 Directly adjoining Mississippi Monroe County 28095950101 Directly adjoining Mississippi Monroe County 28095950501 Directly adjoining Mississippi Monroe County 28095950502 Directly adjoining Mississippi Neshoba County 28099010101 Directly adjoining Mississippi Neshoba County 28099010102 Directly adjoining Mississippi Neshoba County 28099010600 Directly adjoining Mississippi Newton County 28101050100 Directly adjoining Mississippi Noxubee County 28103950100 Directly adjoining Mississippi Noxubee County 28103950200 Directly adjoining Mississippi Winston County 28159950500 Directly adjoining Missouri Barton County 29011960200 Directly adjoining Missouri Bates County 29013070100 Directly adjoining Missouri Bates County 29013070200 Mine closure, Directly adjoining Missouri Bates County 29013070300 Directly adjoining Missouri Bates County 29013070400 Directly adjoining Missouri Benton County 29015460702 Directly adjoining Missouri Boone County 29019000200 Directly adjoining Missouri Boone County 29019000700 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Missouri Boone County 29019000900 Generating unit retirement Missouri Boone County 29019001001 Directly adjoining Missouri Boone County 29019001402 Directly adjoining Missouri Boone County 29019001507 Directly adjoining Missouri Boone County 29019002100 Directly adjoining Missouri Callaway County 29027070200 Directly adjoining Missouri Callaway County 29027070602 Directly adjoining Missouri Callaway County 29027070701 Directly adjoining Missouri Cass County 29037061100 Directly adjoining Missouri Christian County 29043020202 Directly adjoining Missouri Christian County 29043020207 Directly adjoining Missouri Christian County 29043020307 Directly adjoining Missouri Clay County 29047021401 Directly adjoining Missouri Clay County 29047021403 Directly adjoining Missouri Clay County 29047021601 Directly adjoining Missouri Clay County 29047021602 Generating unit retirement, Directly adjoining Missouri Clay County 29047021701 Directly adjoining Missouri Clay County 29047021704 Directly adjoining Missouri Clay County 29047021811 Directly adjoining Missouri Clay County 29047022301 Directly adjoining Missouri Cole County 29051020198 Directly adjoining Missouri Gasconade County 29073960200 Directly adjoining Missouri Greene County 29077003801 Directly adjoining Missouri Greene County 29077004002 Directly adjoining Missouri Greene County 29077004003 Generating unit retirement Missouri Greene County 29077004004 Directly adjoining Missouri Greene County 29077004005 Directly adjoining Missouri Greene County 29077004108 Directly adjoining Missouri Greene County 29077004109 Directly adjoining Missouri Henry County 29083950200 Directly adjoining Missouri Henry County 29083950300 Directly adjoining Missouri Henry County 29083950400 Generating unit retirement Missouri Henry County 29083950500 Directly adjoining Missouri Henry County 29083950600 Directly adjoining Missouri Jackson County 29095014902 Directly adjoining Missouri Jackson County 29095014903 Directly adjoining Missouri Jackson County 29095015000 Generating unit retirement, Directly adjoining Missouri Jackson County 29095015100 Directly adjoining Missouri Jackson County 29095017700 Directly adjoining Missouri Jasper County 29097011202 Directly adjoining Missouri Jasper County 29097011301 Directly adjoining Missouri Jasper County 29097011302 Directly adjoining Missouri Jasper County 29097011502 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Missouri Jasper County 29097012201 Generating unit retirement, Directly adjoining Missouri Jasper County 29097012202 Directly adjoining Missouri Jefferson County 29099700111 Directly adjoining Missouri Jefferson County 29099700115 Directly adjoining Missouri Lafayette County 29107090100 Directly adjoining Missouri Montgomery County 29139970300 Directly adjoining Missouri Newton County 29145020601 Directly adjoining Missouri Osage County 29151490100 Generating unit retirement Missouri Osage County 29151490200 Directly adjoining Missouri Osage County 29151490300 Directly adjoining Missouri Phelps County 29161890401 Generating unit retirement Missouri Phelps County 29161890402 Directly adjoining Missouri Phelps County 29161890500 Directly adjoining Missouri Phelps County 29161890700 Directly adjoining Missouri Phelps County 29161890800 Directly adjoining Missouri Pike County 29163460100 Directly adjoining Missouri Pike County 29163460200 Generating unit retirement Missouri Pike County 29163460300 Directly adjoining Missouri Pike County 29163460400 Directly adjoining Missouri Pike County 29163460500 Directly adjoining Missouri Ralls County 29173470100 Directly adjoining Missouri Ralls County 29173470200 Directly adjoining Missouri Ray County 29177080300 Directly adjoining Missouri St. Charles County 29183310100 Directly adjoining Missouri St. Clair County 29185480100 Directly adjoining Missouri St. Clair County 29185480300 Directly adjoining Missouri St. Louis County 29189220445 Directly adjoining Missouri St. Louis County 29189220446 Directly adjoining Missouri St. Louis County 29189220451 Directly adjoining Missouri St. Louis County 29189220452 Generating unit retirement Missouri Saline County 29195090200 Directly adjoining Missouri Saline County 29195090300 Generating unit retirement Missouri Saline County 29195090400 Directly adjoining Missouri Saline County 29195090500 Directly adjoining Missouri Saline County 29195090600 Directly adjoining Missouri Vernon County 29217950200 Directly adjoining Missouri Vernon County 29217950500 Directly adjoining Montana Big Horn County 30003000100 Directly adjoining Montana Big Horn County 30003940400 Directly adjoining Montana Big Horn County 30003940500 Directly adjoining Montana Big Horn County 30003940700 Directly adjoining Montana Custer County 30017961300 Directly adjoining Montana Fergus County 30027030100 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Montana Golden Valley County 30037000100 Directly adjoining Montana Musselshell County 30065000100 Mine closure Montana Musselshell County 30065000200 Directly adjoining Montana Petroleum County 30069000100 Directly adjoining Montana Powder River County 30075000100 Directly adjoining Montana Richland County 30083070100 Directly adjoining Montana Richland County 30083070200 Directly adjoining Montana Richland County 30083070301 Directly adjoining Montana Richland County 30083070302 Directly adjoining Montana Richland County 30083070400 Generating unit retirement Montana Rosebud County 30087000100 Directly adjoining Montana Rosebud County 30087000200 Mine closure, Generating unit retirement Montana Rosebud County 30087000300 Directly adjoining Montana Rosebud County 30087940400 Directly adjoining Montana Treasure County 30103963500 Directly adjoining Montana Yellowstone County 30111000200 Directly adjoining Montana Yellowstone County 30111000300 Generating unit retirement Montana Yellowstone County 30111000401 Directly adjoining Montana Yellowstone County 30111000402 Directly adjoining Montana Yellowstone County 30111000800 Directly adjoining Montana Yellowstone County 30111000901 Directly adjoining Montana Yellowstone County 30111000902 Directly adjoining Montana Yellowstone County 30111001000 Directly adjoining Montana Yellowstone County 30111001402 Directly adjoining Montana Yellowstone County 30111001502 Directly adjoining Montana Yellowstone County 30111940001 Directly adjoining Nebraska Dakota County 31043010400 Directly adjoining Nebraska Douglas County 31055000200 Generating unit retirement Nebraska Douglas County 31055000300 Directly adjoining Nebraska Douglas County 31055000400 Directly adjoining Nebraska Douglas County 31055006202 Directly adjoining Nebraska Douglas County 31055007303 Directly adjoining Nebraska Douglas County 31055007304 Directly adjoining Nebraska Sarpy County 31153010103 Directly adjoining Nebraska Thurston County 31173940200 Directly adjoining Nevada Clark County 32003003314 Directly adjoining Nevada Clark County 32003003316 Directly adjoining Nevada Clark County 32003003649 Directly adjoining Nevada Clark County 32003003657 Directly adjoining Nevada Clark County 32003005613 Directly adjoining Nevada Clark County 32003005702 Generating unit retirement Nevada Clark County 32003005704 Directly adjoining Nevada Clark County 32003005705 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Nevada Clark County 32003005818 Directly adjoining Nevada Clark County 32003005902 Generating unit retirement Nevada Clark County 32003005904 Directly adjoining Nevada Clark County 32003007500 Directly adjoining Nevada Clark County 32003007600 Directly adjoining Nevada Clark County 32003007802 Directly adjoining Nevada Lincoln County 32017950200 Directly adjoining Nevada Nye County 32023960411 Directly adjoining Nevada Nye County 32023980500 Directly adjoining New Jersey Atlantic County 34001011600 Directly adjoining New Jersey Atlantic County 34001011804 Directly adjoining New Jersey Atlantic County 34001012702 Directly adjoining New Jersey Atlantic County 34001012802 Directly adjoining New Jersey Burlington County 34005701502 Directly adjoining New Jersey Burlington County 34005701700 Directly adjoining New Jersey Burlington County 34005704202 Directly adjoining New Jersey Cape May County 34009020203 Directly adjoining New Jersey Cape May County 34009020205 Directly adjoining New Jersey Cape May County 34009020206 Directly adjoining New Jersey Cape May County 34009020301 Generating unit retirement New Jersey Cape May County 34009020302 Directly adjoining New Jersey Cape May County 34009020400 Directly adjoining New Jersey Gloucester County 34015500500 Directly adjoining New Jersey Gloucester County 34015500602 Directly adjoining New Jersey Gloucester County 34015502201 Directly adjoining New Jersey Gloucester County 34015502202 Directly adjoining New Jersey Gloucester County 34015502204 Directly adjoining New Jersey Gloucester County 34015502400 Generating unit retirement New Jersey Mercer County 34021000100 Directly adjoining New Jersey Mercer County 34021000200 Directly adjoining New Jersey Mercer County 34021000300 Directly adjoining New Jersey Mercer County 34021002500 Generating unit retirement New Jersey Mercer County 34021002601 Directly adjoining New Jersey Mercer County 34021002602 Directly adjoining New Jersey Mercer County 34021003003 Directly adjoining New Jersey Mercer County 34021003004 Directly adjoining New Jersey Salem County 34033020100 Directly adjoining New Jersey Salem County 34033020300 Directly adjoining New Jersey Salem County 34033020400 Directly adjoining New Jersey Salem County 34033020500 Directly adjoining New Jersey Salem County 34033020600 Generating unit retirement New Jersey Salem County 34033020700 Directly adjoining New Jersey Salem County 34033021300 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code New Jersey Salem County 34033021400 Directly adjoining New Jersey Salem County 34033021500 Directly adjoining New Jersey Warren County 34041031200 Directly adjoining New Jersey Warren County 34041031601 Directly adjoining New Jersey Warren County 34041031700 Directly adjoining New Mexico Catron County 35003976401 Directly adjoining New Mexico Catron County 35003976402 Mine closure New Mexico Cibola County 35006974701 Directly adjoining New Mexico Cibola County 35006974702 Directly adjoining New Mexico Colfax County 35007950500 Directly adjoining New Mexico Colfax County 35007950600 Mine closure, Generating unit retirement, Directly adjoining New Mexico Colfax County 35007950700 Directly adjoining New Mexico Grant County 35017964100 Directly adjoining New Mexico McKinley County 35031943500 Directly adjoining New Mexico McKinley County 35031943602 Directly adjoining New Mexico McKinley County 35031944000 Directly adjoining New Mexico McKinley County 35031946001 Directly adjoining New Mexico McKinley County 35031946002 Directly adjoining New Mexico McKinley County 35031946003 Generating unit retirement New Mexico San Juan County 35045000202 Directly adjoining New Mexico San Juan County 35045000401 Directly adjoining New Mexico San Juan County 35045000402 Directly adjoining New Mexico San Juan County 35045000503 Directly adjoining New Mexico San Juan County 35045000504 Mine closure, Generating unit retirement, Directly adjoining New Mexico San Juan County 35045000506 Directly adjoining New Mexico San Juan County 35045000507 Directly adjoining New Mexico San Juan County 35045000611 Directly adjoining New Mexico San Juan County 35045000613 Directly adjoining New Mexico San Juan County 35045942801 Directly adjoining New Mexico San Juan County 35045942802 Directly adjoining New Mexico San Juan County 35045942900 Directly adjoining New Mexico San Juan County 35045943000 Generating unit retirement, Directly adjoining New Mexico San Juan County 35045943100 Directly adjoining New Mexico San Juan County 35045943201 Directly adjoining New Mexico San Juan County 35045943300 Mine closure, Directly adjoining New Mexico Sierra County 35051962402 Directly adjoining New Mexico Socorro County 35053940000 Directly adjoining New Mexico Socorro County 35053978200 Directly adjoining New York Broome County 36007012900 Directly adjoining New York Broome County 36007013000 Generating unit retirement New York Broome County 36007013100 Directly adjoining New York Broome County 36007013201 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code New York Broome County 36007013202 Directly adjoining New York Broome County 36007013304 Directly adjoining New York Broome County 36007013900 Directly adjoining New York Broome County 36007014100 Directly adjoining New York Broome County 36007014200 Directly adjoining New York Broome County 36007014301 Directly adjoining New York Cayuga County 36011040900 Directly adjoining New York Cayuga County 36011041001 Directly adjoining New York Chautauqua County 36013035500 Directly adjoining New York Chautauqua County 36013035600 Generating unit retirement New York Chautauqua County 36013035700 Directly adjoining New York Chautauqua County 36013036000 Directly adjoining New York Chautauqua County 36013990000 Directly adjoining New York Erie County 36029005600 Directly adjoining New York Erie County 36029005801 Directly adjoining New York Erie County 36029005802 Directly adjoining New York Erie County 36029005900 Directly adjoining New York Erie County 36029007304 Directly adjoining New York Erie County 36029007306 Directly adjoining New York Erie County 36029008202 Directly adjoining New York Erie County 36029008300 Directly adjoining New York Erie County 36029008400 Generating unit retirement New York Erie County 36029008800 Directly adjoining New York Niagara County 36063024101 Directly adjoining New York Niagara County 36063024102 Generating unit retirement New York Niagara County 36063024201 Directly adjoining New York Niagara County 36063024202 Directly adjoining New York Niagara County 36063990000 Directly adjoining New York Onondaga County 36067000100 Directly adjoining New York Onondaga County 36067002000 Directly adjoining New York Onondaga County 36067011500 Directly adjoining New York Onondaga County 36067011800 Directly adjoining New York Onondaga County 36067011900 Directly adjoining New York Onondaga County 36067012100 Directly adjoining New York Onondaga County 36067012700 Directly adjoining New York Onondaga County 36067012800 Generating unit retirement New York Onondaga County 36067012900 Directly adjoining New York Onondaga County 36067013400 Directly adjoining New York Onondaga County 36067013701 Directly adjoining New York Orleans County 36073040200 Directly adjoining New York Orleans County 36073401200 Directly adjoining New York Orleans County 36073990000 Directly adjoining New York Seneca County 36099951000 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code New York Tompkins County 36109001500 Directly adjoining New York Tompkins County 36109001600 Directly adjoining New York Tompkins County 36109002100 Directly adjoining New York Tompkins County 36109002200 Directly adjoining New York Tompkins County 36109002300 Generating unit retirement North Carolina Bladen County 37017950200 Directly adjoining North Carolina Bladen County 37017950301 Directly adjoining North Carolina Bladen County 37017950401 Generating unit retirement North Carolina Bladen County 37017950402 Directly adjoining North Carolina Brunswick County 37019020101 Directly adjoining North Carolina Brunswick County 37019020108 Directly adjoining North Carolina Brunswick County 37019020205 Directly adjoining North Carolina Buncombe County 37021002203 Generating unit retirement North Carolina Buncombe County 37021002204 Directly adjoining North Carolina Buncombe County 37021002205 Directly adjoining North Carolina Buncombe County 37021002303 Directly adjoining North Carolina Chatham County 37037020104 Directly adjoining North Carolina Chatham County 37037020600 Directly adjoining North Carolina Chatham County 37037020702 Generating unit retirement North Carolina Chatham County 37037020703 Directly adjoining North Carolina Chatham County 37037020704 Directly adjoining North Carolina Chatham County 37037020803 Directly adjoining North Carolina Cleveland County 37045951501 Directly adjoining North Carolina Cleveland County 37045951502 Generating unit retirement North Carolina Cleveland County 37045951503 Directly adjoining North Carolina Cleveland County 37045951601 Directly adjoining North Carolina Davidson County 37057061704 Directly adjoining North Carolina Davidson County 37057061807 Directly adjoining North Carolina Davidson County 37057062001 Directly adjoining North Carolina Edgecombe County 37065020400 Directly adjoining North Carolina Edgecombe County 37065020600 Generating unit retirement North Carolina Edgecombe County 37065020700 Directly adjoining North Carolina Edgecombe County 37065021100 Directly adjoining North Carolina Edgecombe County 37065021300 Directly adjoining North Carolina Gaston County 37071030103 Directly adjoining North Carolina Gaston County 37071030104 Generating unit retirement North Carolina Gaston County 37071030106 Directly adjoining North Carolina Gaston County 37071032405 Directly adjoining North Carolina Gaston County 37071032406 Generating unit retirement North Carolina Gaston County 37071032510 Directly adjoining North Carolina Granville County 37077970101 Directly adjoining North Carolina Halifax County 37083930100 Generating unit retirement North Carolina Halifax County 37083930200 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code North Carolina Halifax County 37083930400 Directly adjoining North Carolina Halifax County 37083930600 Directly adjoining North Carolina Halifax County 37083931000 Directly adjoining North Carolina Harnett County 37085071002 Directly adjoining North Carolina Henderson County 37089930600 Directly adjoining North Carolina Henderson County 37089930701 Directly adjoining North Carolina Lee County 37105030702 Directly adjoining North Carolina Lee County 37105030703 Directly adjoining North Carolina Lee County 37105030704 Directly adjoining North Carolina Lincoln County 37109071102 Directly adjoining North Carolina Mecklenburg County 37119005908 Directly adjoining North Carolina Mecklenburg County 37119005919 Directly adjoining North Carolina Mecklenburg County 37119005920 Directly adjoining North Carolina Mecklenburg County 37119005922 Directly adjoining North Carolina Mecklenburg County 37119006014 Directly adjoining North Carolina Mecklenburg County 37119006103 Directly adjoining North Carolina Mecklenburg County 37119006222 Directly adjoining North Carolina Nash County 37127010400 Directly adjoining North Carolina Nash County 37127010603 Directly adjoining North Carolina Nash County 37127010604 Directly adjoining North Carolina Nash County 37127010700 Directly adjoining North Carolina New Hanover County 37129010900 Directly adjoining North Carolina New Hanover County 37129011300 Directly adjoining North Carolina New Hanover County 37129011400 Directly adjoining North Carolina New Hanover County 37129011503 Generating unit retirement North Carolina New Hanover County 37129011504 Directly adjoining North Carolina Northampton County 37131920301 Directly adjoining North Carolina Northampton County 37131920401 Directly adjoining North Carolina Pender County 37141920502 Directly adjoining North Carolina Pender County 37141920602 Directly adjoining North Carolina Robeson County 37155960802 Directly adjoining North Carolina Robeson County 37155961000 Directly adjoining North Carolina Robeson County 37155961100 Generating unit retirement North Carolina Robeson County 37155961200 Directly adjoining North Carolina Robeson County 37155961302 Directly adjoining North Carolina Robeson County 37155961500 Directly adjoining North Carolina Rockingham County 37157040101 Directly adjoining North Carolina Rockingham County 37157040200 Generating unit retirement North Carolina Rockingham County 37157040300 Directly adjoining North Carolina Rockingham County 37157040400 Directly adjoining North Carolina Rockingham County 37157041100 Directly adjoining North Carolina Rowan County 37159050800 Directly adjoining North Carolina Rowan County 37159050901 Generating unit retirement State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code North Carolina Rowan County 37159050903 Directly adjoining North Carolina Rowan County 37159050904 Directly adjoining North Carolina Rutherford County 37161961102 Directly adjoining North Carolina Rutherford County 37161961103 Directly adjoining North Carolina Vance County 37181960100 Directly adjoining North Carolina Vance County 37181960200 Directly adjoining North Carolina Wake County 37183053209 Directly adjoining North Carolina Wake County 37183053410 Directly adjoining North Carolina Wake County 37183053411 Directly adjoining North Carolina Wake County 37183053426 Directly adjoining North Carolina Wake County 37183053427 Directly adjoining North Carolina Wake County 37183053428 Directly adjoining North Carolina Warren County 37185950101 Directly adjoining North Carolina Warren County 37185950201 Directly adjoining North Carolina Warren County 37185950202 Directly adjoining North Carolina Wayne County 37191000601 Directly adjoining North Carolina Wayne County 37191000901 Generating unit retirement North Carolina Wayne County 37191000902 Directly adjoining North Carolina Wayne County 37191001000 Directly adjoining North Carolina Wayne County 37191001103 Directly adjoining North Carolina Wayne County 37191001500 Directly adjoining North Carolina Wayne County 37191002000 Directly adjoining North Dakota Burleigh County 38015011103 Directly adjoining North Dakota Burleigh County 38015011105 Directly adjoining North Dakota Cavalier County 38019951100 Directly adjoining North Dakota Dunn County 38025962200 Directly adjoining North Dakota McKenzie County 38053962500 Directly adjoining North Dakota McLean County 38055940100 Directly adjoining North Dakota McLean County 38055960800 Directly adjoining North Dakota McLean County 38055961001 Directly adjoining North Dakota Mercer County 38057961600 Directly adjoining North Dakota Mercer County 38057961700 Directly adjoining North Dakota Mercer County 38057961800 Generating unit retirement North Dakota Morton County 38059020100 Directly adjoining North Dakota Morton County 38059020200 Generating unit retirement North Dakota Morton County 38059020301 Directly adjoining North Dakota Morton County 38059020303 Directly adjoining North Dakota Morton County 38059020400 Directly adjoining North Dakota Morton County 38059020500 Directly adjoining North Dakota Oliver County 38065961200 Directly adjoining North Dakota Pembina County 38067950100 Directly adjoining North Dakota Pembina County 38067950200 Generating unit retirement North Dakota Pembina County 38067950600 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code North Dakota Stark County 38089963300 Directly adjoining Ohio Adams County 39001770302 Directly adjoining Ohio Adams County 39001770400 Directly adjoining Ohio Adams County 39001770500 Directly adjoining Ohio Adams County 39001770600 Generating unit retirement Ohio Ashtabula County 39007000200 Directly adjoining Ohio Ashtabula County 39007000300 Generating unit retirement Ohio Ashtabula County 39007000400 Directly adjoining Ohio Ashtabula County 39007000500 Directly adjoining Ohio Ashtabula County 39007000704 Directly adjoining Ohio Ashtabula County 39007001201 Directly adjoining Ohio Ashtabula County 39007990000 Directly adjoining Ohio Athens County 39009972600 Mine closure, Directly adjoining Ohio Athens County 39009972700 Directly adjoining Ohio Athens County 39009973400 Directly adjoining Ohio Athens County 39009973500 Mine closure, Directly adjoining Ohio Athens County 39009973600 Directly adjoining Ohio Athens County 39009973700 Directly adjoining Ohio Belmont County 39013010100 Directly adjoining Ohio Belmont County 39013010300 Directly adjoining Ohio Belmont County 39013010600 Mine closure, Directly adjoining Ohio Belmont County 39013010700 Mine closure, Directly adjoining Ohio Belmont County 39013010802 Directly adjoining Ohio Belmont County 39013010901 Directly adjoining Ohio Belmont County 39013010902 Mine closure, Directly adjoining Ohio Belmont County 39013011000 Mine closure, Directly adjoining Ohio Belmont County 39013011200 Generating unit retirement, Directly adjoining Ohio Belmont County 39013011300 Directly adjoining Ohio Belmont County 39013011400 Directly adjoining Ohio Belmont County 39013012201 Mine closure, Directly adjoining Ohio Belmont County 39013012202 Mine closure, Directly adjoining Ohio Belmont County 39013012300 Mine closure, Directly adjoining Ohio Belmont County 39013012400 Directly adjoining Ohio Brown County 39015951600 Directly adjoining Ohio Butler County 39017001001 Directly adjoining Ohio Butler County 39017001002 Directly adjoining Ohio Butler County 39017001100 Directly adjoining Ohio Butler County 39017010301 Directly adjoining Ohio Butler County 39017010302 Directly adjoining Ohio Butler County 39017010500 Directly adjoining Ohio Butler County 39017010600 Generating unit retirement Ohio Butler County 39017011005 Directly adjoining Ohio Butler County 39017011006 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Ohio Butler County 39017012100 Directly adjoining Ohio Butler County 39017012200 Generating unit retirement Ohio Butler County 39017012300 Directly adjoining Ohio Butler County 39017012400 Directly adjoining Ohio Butler County 39017012700 Directly adjoining Ohio Butler County 39017013000 Directly adjoining Ohio Butler County 39017014300 Directly adjoining Ohio Butler County 39017014400 Directly adjoining Ohio Butler County 39017014600 Directly adjoining Ohio Butler County 39017014700 Generating unit retirement Ohio Butler County 39017015000 Directly adjoining Ohio Butler County 39017015100 Directly adjoining Ohio Carroll County 39019720100 Directly adjoining Ohio Carroll County 39019720200 Directly adjoining Ohio Carroll County 39019720300 Mine closure, Directly adjoining Ohio Carroll County 39019720400 Mine closure, Directly adjoining Ohio Carroll County 39019720500 Mine closure, Directly adjoining Ohio Carroll County 39019720600 Mine closure, Directly adjoining Ohio Carroll County 39019720700 Directly adjoining Ohio Clermont County 39025041201 Directly adjoining Ohio Clermont County 39025041503 Directly adjoining Ohio Clermont County 39025041504 Directly adjoining Ohio Clermont County 39025041505 Directly adjoining Ohio Clermont County 39025041506 Generating unit retirement Ohio Clermont County 39025041600 Directly adjoining Ohio Clermont County 39025041702 Directly adjoining Ohio Clermont County 39025041900 Directly adjoining Ohio Clermont County 39025042001 Directly adjoining Ohio Clermont County 39025042002 Generating unit retirement Ohio Columbiana County 39029950100 Mine closure, Directly adjoining Ohio Columbiana County 39029950200 Directly adjoining Ohio Columbiana County 39029950300 Directly adjoining Ohio Columbiana County 39029950400 Directly adjoining Ohio Columbiana County 39029950900 Directly adjoining Ohio Columbiana County 39029951000 Directly adjoining Ohio Columbiana County 39029951100 Mine closure, Directly adjoining Ohio Columbiana County 39029951200 Mine closure, Directly adjoining Ohio Columbiana County 39029951300 Mine closure, Directly adjoining Ohio Columbiana County 39029951401 Directly adjoining Ohio Columbiana County 39029951402 Mine closure, Directly adjoining Ohio Columbiana County 39029951500 Mine closure, Directly adjoining Ohio Columbiana County 39029951600 Mine closure, Directly adjoining Ohio Columbiana County 39029951700 Mine closure, Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Ohio Columbiana County 39029951800 Directly adjoining Ohio Columbiana County 39029951900 Directly adjoining Ohio Columbiana County 39029952000 Directly adjoining Ohio Columbiana County 39029952400 Directly adjoining Ohio Coshocton County 39031960900 Mine closure, Directly adjoining Ohio Coshocton County 39031961000 Directly adjoining Ohio Coshocton County 39031961100 Directly adjoining Ohio Coshocton County 39031961200 Mine closure, Generating unit retirement, Directly adjoining Ohio Coshocton County 39031961300 Mine closure, Directly adjoining Ohio Coshocton County 39031961400 Directly adjoining Ohio Coshocton County 39031961500 Directly adjoining Ohio Coshocton County 39031961600 Directly adjoining Ohio Coshocton County 39031961700 Directly adjoining Ohio Coshocton County 39031961800 Directly adjoining Ohio Cuyahoga County 39035108301 Directly adjoining Ohio Cuyahoga County 39035111202 Generating unit retirement Ohio Cuyahoga County 39035111401 Directly adjoining Ohio Cuyahoga County 39035111700 Directly adjoining Ohio Cuyahoga County 39035112100 Directly adjoining Ohio Cuyahoga County 39035192800 Directly adjoining Ohio Cuyahoga County 39035198900 Directly adjoining Ohio Cuyahoga County 39035199000 Directly adjoining Ohio Cuyahoga County 39035990000 Directly adjoining Ohio Franklin County 39049009590 Directly adjoining Ohio Franklin County 39049009753 Directly adjoining Ohio Franklin County 39049010300 Directly adjoining Ohio Gallia County 39053953500 Directly adjoining Ohio Gallia County 39053953600 Mine closure Ohio Gallia County 39053953700 Directly adjoining Ohio Gallia County 39053953901 Directly adjoining Ohio Gallia County 39053954100 Directly adjoining Ohio Guernsey County 39059977100 Mine closure, Directly adjoining Ohio Guernsey County 39059977200 Directly adjoining Ohio Guernsey County 39059977300 Directly adjoining Ohio Guernsey County 39059977600 Directly adjoining Ohio Guernsey County 39059977700 Directly adjoining Ohio Guernsey County 39059977800 Directly adjoining Ohio Guernsey County 39059977900 Mine closure, Directly adjoining Ohio Guernsey County 39059978000 Mine closure, Directly adjoining Ohio Hamilton County 39061020401 Directly adjoining Ohio Hamilton County 39061020403 Generating unit retirement Ohio Hamilton County 39061020404 Directly adjoining Ohio Hamilton County 39061020501 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Ohio Hamilton County 39061020603 Directly adjoining Ohio Hamilton County 39061021101 Directly adjoining Ohio Hamilton County 39061021102 Directly adjoining Ohio Hamilton County 39061026002 Directly adjoining Ohio Hamilton County 39061026200 Directly adjoining Ohio Hamilton County 39061027500 Directly adjoining Ohio Harrison County 39067975600 Mine closure, Directly adjoining Ohio Harrison County 39067975700 Directly adjoining Ohio Harrison County 39067975800 Mine closure, Directly adjoining Ohio Harrison County 39067975900 Mine closure, Directly adjoining Ohio Harrison County 39067976000 Mine closure, Directly adjoining Ohio Hocking County 39073965500 Directly adjoining Ohio Holmes County 39075976301 Directly adjoining Ohio Holmes County 39075976302 Mine closure, Directly adjoining Ohio Holmes County 39075976403 Directly adjoining Ohio Holmes County 39075976600 Directly adjoining Ohio Holmes County 39075976700 Directly adjoining Ohio Holmes County 39075976801 Directly adjoining Ohio Holmes County 39075976802 Mine closure Ohio Jackson County 39079957700 Directly adjoining Ohio Jackson County 39079957800 Directly adjoining Ohio Jefferson County 39081000200 Directly adjoining Ohio Jefferson County 39081001200 Directly adjoining Ohio Jefferson County 39081001300 Directly adjoining Ohio Jefferson County 39081001400 Directly adjoining Ohio Jefferson County 39081011000 Generating unit retirement, Directly adjoining Ohio Jefferson County 39081011100 Mine closure, Directly adjoining Ohio Jefferson County 39081011401 Directly adjoining Ohio Jefferson County 39081011402 Mine closure, Directly adjoining Ohio Jefferson County 39081011500 Mine closure, Directly adjoining Ohio Jefferson County 39081011700 Directly adjoining Ohio Jefferson County 39081011800 Mine closure, Directly adjoining Ohio Jefferson County 39081011900 Mine closure, Directly adjoining Ohio Jefferson County 39081012000 Directly adjoining Ohio Jefferson County 39081012100 Mine closure, Directly adjoining Ohio Jefferson County 39081012200 Mine closure, Directly adjoining Ohio Jefferson County 39081012300 Directly adjoining Ohio Jefferson County 39081012400 Directly adjoining Ohio Lake County 39085201500 Directly adjoining Ohio Lake County 39085201600 Directly adjoining Ohio Lake County 39085201900 Directly adjoining Ohio Lake County 39085202000 Generating unit retirement Ohio Lake County 39085202100 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Ohio Lake County 39085206600 Directly adjoining Ohio Lake County 39085990000 Directly adjoining Ohio Lawrence County 39087050400 Directly adjoining Ohio Lawrence County 39087050501 Directly adjoining Ohio Lawrence County 39087050502 Directly adjoining Ohio Lawrence County 39087050600 Mine closure, Directly adjoining Ohio Lawrence County 39087050700 Mine closure, Directly adjoining Ohio Lawrence County 39087050800 Directly adjoining Ohio Lorain County 39093010200 Directly adjoining Ohio Lorain County 39093010300 Directly adjoining Ohio Lorain County 39093010400 Generating unit retirement Ohio Lorain County 39093013101 Directly adjoining Ohio Lorain County 39093013202 Directly adjoining Ohio Lorain County 39093021100 Directly adjoining Ohio Lorain County 39093028100 Directly adjoining Ohio Lorain County 39093097401 Directly adjoining Ohio Lorain County 39093990200 Directly adjoining Ohio Lucas County 39095001201 Directly adjoining Ohio Lucas County 39095004600 Directly adjoining Ohio Lucas County 39095005501 Directly adjoining Ohio Lucas County 39095005502 Directly adjoining Ohio Lucas County 39095005601 Directly adjoining Ohio Lucas County 39095005602 Directly adjoining Ohio Lucas County 39095009800 Directly adjoining Ohio Lucas County 39095009901 Directly adjoining Ohio Lucas County 39095009902 Generating unit retirement Ohio Lucas County 39095010001 Directly adjoining Ohio Lucas County 39095010002 Directly adjoining Ohio Mahoning County 39099810900 Directly adjoining Ohio Mahoning County 39099811001 Directly adjoining Ohio Mahoning County 39099811002 Directly adjoining Ohio Mahoning County 39099811902 Directly adjoining Ohio Mahoning County 39099812001 Directly adjoining Ohio Mahoning County 39099812002 Directly adjoining Ohio Mahoning County 39099812101 Directly adjoining Ohio Mahoning County 39099812102 Directly adjoining Ohio Mahoning County 39099812400 Directly adjoining Ohio Mahoning County 39099812500 Directly adjoining Ohio Mahoning County 39099813501 Mine closure Ohio Mahoning County 39099813502 Directly adjoining Ohio Mahoning County 39099813601 Directly adjoining Ohio Mahoning County 39099813602 Directly adjoining Ohio Mahoning County 39099814100 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Ohio Medina County 39103417300 Directly adjoining Ohio Meigs County 39105964100 Directly adjoining Ohio Meigs County 39105964300 Directly adjoining Ohio Meigs County 39105964500 Directly adjoining Ohio Meigs County 39105964600 Mine closure, Directly adjoining Ohio Monroe County 39111966600 Mine closure, Directly adjoining Ohio Monroe County 39111966700 Directly adjoining Ohio Monroe County 39111966800 Directly adjoining Ohio Monroe County 39111966900 Directly adjoining Ohio Montgomery County 39113050301 Directly adjoining Ohio Montgomery County 39113050302 Directly adjoining Ohio Montgomery County 39113050402 Directly adjoining Ohio Montgomery County 39113050502 Directly adjoining Ohio Montgomery County 39113050600 Generating unit retirement Ohio Montgomery County 39113060100 Directly adjoining Ohio Montgomery County 39113060200 Directly adjoining Ohio Montgomery County 39113070101 Directly adjoining Ohio Montgomery County 39113070201 Directly adjoining Ohio Montgomery County 39113140100 Directly adjoining Ohio Montgomery County 39113150100 Directly adjoining Ohio Montgomery County 39113165000 Directly adjoining Ohio Morgan County 39115968800 Generating unit retirement Ohio Morgan County 39115968900 Directly adjoining Ohio Morgan County 39115969000 Directly adjoining Ohio Morgan County 39115969100 Directly adjoining Ohio Muskingum County 39119911000 Mine closure, Directly adjoining Ohio Muskingum County 39119911100 Directly adjoining Ohio Muskingum County 39119911601 Directly adjoining Ohio Muskingum County 39119911900 Directly adjoining Ohio Muskingum County 39119912600 Directly adjoining Ohio Muskingum County 39119912700 Directly adjoining Ohio Muskingum County 39119912800 Directly adjoining Ohio Noble County 39121968300 Mine closure, Directly adjoining Ohio Noble County 39121968401 Directly adjoining Ohio Noble County 39121968500 Directly adjoining Ohio Perry County 39127965902 Directly adjoining Ohio Perry County 39127966000 Directly adjoining Ohio Perry County 39127966100 Mine closure, Directly adjoining Ohio Perry County 39127966200 Directly adjoining Ohio Perry County 39127966301 Directly adjoining Ohio Perry County 39127966302 Mine closure, Directly adjoining Ohio Pickaway County 39129021101 Directly adjoining Ohio Pickaway County 39129021201 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Ohio Pickaway County 39129021202 Generating unit retirement Ohio Pickaway County 39129021403 Directly adjoining Ohio Pickaway County 39129021404 Directly adjoining Ohio Pickaway County 39129021500 Directly adjoining Ohio Richland County 39139002500 Directly adjoining Ohio Richland County 39139002600 Generating unit retirement Ohio Richland County 39139002700 Directly adjoining Ohio Richland County 39139002800 Directly adjoining Ohio Scioto County 39145002600 Directly adjoining Ohio Scioto County 39145002700 Directly adjoining Ohio Scioto County 39145002800 Directly adjoining Ohio Stark County 39151700200 Directly adjoining Ohio Stark County 39151700400 Directly adjoining Ohio Stark County 39151700701 Directly adjoining Ohio Stark County 39151700702 Directly adjoining Ohio Stark County 39151711700 Directly adjoining Ohio Stark County 39151712102 Directly adjoining Ohio Stark County 39151712201 Directly adjoining Ohio Stark County 39151712202 Directly adjoining Ohio Stark County 39151712300 Mine closure Ohio Stark County 39151712400 Directly adjoining Ohio Stark County 39151712700 Directly adjoining Ohio Stark County 39151712800 Directly adjoining Ohio Stark County 39151712900 Mine closure, Directly adjoining Ohio Stark County 39151713000 Directly adjoining Ohio Stark County 39151713201 Directly adjoining Ohio Stark County 39151714801 Directly adjoining Ohio Stark County 39151714802 Directly adjoining Ohio Stark County 39151714901 Directly adjoining Ohio Stark County 39151714902 Mine closure, Directly adjoining Ohio Trumbull County 39155932500 Directly adjoining Ohio Trumbull County 39155932600 Directly adjoining Ohio Trumbull County 39155932802 Directly adjoining Ohio Trumbull County 39155933301 Directly adjoining Ohio Trumbull County 39155933302 Generating unit retirement Ohio Trumbull County 39155933900 Directly adjoining Ohio Tuscarawas County 39157020100 Mine closure, Directly adjoining Ohio Tuscarawas County 39157020200 Directly adjoining Ohio Tuscarawas County 39157020300 Directly adjoining Ohio Tuscarawas County 39157020400 Mine closure, Directly adjoining Ohio Tuscarawas County 39157020500 Mine closure, Directly adjoining Ohio Tuscarawas County 39157020600 Directly adjoining Ohio Tuscarawas County 39157020700 Mine closure, Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Ohio Tuscarawas County 39157020900 Directly adjoining Ohio Tuscarawas County 39157021000 Directly adjoining Ohio Tuscarawas County 39157021100 Directly adjoining Ohio Tuscarawas County 39157021200 Directly adjoining Ohio Tuscarawas County 39157021300 Mine closure, Directly adjoining Ohio Tuscarawas County 39157021400 Directly adjoining Ohio Tuscarawas County 39157021501 Directly adjoining Ohio Tuscarawas County 39157021502 Mine closure, Directly adjoining Ohio Tuscarawas County 39157021503 Mine closure, Directly adjoining Ohio Tuscarawas County 39157021600 Mine closure, Directly adjoining Ohio Tuscarawas County 39157021700 Directly adjoining Ohio Tuscarawas County 39157021800 Mine closure, Directly adjoining Ohio Tuscarawas County 39157021900 Directly adjoining Ohio Tuscarawas County 39157022001 Directly adjoining Ohio Tuscarawas County 39157022002 Mine closure, Directly adjoining Ohio Vinton County 39163953200 Directly adjoining Ohio Warren County 39165030101 Directly adjoining Ohio Warren County 39165030102 Directly adjoining Ohio Warren County 39165030501 Directly adjoining Ohio Washington County 39167020201 Directly adjoining Ohio Washington County 39167020300 Generating unit retirement Ohio Washington County 39167020400 Directly adjoining Ohio Washington County 39167020500 Directly adjoining Ohio Washington County 39167021100 Directly adjoining Ohio Washington County 39167021201 Directly adjoining Ohio Washington County 39167021202 Directly adjoining Ohio Washington County 39167021300 Directly adjoining Ohio Washington County 39167021500 Directly adjoining Ohio Washington County 39167021600 Directly adjoining Ohio Washington County 39167021700 Directly adjoining Ohio Wayne County 39169001700 Directly adjoining Ohio Wayne County 39169002500 Directly adjoining Ohio Wayne County 39169002902 Directly adjoining Ohio Wayne County 39169003000 Directly adjoining Ohio Wayne County 39169003400 Generating unit retirement Ohio Wayne County 39169003500 Directly adjoining Oklahoma Craig County 40035373100 Mine closure, Directly adjoining Oklahoma Craig County 40035373200 Mine closure, Directly adjoining Oklahoma Craig County 40035373300 Directly adjoining Oklahoma Craig County 40035373400 Directly adjoining Oklahoma Craig County 40035373500 Directly adjoining Oklahoma Haskell County 40061279100 Directly adjoining Oklahoma Haskell County 40061279300 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Oklahoma Haskell County 40061279400 Directly adjoining Oklahoma Jackson County 40065968100 Directly adjoining Oklahoma Jackson County 40065968300 Directly adjoining Oklahoma Latimer County 40077087100 Mine closure, Directly adjoining Oklahoma Latimer County 40077087200 Directly adjoining Oklahoma Latimer County 40077087300 Directly adjoining Oklahoma Le Flore County 40079040299 Directly adjoining Oklahoma Le Flore County 40079040301 Mine closure, Directly adjoining Oklahoma Le Flore County 40079040302 Directly adjoining Oklahoma Le Flore County 40079040303 Directly adjoining Oklahoma Le Flore County 40079040401 Directly adjoining Oklahoma Le Flore County 40079040402 Directly adjoining Oklahoma Le Flore County 40079040500 Mine closure, Directly adjoining Oklahoma Le Flore County 40079040601 Directly adjoining Oklahoma Le Flore County 40079040602 Mine closure, Directly adjoining Oklahoma Le Flore County 40079040700 Directly adjoining Oklahoma Mayes County 40097040300 Directly adjoining Oklahoma Mayes County 40097040400 Generating unit retirement Oklahoma Mayes County 40097040501 Directly adjoining Oklahoma Mayes County 40097040502 Directly adjoining Oklahoma Mayes County 40097040700 Directly adjoining Oklahoma Mayes County 40097040801 Directly adjoining Oklahoma Nowata County 40105172100 Directly adjoining Oklahoma Nowata County 40105172200 Directly adjoining Oklahoma Nowata County 40105172300 Mine closure, Directly adjoining Oklahoma Nowata County 40105172400 Directly adjoining Oklahoma Ottawa County 40115574100 Directly adjoining Oklahoma Ottawa County 40115574700 Directly adjoining Oklahoma Ottawa County 40115574800 Directly adjoining Oklahoma Rogers County 40131050301 Directly adjoining Oklahoma Rogers County 40131050304 Directly adjoining Oklahoma Rogers County 40131050403 Directly adjoining Oklahoma Rogers County 40131050501 Directly adjoining Oklahoma Rogers County 40131050702 Directly adjoining Oklahoma Rogers County 40131050801 Generating unit retirement Oklahoma Rogers County 40131050802 Directly adjoining Oklahoma Tillman County 40141070100 Directly adjoining Oklahoma Tulsa County 40143005404 Directly adjoining Oklahoma Wagoner County 40145030201 Directly adjoining Oklahoma Wagoner County 40145030300 Directly adjoining Oklahoma Washington County 40147001000 Directly adjoining Oklahoma Washington County 40147001100 Directly adjoining Oklahoma Washington County 40147001200 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Oklahoma Washington County 40147001300 Directly adjoining Oregon Gilliam County 41021960100 Directly adjoining Oregon Morrow County 41049970101 Generating unit retirement Oregon Morrow County 41049970102 Directly adjoining Oregon Morrow County 41049970200 Directly adjoining Pennsylvania Allegheny County 42003010302 Directly adjoining Pennsylvania Allegheny County 42003020100 Directly adjoining Pennsylvania Allegheny County 42003020300 Directly adjoining Pennsylvania Allegheny County 42003030500 Mine closure Pennsylvania Allegheny County 42003040200 Directly adjoining Pennsylvania Allegheny County 42003050100 Directly adjoining Pennsylvania Allegheny County 42003050900 Directly adjoining Pennsylvania Allegheny County 42003051100 Directly adjoining Pennsylvania Allegheny County 42003405000 Directly adjoining Pennsylvania Allegheny County 42003415001 Directly adjoining Pennsylvania Allegheny County 42003415002 Directly adjoining Pennsylvania Allegheny County 42003416000 Directly adjoining Pennsylvania Allegheny County 42003417100 Directly adjoining Pennsylvania Allegheny County 42003417200 Generating unit retirement Pennsylvania Allegheny County 42003418000 Directly adjoining Pennsylvania Allegheny County 42003419000 Mine closure Pennsylvania Allegheny County 42003421100 Directly adjoining Pennsylvania Allegheny County 42003422000 Directly adjoining Pennsylvania Allegheny County 42003451300 Directly adjoining Pennsylvania Allegheny County 42003452000 Directly adjoining Pennsylvania Allegheny County 42003453003 Mine closure, Directly adjoining Pennsylvania Allegheny County 42003453004 Directly adjoining Pennsylvania Allegheny County 42003455000 Mine closure, Directly adjoining Pennsylvania Allegheny County 42003456001 Directly adjoining Pennsylvania Allegheny County 42003456003 Directly adjoining Pennsylvania Allegheny County 42003457100 Directly adjoining Pennsylvania Allegheny County 42003457200 Directly adjoining Pennsylvania Allegheny County 42003458001 Mine closure, Directly adjoining Pennsylvania Allegheny County 42003458002 Mine closure, Directly adjoining Pennsylvania Allegheny County 42003459101 Directly adjoining Pennsylvania Allegheny County 42003459102 Mine closure Pennsylvania Allegheny County 42003459201 Directly adjoining Pennsylvania Allegheny County 42003460001 Directly adjoining Pennsylvania Allegheny County 42003460002 Directly adjoining Pennsylvania Allegheny County 42003468800 Directly adjoining Pennsylvania Allegheny County 42003470300 Directly adjoining Pennsylvania Allegheny County 42003470400 Directly adjoining Pennsylvania Allegheny County 42003470600 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Pennsylvania Allegheny County 42003471000 Directly adjoining Pennsylvania Allegheny County 42003475304 Directly adjoining Pennsylvania Allegheny County 42003475401 Directly adjoining Pennsylvania Allegheny County 42003475402 Directly adjoining Pennsylvania Allegheny County 42003480101 Directly adjoining Pennsylvania Allegheny County 42003480102 Directly adjoining Pennsylvania Allegheny County 42003489001 Directly adjoining Pennsylvania Allegheny County 42003489002 Directly adjoining Pennsylvania Allegheny County 42003490002 Directly adjoining Pennsylvania Allegheny County 42003490003 Mine closure, Directly adjoining Pennsylvania Allegheny County 42003490004 Directly adjoining Pennsylvania Allegheny County 42003491101 Mine closure, Directly adjoining Pennsylvania Allegheny County 42003491200 Directly adjoining Pennsylvania Allegheny County 42003494000 Directly adjoining Pennsylvania Allegheny County 42003496101 Directly adjoining Pennsylvania Allegheny County 42003496102 Directly adjoining Pennsylvania Allegheny County 42003496200 Directly adjoining Pennsylvania Allegheny County 42003525200 Directly adjoining Pennsylvania Allegheny County 42003525300 Directly adjoining Pennsylvania Allegheny County 42003526101 Directly adjoining Pennsylvania Allegheny County 42003526102 Mine closure Pennsylvania Allegheny County 42003526201 Directly adjoining Pennsylvania Allegheny County 42003526202 Directly adjoining Pennsylvania Allegheny County 42003526301 Directly adjoining Pennsylvania Allegheny County 42003564000 Directly adjoining Pennsylvania Allegheny County 42003564500 Directly adjoining Pennsylvania Armstrong County 42005950100 Mine closure, Directly adjoining Pennsylvania Armstrong County 42005950200 Mine closure, Generating unit retirement, Directly adjoining Pennsylvania Armstrong County 42005950300 Mine closure, Directly adjoining Pennsylvania Armstrong County 42005950400 Mine closure, Directly adjoining Pennsylvania Armstrong County 42005950500 Mine closure, Directly adjoining Pennsylvania Armstrong County 42005950600 Mine closure, Directly adjoining Pennsylvania Armstrong County 42005950700 Mine closure, Directly adjoining Pennsylvania Armstrong County 42005950800 Mine closure, Directly adjoining Pennsylvania Armstrong County 42005950900 Mine closure, Directly adjoining Pennsylvania Armstrong County 42005951000 Directly adjoining Pennsylvania Armstrong County 42005951100 Directly adjoining Pennsylvania Armstrong County 42005951200 Directly adjoining Pennsylvania Armstrong County 42005951300 Directly adjoining Pennsylvania Armstrong County 42005951400 Directly adjoining Pennsylvania Armstrong County 42005951500 Directly adjoining Pennsylvania Armstrong County 42005951600 Mine closure, Directly adjoining Pennsylvania Armstrong County 42005951700 Mine closure, Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Pennsylvania Beaver County 42007600601 Directly adjoining Pennsylvania Beaver County 42007600602 Directly adjoining Pennsylvania Beaver County 42007602300 Directly adjoining Pennsylvania Beaver County 42007602400 Directly adjoining Pennsylvania Beaver County 42007602500 Directly adjoining Pennsylvania Beaver County 42007602701 Directly adjoining Pennsylvania Beaver County 42007602702 Directly adjoining Pennsylvania Beaver County 42007602800 Directly adjoining Pennsylvania Beaver County 42007602900 Generating unit retirement, Directly adjoining Pennsylvania Beaver County 42007603000 Directly adjoining Pennsylvania Beaver County 42007603202 Directly adjoining Pennsylvania Beaver County 42007603300 Directly adjoining Pennsylvania Beaver County 42007603400 Directly adjoining Pennsylvania Beaver County 42007605002 Directly adjoining Pennsylvania Beaver County 42007605300 Directly adjoining Pennsylvania Beaver County 42007605500 Generating unit retirement, Directly adjoining Pennsylvania Bedford County 42009960100 Directly adjoining Pennsylvania Bedford County 42009960200 Directly adjoining Pennsylvania Bedford County 42009960300 Directly adjoining Pennsylvania Bedford County 42009960400 Directly adjoining Pennsylvania Bedford County 42009960500 Mine closure, Directly adjoining Pennsylvania Bedford County 42009960600 Directly adjoining Pennsylvania Bedford County 42009960900 Directly adjoining Pennsylvania Bedford County 42009961001 Directly adjoining Pennsylvania Bedford County 42009961100 Directly adjoining Pennsylvania Berks County 42011002002 Directly adjoining Pennsylvania Berks County 42011002100 Directly adjoining Pennsylvania Berks County 42011002200 Directly adjoining Pennsylvania Berks County 42011002900 Directly adjoining Pennsylvania Berks County 42011010100 Directly adjoining Pennsylvania Berks County 42011011300 Directly adjoining Pennsylvania Berks County 42011011601 Directly adjoining Pennsylvania Berks County 42011011602 Directly adjoining Pennsylvania Berks County 42011011603 Generating unit retirement Pennsylvania Berks County 42011011702 Directly adjoining Pennsylvania Berks County 42011011704 Directly adjoining Pennsylvania Berks County 42011011705 Directly adjoining Pennsylvania Berks County 42011012003 Directly adjoining Pennsylvania Berks County 42011012200 Directly adjoining Pennsylvania Blair County 42013010101 Generating unit retirement, Directly adjoining Pennsylvania Blair County 42013010102 Directly adjoining Pennsylvania Blair County 42013010103 Directly adjoining Pennsylvania Blair County 42013010403 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Pennsylvania Blair County 42013010404 Directly adjoining Pennsylvania Blair County 42013010500 Directly adjoining Pennsylvania Blair County 42013010701 Generating unit retirement Pennsylvania Blair County 42013010702 Directly adjoining Pennsylvania Blair County 42013010800 Directly adjoining Pennsylvania Blair County 42013011001 Directly adjoining Pennsylvania Blair County 42013011300 Directly adjoining Pennsylvania Blair County 42013011600 Directly adjoining Pennsylvania Blair County 42013100700 Directly adjoining Pennsylvania Blair County 42013100800 Directly adjoining Pennsylvania Blair County 42013100900 Directly adjoining Pennsylvania Blair County 42013101700 Directly adjoining Pennsylvania Blair County 42013101800 Directly adjoining Pennsylvania Bradford County 42015951200 Directly adjoining Pennsylvania Bradford County 42015951300 Directly adjoining Pennsylvania Bucks County 42017980000 Directly adjoining Pennsylvania Butler County 42019902600 Directly adjoining Pennsylvania Butler County 42019902900 Directly adjoining Pennsylvania Butler County 42019903100 Directly adjoining Pennsylvania Butler County 42019910100 Mine closure, Directly adjoining Pennsylvania Butler County 42019910200 Mine closure, Directly adjoining Pennsylvania Butler County 42019910301 Directly adjoining Pennsylvania Butler County 42019910302 Directly adjoining Pennsylvania Butler County 42019910600 Mine closure, Directly adjoining Pennsylvania Butler County 42019910700 Directly adjoining Pennsylvania Butler County 42019910800 Directly adjoining Pennsylvania Butler County 42019911000 Directly adjoining Pennsylvania Butler County 42019911200 Mine closure Pennsylvania Butler County 42019911300 Directly adjoining Pennsylvania Butler County 42019911400 Directly adjoining Pennsylvania Butler County 42019911501 Directly adjoining Pennsylvania Butler County 42019911600 Directly adjoining Pennsylvania Cambria County 42021000100 Directly adjoining Pennsylvania Cambria County 42021000300 Directly adjoining Pennsylvania Cambria County 42021000500 Directly adjoining Pennsylvania Cambria County 42021010100 Mine closure, Directly adjoining Pennsylvania Cambria County 42021010200 Directly adjoining Pennsylvania Cambria County 42021010300 Mine closure, Directly adjoining Pennsylvania Cambria County 42021010500 Directly adjoining Pennsylvania Cambria County 42021010700 Directly adjoining Pennsylvania Cambria County 42021010801 Directly adjoining Pennsylvania Cambria County 42021011100 Directly adjoining Pennsylvania Cambria County 42021011400 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Pennsylvania Cambria County 42021011500 Mine closure, Directly adjoining Pennsylvania Cambria County 42021011600 Directly adjoining Pennsylvania Cambria County 42021011700 Mine closure, Directly adjoining Pennsylvania Cambria County 42021011800 Mine closure, Directly adjoining Pennsylvania Cambria County 42021011900 Directly adjoining Pennsylvania Cambria County 42021012000 Mine closure, Directly adjoining Pennsylvania Cambria County 42021012100 Mine closure, Directly adjoining Pennsylvania Cambria County 42021012200 Directly adjoining Pennsylvania Cambria County 42021012300 Directly adjoining Pennsylvania Cambria County 42021012400 Directly adjoining Pennsylvania Cambria County 42021012600 Directly adjoining Pennsylvania Cambria County 42021012700 Mine closure, Directly adjoining Pennsylvania Cambria County 42021012800 Directly adjoining Pennsylvania Cambria County 42021012900 Mine closure, Directly adjoining Pennsylvania Cambria County 42021013000 Directly adjoining Pennsylvania Cambria County 42021013100 Mine closure, Directly adjoining Pennsylvania Cambria County 42021013200 Directly adjoining Pennsylvania Cambria County 42021013300 Mine closure, Directly adjoining Pennsylvania Cambria County 42021013400 Directly adjoining Pennsylvania Cambria County 42021013500 Mine closure, Directly adjoining Pennsylvania Cambria County 42021013600 Directly adjoining Pennsylvania Cambria County 42021013700 Directly adjoining Pennsylvania Cameron County 42023960100 Directly adjoining Pennsylvania Cameron County 42023960200 Mine closure, Directly adjoining Pennsylvania Carbon County 42025020102 Directly adjoining Pennsylvania Carbon County 42025020106 Directly adjoining Pennsylvania Carbon County 42025020201 Directly adjoining Pennsylvania Carbon County 42025020202 Directly adjoining Pennsylvania Carbon County 42025020301 Directly adjoining Pennsylvania Carbon County 42025020302 Mine closure, Directly adjoining Pennsylvania Carbon County 42025020400 Mine closure, Directly adjoining Pennsylvania Carbon County 42025020501 Directly adjoining Pennsylvania Centre County 42027010100 Directly adjoining Pennsylvania Centre County 42027010200 Mine closure, Directly adjoining Pennsylvania Centre County 42027010300 Directly adjoining Pennsylvania Centre County 42027010400 Mine closure, Directly adjoining Pennsylvania Centre County 42027010500 Directly adjoining Pennsylvania Centre County 42027010600 Directly adjoining Pennsylvania Centre County 42027011504 Directly adjoining Pennsylvania Centre County 42027011600 Directly adjoining Pennsylvania Centre County 42027012100 Directly adjoining Pennsylvania Centre County 42027012200 Generating unit retirement Pennsylvania Centre County 42027012300 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Pennsylvania Centre County 42027012400 Directly adjoining Pennsylvania Centre County 42027012500 Directly adjoining Pennsylvania Chester County 42029300502 Directly adjoining Pennsylvania Chester County 42029300600 Directly adjoining Pennsylvania Chester County 42029300800 Directly adjoining Pennsylvania Chester County 42029301001 Directly adjoining Pennsylvania Chester County 42029301002 Generating unit retirement Pennsylvania Chester County 42029301100 Directly adjoining Pennsylvania Chester County 42029311000 Directly adjoining Pennsylvania Clarion County 42031160101 Directly adjoining Pennsylvania Clarion County 42031160103 Directly adjoining Pennsylvania Clarion County 42031160104 Directly adjoining Pennsylvania Clarion County 42031160201 Directly adjoining Pennsylvania Clarion County 42031160202 Mine closure, Directly adjoining Pennsylvania Clarion County 42031160300 Mine closure, Directly adjoining Pennsylvania Clarion County 42031160400 Directly adjoining Pennsylvania Clarion County 42031160500 Mine closure, Generating unit retirement, Directly adjoining Pennsylvania Clarion County 42031160600 Directly adjoining Pennsylvania Clarion County 42031160701 Directly adjoining Pennsylvania Clarion County 42031160702 Mine closure, Directly adjoining Pennsylvania Clarion County 42031160800 Mine closure, Directly adjoining Pennsylvania Clarion County 42031160900 Mine closure, Directly adjoining Pennsylvania Clearfield County 42033330100 Mine closure, Directly adjoining Pennsylvania Clearfield County 42033330200 Directly adjoining Pennsylvania Clearfield County 42033330300 Directly adjoining Pennsylvania Clearfield County 42033330400 Mine closure, Directly adjoining Pennsylvania Clearfield County 42033330500 Mine closure, Directly adjoining Pennsylvania Clearfield County 42033330600 Mine closure, Directly adjoining Pennsylvania Clearfield County 42033330700 Mine closure, Directly adjoining Pennsylvania Clearfield County 42033330800 Mine closure, Directly adjoining Pennsylvania Clearfield County 42033330900 Mine closure, Directly adjoining Pennsylvania Clearfield County 42033331000 Mine closure, Directly adjoining Pennsylvania Clearfield County 42033331100 Directly adjoining Pennsylvania Clearfield County 42033331200 Directly adjoining Pennsylvania Clearfield County 42033331300 Mine closure, Directly adjoining Pennsylvania Clearfield County 42033331401 Mine closure, Directly adjoining Pennsylvania Clearfield County 42033331402 Directly adjoining Pennsylvania Clearfield County 42033331500 Mine closure, Directly adjoining Pennsylvania Clearfield County 42033331600 Mine closure, Directly adjoining Pennsylvania Clearfield County 42033331700 Mine closure, Directly adjoining Pennsylvania Clearfield County 42033331800 Mine closure, Directly adjoining Pennsylvania Clearfield County 42033331900 Mine closure, Directly adjoining Pennsylvania Clinton County 42035030100 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Pennsylvania Clinton County 42035030200 Mine closure, Directly adjoining Pennsylvania Clinton County 42035030300 Directly adjoining Pennsylvania Clinton County 42035030500 Directly adjoining Pennsylvania Clinton County 42035030800 Directly adjoining Pennsylvania Columbia County 42037050200 Directly adjoining Pennsylvania Columbia County 42037050300 Directly adjoining Pennsylvania Columbia County 42037051300 Directly adjoining Pennsylvania Columbia County 42037051400 Directly adjoining Pennsylvania Columbia County 42037051500 Mine closure, Directly adjoining Pennsylvania Dauphin County 42043024700 Directly adjoining Pennsylvania Dauphin County 42043024801 Directly adjoining Pennsylvania Dauphin County 42043024900 Mine closure, Directly adjoining Pennsylvania Dauphin County 42043025000 Mine closure, Directly adjoining Pennsylvania Dauphin County 42043025100 Mine closure, Directly adjoining Pennsylvania Dauphin County 42043025200 Directly adjoining Pennsylvania Dauphin County 42043025300 Directly adjoining Pennsylvania Delaware County 42045404102 Directly adjoining Pennsylvania Delaware County 42045404103 Directly adjoining Pennsylvania Delaware County 42045404300 Generating unit retirement Pennsylvania Delaware County 42045404800 Directly adjoining Pennsylvania Delaware County 42045406500 Directly adjoining Pennsylvania Delaware County 42045406600 Directly adjoining Pennsylvania Delaware County 42045410700 Directly adjoining Pennsylvania Elk County 42047950100 Directly adjoining Pennsylvania Elk County 42047950200 Directly adjoining Pennsylvania Elk County 42047950900 Mine closure, Directly adjoining Pennsylvania Elk County 42047951000 Mine closure, Directly adjoining Pennsylvania Elk County 42047951100 Directly adjoining Pennsylvania Elk County 42047951200 Directly adjoining Pennsylvania Elk County 42047951300 Directly adjoining Pennsylvania Fayette County 42051260100 Directly adjoining Pennsylvania Fayette County 42051260200 Mine closure, Directly adjoining Pennsylvania Fayette County 42051260300 Directly adjoining Pennsylvania Fayette County 42051260402 Directly adjoining Pennsylvania Fayette County 42051260500 Mine closure, Directly adjoining Pennsylvania Fayette County 42051260600 Directly adjoining Pennsylvania Fayette County 42051260900 Directly adjoining Pennsylvania Fayette County 42051261000 Mine closure, Directly adjoining Pennsylvania Fayette County 42051261100 Directly adjoining Pennsylvania Fayette County 42051261300 Directly adjoining Pennsylvania Fayette County 42051261401 Directly adjoining Pennsylvania Fayette County 42051261402 Directly adjoining Pennsylvania Fayette County 42051261500 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Pennsylvania Fayette County 42051261600 Directly adjoining Pennsylvania Fayette County 42051261700 Directly adjoining Pennsylvania Fayette County 42051261900 Directly adjoining Pennsylvania Fayette County 42051262000 Mine closure, Directly adjoining Pennsylvania Fayette County 42051262100 Directly adjoining Pennsylvania Fayette County 42051262200 Mine closure, Directly adjoining Pennsylvania Fayette County 42051262300 Directly adjoining Pennsylvania Fayette County 42051262400 Directly adjoining Pennsylvania Fayette County 42051262500 Directly adjoining Pennsylvania Fayette County 42051262600 Directly adjoining Pennsylvania Fayette County 42051262701 Mine closure, Directly adjoining Pennsylvania Fayette County 42051262702 Mine closure, Directly adjoining Pennsylvania Fayette County 42051262800 Mine closure, Directly adjoining Pennsylvania Fayette County 42051262900 Mine closure, Directly adjoining Pennsylvania Fayette County 42051263000 Directly adjoining Pennsylvania Fayette County 42051263100 Mine closure, Directly adjoining Pennsylvania Fayette County 42051263200 Mine closure, Directly adjoining Pennsylvania Fayette County 42051263300 Directly adjoining Pennsylvania Forest County 42053530100 Directly adjoining Pennsylvania Fulton County 42057960200 Directly adjoining Pennsylvania Greene County 42059970101 Directly adjoining Pennsylvania Greene County 42059970102 Directly adjoining Pennsylvania Greene County 42059970200 Mine closure, Directly adjoining Pennsylvania Greene County 42059970300 Mine closure, Directly adjoining Pennsylvania Greene County 42059970400 Directly adjoining Pennsylvania Greene County 42059970501 Directly adjoining Pennsylvania Greene County 42059970502 Mine closure, Directly adjoining Pennsylvania Greene County 42059970600 Directly adjoining Pennsylvania Greene County 42059970700 Mine closure, Directly adjoining Pennsylvania Greene County 42059970800 Mine closure, Generating unit retirement, Directly adjoining Pennsylvania Huntingdon County 42061950200 Directly adjoining Pennsylvania Huntingdon County 42061950600 Directly adjoining Pennsylvania Huntingdon County 42061950800 Directly adjoining Pennsylvania Huntingdon County 42061951200 Directly adjoining Pennsylvania Huntingdon County 42061951300 Mine closure, Directly adjoining Pennsylvania Indiana County 42063960100 Directly adjoining Pennsylvania Indiana County 42063960200 Mine closure, Directly adjoining Pennsylvania Indiana County 42063960300 Mine closure, Directly adjoining Pennsylvania Indiana County 42063960400 Mine closure, Directly adjoining Pennsylvania Indiana County 42063960500 Mine closure, Directly adjoining Pennsylvania Indiana County 42063960600 Mine closure, Directly adjoining Pennsylvania Indiana County 42063960700 Directly adjoining Pennsylvania Indiana County 42063960800 Mine closure, Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Pennsylvania Indiana County 42063960900 Directly adjoining Pennsylvania Indiana County 42063961000 Mine closure Pennsylvania Indiana County 42063961102 Directly adjoining Pennsylvania Indiana County 42063961103 Directly adjoining Pennsylvania Indiana County 42063961104 Directly adjoining Pennsylvania Indiana County 42063961200 Directly adjoining Pennsylvania Indiana County 42063961300 Mine closure, Directly adjoining Pennsylvania Indiana County 42063961400 Mine closure, Directly adjoining Pennsylvania Indiana County 42063961500 Mine closure, Directly adjoining Pennsylvania Indiana County 42063961600 Mine closure, Generating unit retirement, Directly adjoining Pennsylvania Indiana County 42063961700 Directly adjoining Pennsylvania Indiana County 42063961800 Mine closure, Directly adjoining Pennsylvania Indiana County 42063961900 Mine closure, Directly adjoining Pennsylvania Indiana County 42063962000 Mine closure, Directly adjoining Pennsylvania Indiana County 42063962100 Directly adjoining Pennsylvania Indiana County 42063962200 Directly adjoining Pennsylvania Jefferson County 42065950100 Directly adjoining Pennsylvania Jefferson County 42065950200 Mine closure, Directly adjoining Pennsylvania Jefferson County 42065950300 Mine closure, Directly adjoining Pennsylvania Jefferson County 42065950400 Directly adjoining Pennsylvania Jefferson County 42065950500 Directly adjoining Pennsylvania Jefferson County 42065950600 Mine closure, Directly adjoining Pennsylvania Jefferson County 42065950700 Mine closure Pennsylvania Jefferson County 42065950800 Directly adjoining Pennsylvania Jefferson County 42065950900 Mine closure, Directly adjoining Pennsylvania Jefferson County 42065951000 Mine closure, Directly adjoining Pennsylvania Jefferson County 42065951100 Directly adjoining Pennsylvania Juniata County 42067070400 Directly adjoining Pennsylvania Lackawanna County 42069101800 Directly adjoining Pennsylvania Lackawanna County 42069101900 Directly adjoining Pennsylvania Lackawanna County 42069102100 Directly adjoining Pennsylvania Lackawanna County 42069102200 Directly adjoining Pennsylvania Lackawanna County 42069102300 Directly adjoining Pennsylvania Lackawanna County 42069103000 Directly adjoining Pennsylvania Lackawanna County 42069103100 Directly adjoining Pennsylvania Lackawanna County 42069111200 Directly adjoining Pennsylvania Lackawanna County 42069111300 Directly adjoining Pennsylvania Lackawanna County 42069111400 Mine closure Pennsylvania Lackawanna County 42069111500 Directly adjoining Pennsylvania Lackawanna County 42069111700 Directly adjoining Pennsylvania Lackawanna County 42069111801 Directly adjoining Pennsylvania Lackawanna County 42069111802 Directly adjoining Pennsylvania Lackawanna County 42069112400 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Pennsylvania Lackawanna County 42069112500 Mine closure Pennsylvania Lackawanna County 42069112600 Directly adjoining Pennsylvania Lackawanna County 42069112700 Directly adjoining Pennsylvania Lackawanna County 42069112800 Directly adjoining Pennsylvania Lackawanna County 42069112901 Directly adjoining Pennsylvania Lawrence County 42073001000 Directly adjoining Pennsylvania Lawrence County 42073010201 Directly adjoining Pennsylvania Lawrence County 42073010400 Directly adjoining Pennsylvania Lawrence County 42073010500 Mine closure, Directly adjoining Pennsylvania Lawrence County 42073010600 Directly adjoining Pennsylvania Lawrence County 42073011100 Directly adjoining Pennsylvania Lawrence County 42073011200 Directly adjoining Pennsylvania Lawrence County 42073011300 Mine closure, Directly adjoining Pennsylvania Lawrence County 42073011400 Directly adjoining Pennsylvania Lawrence County 42073011500 Directly adjoining Pennsylvania Lebanon County 42075002000 Directly adjoining Pennsylvania Lebanon County 42075002100 Directly adjoining Pennsylvania Luzerne County 42079210100 Mine closure, Directly adjoining Pennsylvania Luzerne County 42079210200 Mine closure, Directly adjoining Pennsylvania Luzerne County 42079210300 Directly adjoining Pennsylvania Luzerne County 42079210400 Directly adjoining Pennsylvania Luzerne County 42079210500 Mine closure, Directly adjoining Pennsylvania Luzerne County 42079210600 Directly adjoining Pennsylvania Luzerne County 42079210700 Directly adjoining Pennsylvania Luzerne County 42079210800 Directly adjoining Pennsylvania Luzerne County 42079211101 Directly adjoining Pennsylvania Luzerne County 42079211102 Directly adjoining Pennsylvania Luzerne County 42079211302 Directly adjoining Pennsylvania Luzerne County 42079211701 Directly adjoining Pennsylvania Luzerne County 42079211702 Mine closure Pennsylvania Luzerne County 42079211900 Directly adjoining Pennsylvania Luzerne County 42079213900 Directly adjoining Pennsylvania Luzerne County 42079215400 Directly adjoining Pennsylvania Luzerne County 42079215600 Directly adjoining Pennsylvania Luzerne County 42079215701 Generating unit retirement Pennsylvania Luzerne County 42079215702 Directly adjoining Pennsylvania Luzerne County 42079215800 Directly adjoining Pennsylvania Luzerne County 42079216200 Directly adjoining Pennsylvania Luzerne County 42079216400 Mine closure, Directly adjoining Pennsylvania Luzerne County 42079216501 Directly adjoining Pennsylvania Luzerne County 42079216502 Mine closure, Directly adjoining Pennsylvania Luzerne County 42079216601 Directly adjoining Pennsylvania Luzerne County 42079216602 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Pennsylvania Luzerne County 42079216700 Directly adjoining Pennsylvania Luzerne County 42079216800 Mine closure, Directly adjoining Pennsylvania Luzerne County 42079216900 Mine closure, Directly adjoining Pennsylvania Luzerne County 42079217001 Directly adjoining Pennsylvania Luzerne County 42079217002 Mine closure, Directly adjoining Pennsylvania Luzerne County 42079217100 Directly adjoining Pennsylvania Luzerne County 42079217200 Directly adjoining Pennsylvania Luzerne County 42079217300 Directly adjoining Pennsylvania Luzerne County 42079217700 Directly adjoining Pennsylvania Luzerne County 42079217800 Directly adjoining Pennsylvania Luzerne County 42079217900 Directly adjoining Pennsylvania Lycoming County 42081010600 Directly adjoining Pennsylvania Lycoming County 42081010800 Directly adjoining Pennsylvania McKean County 42083420700 Directly adjoining Pennsylvania McKean County 42083420800 Directly adjoining Pennsylvania McKean County 42083420900 Directly adjoining Pennsylvania Mercer County 42085031200 Directly adjoining Pennsylvania Mercer County 42085031300 Directly adjoining Pennsylvania Mercer County 42085032300 Directly adjoining Pennsylvania Mercer County 42085032401 Directly adjoining Pennsylvania Mercer County 42085032403 Directly adjoining Pennsylvania Mercer County 42085032502 Directly adjoining Pennsylvania Mercer County 42085032503 Directly adjoining Pennsylvania Mercer County 42085032504 Mine closure Pennsylvania Mercer County 42085032505 Directly adjoining Pennsylvania Mercer County 42085032601 Mine closure Pennsylvania Mercer County 42085032602 Directly adjoining Pennsylvania Mercer County 42085032702 Directly adjoining Pennsylvania Mercer County 42085033100 Directly adjoining Pennsylvania Montgomery County 42091206105 Directly adjoining Pennsylvania Montgomery County 42091206106 Directly adjoining Pennsylvania Montour County 42093050100 Generating unit retirement Pennsylvania Montour County 42093050400 Directly adjoining Pennsylvania Northampton County 42095015300 Directly adjoining Pennsylvania Northampton County 42095015400 Directly adjoining Pennsylvania Northampton County 42095018200 Generating unit retirement Pennsylvania Northampton County 42095018300 Directly adjoining Pennsylvania Northumberland County 42097080100 Directly adjoining Pennsylvania Northumberland County 42097080400 Directly adjoining Pennsylvania Northumberland County 42097080500 Directly adjoining Pennsylvania Northumberland County 42097080700 Directly adjoining Pennsylvania Northumberland County 42097080800 Directly adjoining Pennsylvania Northumberland County 42097080900 Mine closure, Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Pennsylvania Northumberland County 42097081000 Directly adjoining Pennsylvania Northumberland County 42097081100 Mine closure, Directly adjoining Pennsylvania Northumberland County 42097081200 Mine closure, Directly adjoining Pennsylvania Northumberland County 42097081300 Directly adjoining Pennsylvania Northumberland County 42097081400 Mine closure, Directly adjoining Pennsylvania Northumberland County 42097081500 Directly adjoining Pennsylvania Northumberland County 42097081600 Directly adjoining Pennsylvania Northumberland County 42097081700 Mine closure, Directly adjoining Pennsylvania Northumberland County 42097081800 Mine closure, Directly adjoining Pennsylvania Northumberland County 42097081900 Mine closure, Directly adjoining Pennsylvania Northumberland County 42097082000 Directly adjoining Pennsylvania Northumberland County 42097082100 Directly adjoining Pennsylvania Northumberland County 42097082200 Directly adjoining Pennsylvania Northumberland County 42097082300 Mine closure, Directly adjoining Pennsylvania Northumberland County 42097082400 Directly adjoining Pennsylvania Perry County 42099030100 Directly adjoining Pennsylvania Potter County 42105950402 Directly adjoining Pennsylvania Schuylkill County 42107000100 Directly adjoining Pennsylvania Schuylkill County 42107000200 Directly adjoining Pennsylvania Schuylkill County 42107000300 Mine closure, Generating unit retirement, Directly adjoining Pennsylvania Schuylkill County 42107000400 Mine closure, Generating unit retirement, Directly adjoining Pennsylvania Schuylkill County 42107000500 Directly adjoining Pennsylvania Schuylkill County 42107000601 Directly adjoining Pennsylvania Schuylkill County 42107000602 Directly adjoining Pennsylvania Schuylkill County 42107000700 Mine closure, Directly adjoining Pennsylvania Schuylkill County 42107000800 Directly adjoining Pennsylvania Schuylkill County 42107000901 Mine closure, Directly adjoining Pennsylvania Schuylkill County 42107000902 Mine closure, Directly adjoining Pennsylvania Schuylkill County 42107001000 Directly adjoining Pennsylvania Schuylkill County 42107001100 Mine closure, Directly adjoining Pennsylvania Schuylkill County 42107001200 Mine closure, Directly adjoining Pennsylvania Schuylkill County 42107001300 Mine closure, Directly adjoining Pennsylvania Schuylkill County 42107001400 Mine closure, Directly adjoining Pennsylvania Schuylkill County 42107001500 Mine closure, Directly adjoining Pennsylvania Schuylkill County 42107001600 Mine closure, Directly adjoining Pennsylvania Schuylkill County 42107001700 Directly adjoining Pennsylvania Schuylkill County 42107001800 Directly adjoining Pennsylvania Schuylkill County 42107001902 Directly adjoining Pennsylvania Schuylkill County 42107002000 Directly adjoining Pennsylvania Schuylkill County 42107002100 Directly adjoining Pennsylvania Schuylkill County 42107002200 Directly adjoining Pennsylvania Schuylkill County 42107002300 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Pennsylvania Schuylkill County 42107002400 Mine closure, Directly adjoining Pennsylvania Schuylkill County 42107002500 Mine closure, Directly adjoining Pennsylvania Schuylkill County 42107002600 Directly adjoining Pennsylvania Schuylkill County 42107002700 Directly adjoining Pennsylvania Schuylkill County 42107002800 Directly adjoining Pennsylvania Schuylkill County 42107002900 Directly adjoining Pennsylvania Schuylkill County 42107003000 Directly adjoining Pennsylvania Schuylkill County 42107003200 Directly adjoining Pennsylvania Schuylkill County 42107003400 Directly adjoining Pennsylvania Schuylkill County 42107003500 Mine closure, Directly adjoining Pennsylvania Schuylkill County 42107003600 Directly adjoining Pennsylvania Schuylkill County 42107003700 Mine closure, Directly adjoining Pennsylvania Schuylkill County 42107003800 Directly adjoining Pennsylvania Schuylkill County 42107003900 Mine closure, Directly adjoining Pennsylvania Snyder County 42109070100 Generating unit retirement, Directly adjoining Pennsylvania Snyder County 42109070200 Directly adjoining Pennsylvania Snyder County 42109070600 Directly adjoining Pennsylvania Snyder County 42109070701 Directly adjoining Pennsylvania Somerset County 42111020101 Directly adjoining Pennsylvania Somerset County 42111020102 Directly adjoining Pennsylvania Somerset County 42111020200 Mine closure, Directly adjoining Pennsylvania Somerset County 42111020300 Directly adjoining Pennsylvania Somerset County 42111020400 Mine closure, Directly adjoining Pennsylvania Somerset County 42111020500 Mine closure, Directly adjoining Pennsylvania Somerset County 42111020601 Mine closure, Directly adjoining Pennsylvania Somerset County 42111020602 Mine closure, Directly adjoining Pennsylvania Somerset County 42111020700 Mine closure, Directly adjoining Pennsylvania Somerset County 42111020801 Directly adjoining Pennsylvania Somerset County 42111020802 Mine closure, Directly adjoining Pennsylvania Somerset County 42111020900 Mine closure, Directly adjoining Pennsylvania Somerset County 42111021000 Directly adjoining Pennsylvania Somerset County 42111021100 Mine closure, Directly adjoining Pennsylvania Somerset County 42111021200 Mine closure, Directly adjoining Pennsylvania Somerset County 42111021300 Mine closure, Directly adjoining Pennsylvania Somerset County 42111021400 Mine closure, Directly adjoining Pennsylvania Somerset County 42111021500 Mine closure, Directly adjoining Pennsylvania Somerset County 42111021600 Directly adjoining Pennsylvania Somerset County 42111021700 Mine closure, Directly adjoining Pennsylvania Somerset County 42111021800 Mine closure, Directly adjoining Pennsylvania Somerset County 42111021902 Directly adjoining Pennsylvania Somerset County 42111021903 Directly adjoining Pennsylvania Somerset County 42111021904 Directly adjoining Pennsylvania Sullivan County 42113960101 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Pennsylvania Sullivan County 42113960102 Mine closure Pennsylvania Sullivan County 42113960201 Directly adjoining Pennsylvania Union County 42119090400 Directly adjoining Pennsylvania Venango County 42121200201 Directly adjoining Pennsylvania Venango County 42121200202 Directly adjoining Pennsylvania Venango County 42121201100 Directly adjoining Pennsylvania Venango County 42121201200 Directly adjoining Pennsylvania Venango County 42121201300 Directly adjoining Pennsylvania Venango County 42121201400 Directly adjoining Pennsylvania Venango County 42121201500 Mine closure, Directly adjoining Pennsylvania Washington County 42125711000 Mine closure, Directly adjoining Pennsylvania Washington County 42125712700 Directly adjoining Pennsylvania Washington County 42125713700 Mine closure, Directly adjoining Pennsylvania Washington County 42125714000 Mine closure, Directly adjoining Pennsylvania Washington County 42125715700 Directly adjoining Pennsylvania Washington County 42125721000 Mine closure, Directly adjoining Pennsylvania Washington County 42125722700 Directly adjoining Pennsylvania Washington County 42125731000 Directly adjoining Pennsylvania Washington County 42125741100 Directly adjoining Pennsylvania Washington County 42125745200 Directly adjoining Pennsylvania Washington County 42125746301 Directly adjoining Pennsylvania Washington County 42125746302 Directly adjoining Pennsylvania Washington County 42125751100 Directly adjoining Pennsylvania Washington County 42125755200 Directly adjoining Pennsylvania Washington County 42125755700 Directly adjoining Pennsylvania Washington County 42125761000 Mine closure, Directly adjoining Pennsylvania Washington County 42125762000 Directly adjoining Pennsylvania Washington County 42125763700 Directly adjoining Pennsylvania Washington County 42125764000 Directly adjoining Pennsylvania Washington County 42125771100 Mine closure, Generating unit retirement, Directly adjoining Pennsylvania Washington County 42125771200 Mine closure, Directly adjoining Pennsylvania Washington County 42125772700 Mine closure, Directly adjoining Pennsylvania Washington County 42125773100 Directly adjoining Pennsylvania Washington County 42125773200 Directly adjoining Pennsylvania Washington County 42125774700 Directly adjoining Pennsylvania Washington County 42125781700 Directly adjoining Pennsylvania Washington County 42125795700 Mine closure, Directly adjoining Pennsylvania Washington County 42125795900 Directly adjoining Pennsylvania Washington County 42125796000 Directly adjoining Pennsylvania Westmoreland County 42129801200 Directly adjoining Pennsylvania Westmoreland County 42129801600 Directly adjoining Pennsylvania Westmoreland County 42129801701 Directly adjoining Pennsylvania Westmoreland County 42129801702 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Pennsylvania Westmoreland County 42129801703 Mine closure, Directly adjoining Pennsylvania Westmoreland County 42129801801 Directly adjoining Pennsylvania Westmoreland County 42129801802 Directly adjoining Pennsylvania Westmoreland County 42129801901 Mine closure, Directly adjoining Pennsylvania Westmoreland County 42129801902 Mine closure, Directly adjoining Pennsylvania Westmoreland County 42129802001 Directly adjoining Pennsylvania Westmoreland County 42129802003 Directly adjoining Pennsylvania Westmoreland County 42129802004 Directly adjoining Pennsylvania Westmoreland County 42129802101 Directly adjoining Pennsylvania Westmoreland County 42129802400 Directly adjoining Pennsylvania Westmoreland County 42129803302 Directly adjoining Pennsylvania Westmoreland County 42129803400 Directly adjoining Pennsylvania Westmoreland County 42129803501 Directly adjoining Pennsylvania Westmoreland County 42129803800 Directly adjoining Pennsylvania Westmoreland County 42129804400 Directly adjoining Pennsylvania Westmoreland County 42129804501 Mine closure Pennsylvania Westmoreland County 42129804503 Directly adjoining Pennsylvania Westmoreland County 42129804504 Directly adjoining Pennsylvania Westmoreland County 42129804600 Directly adjoining Pennsylvania Westmoreland County 42129804701 Directly adjoining Pennsylvania Westmoreland County 42129804705 Directly adjoining Pennsylvania Westmoreland County 42129804706 Directly adjoining Pennsylvania Westmoreland County 42129804901 Directly adjoining Pennsylvania Westmoreland County 42129804902 Directly adjoining Pennsylvania Westmoreland County 42129805000 Directly adjoining Pennsylvania Westmoreland County 42129805100 Mine closure, Directly adjoining Pennsylvania Westmoreland County 42129805800 Directly adjoining Pennsylvania Westmoreland County 42129805901 Directly adjoining Pennsylvania Westmoreland County 42129805903 Directly adjoining Pennsylvania Westmoreland County 42129805904 Directly adjoining Pennsylvania Westmoreland County 42129806000 Directly adjoining Pennsylvania Westmoreland County 42129806100 Mine closure, Directly adjoining Pennsylvania Westmoreland County 42129806200 Mine closure, Directly adjoining Pennsylvania Westmoreland County 42129806500 Directly adjoining Pennsylvania Westmoreland County 42129806600 Mine closure, Directly adjoining Pennsylvania Westmoreland County 42129806700 Directly adjoining Pennsylvania Westmoreland County 42129806900 Directly adjoining Pennsylvania Westmoreland County 42129807000 Directly adjoining Pennsylvania Westmoreland County 42129807100 Directly adjoining Pennsylvania Westmoreland County 42129807201 Directly adjoining Pennsylvania Westmoreland County 42129807202 Directly adjoining Pennsylvania Westmoreland County 42129807300 Mine closure, Directly adjoining Pennsylvania Westmoreland County 42129807401 Mine closure, Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Pennsylvania Westmoreland County 42129807403 Directly adjoining Pennsylvania Westmoreland County 42129807404 Directly adjoining Pennsylvania Westmoreland County 42129807500 Directly adjoining Pennsylvania Westmoreland County 42129807600 Directly adjoining Pennsylvania Westmoreland County 42129807700 Directly adjoining Pennsylvania Westmoreland County 42129807800 Directly adjoining Pennsylvania Westmoreland County 42129807901 Mine closure, Directly adjoining Pennsylvania Westmoreland County 42129807902 Directly adjoining Pennsylvania Westmoreland County 42129808100 Mine closure, Directly adjoining Pennsylvania Westmoreland County 42129808200 Directly adjoining Pennsylvania Westmoreland County 42129808300 Mine closure, Directly adjoining Pennsylvania Westmoreland County 42129808401 Directly adjoining Pennsylvania Westmoreland County 42129808402 Directly adjoining Pennsylvania Westmoreland County 42129808600 Directly adjoining Pennsylvania York County 42133020522 Directly adjoining Pennsylvania York County 42133020523 Generating unit retirement Pennsylvania York County 42133020524 Directly adjoining Pennsylvania York County 42133021712 Directly adjoining Rhode Island Newport County 44005990000 Directly adjoining South Carolina Aiken County 45003021902 Directly adjoining South Carolina Aiken County 45003022001 Directly adjoining South Carolina Aiken County 45003022004 Directly adjoining South Carolina Aiken County 45003022100 Directly adjoining South Carolina Aiken County 45003980100 Generating unit retirement South Carolina Anderson County 45007010403 Directly adjoining South Carolina Anderson County 45007010405 Directly adjoining South Carolina Anderson County 45007010406 Generating unit retirement South Carolina Anderson County 45007011203 Directly adjoining South Carolina Anderson County 45007011204 Directly adjoining South Carolina Anderson County 45007011302 Directly adjoining South Carolina Anderson County 45007011401 Directly adjoining South Carolina Anderson County 45007011402 Directly adjoining South Carolina Barnwell County 45011970102 Directly adjoining South Carolina Barnwell County 45011980100 Directly adjoining South Carolina Berkeley County 45015020101 Directly adjoining South Carolina Berkeley County 45015020201 Directly adjoining South Carolina Berkeley County 45015020202 Directly adjoining South Carolina Berkeley County 45015020301 Directly adjoining South Carolina Berkeley County 45015020303 Directly adjoining South Carolina Berkeley County 45015020304 Generating unit retirement South Carolina Berkeley County 45015020401 Directly adjoining South Carolina Berkeley County 45015020503 Directly adjoining South Carolina Berkeley County 45015020504 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code South Carolina Berkeley County 45015020506 Directly adjoining South Carolina Cherokee County 45021970101 Directly adjoining South Carolina Cherokee County 45021970203 Directly adjoining South Carolina Cherokee County 45021970204 Directly adjoining South Carolina Cherokee County 45021970401 Directly adjoining South Carolina Chesterfield County 45025950701 Directly adjoining South Carolina Chesterfield County 45025950800 Directly adjoining South Carolina Colleton County 45029970100 Directly adjoining South Carolina Colleton County 45029970200 Directly adjoining South Carolina Colleton County 45029970301 Directly adjoining South Carolina Colleton County 45029970401 Generating unit retirement South Carolina Colleton County 45029970402 Directly adjoining South Carolina Colleton County 45029970502 Directly adjoining South Carolina Colleton County 45029970601 Directly adjoining South Carolina Colleton County 45029970702 Directly adjoining South Carolina Darlington County 45031010100 Directly adjoining South Carolina Darlington County 45031010200 Generating unit retirement South Carolina Darlington County 45031010300 Directly adjoining South Carolina Darlington County 45031010400 Directly adjoining South Carolina Darlington County 45031010600 Directly adjoining South Carolina Darlington County 45031010902 Directly adjoining South Carolina Dorchester County 45035010100 Directly adjoining South Carolina Greenville County 45045003202 Directly adjoining South Carolina Greenville County 45045003301 Directly adjoining South Carolina Horry County 45051060101 Directly adjoining South Carolina Horry County 45051060403 Directly adjoining South Carolina Horry County 45051070200 Directly adjoining South Carolina Horry County 45051070300 Generating unit retirement South Carolina Horry County 45051070400 Directly adjoining South Carolina Horry County 45051070500 Directly adjoining South Carolina Horry County 45051070701 Directly adjoining South Carolina Horry County 45051070702 Directly adjoining South Carolina Jasper County 45053950100 Directly adjoining South Carolina Jasper County 45053950301 Directly adjoining South Carolina Jasper County 45053950302 Directly adjoining South Dakota Custer County 46033965100 Directly adjoining South Dakota Lawrence County 46081966601 Directly adjoining South Dakota Meade County 46093020200 Directly adjoining South Dakota Meade County 46093020302 Directly adjoining South Dakota Meade County 46093020303 Directly adjoining South Dakota Meade County 46093020500 Directly adjoining South Dakota Pennington County 46103010202 Directly adjoining South Dakota Pennington County 46103010300 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code South Dakota Pennington County 46103010400 Directly adjoining South Dakota Pennington County 46103010906 Directly adjoining South Dakota Pennington County 46103010908 Directly adjoining South Dakota Pennington County 46103011200 Directly adjoining South Dakota Pennington County 46103011300 Directly adjoining South Dakota Pennington County 46103011400 Generating unit retirement South Dakota Pennington County 46103011700 Directly adjoining South Dakota Pennington County 46103011800 Directly adjoining Tennessee Anderson County 47001020201 Directly adjoining Tennessee Anderson County 47001020400 Directly adjoining Tennessee Anderson County 47001020700 Mine closure, Directly adjoining Tennessee Anderson County 47001020800 Directly adjoining Tennessee Anderson County 47001020901 Directly adjoining Tennessee Anderson County 47001021001 Mine closure, Directly adjoining Tennessee Anderson County 47001021002 Directly adjoining Tennessee Anderson County 47001021100 Directly adjoining Tennessee Anderson County 47001021201 Directly adjoining Tennessee Anderson County 47001021303 Directly adjoining Tennessee Anderson County 47001021304 Generating unit retirement Tennessee Benton County 47005963100 Directly adjoining Tennessee Benton County 47005963200 Directly adjoining Tennessee Benton County 47005963400 Directly adjoining Tennessee Bledsoe County 47007953000 Directly adjoining Tennessee Bledsoe County 47007953101 Directly adjoining Tennessee Bledsoe County 47007953102 Directly adjoining Tennessee Bledsoe County 47007953200 Mine closure, Directly adjoining Tennessee Campbell County 47013950100 Mine closure, Directly adjoining Tennessee Campbell County 47013950200 Mine closure, Directly adjoining Tennessee Campbell County 47013950300 Mine closure, Directly adjoining Tennessee Campbell County 47013950400 Mine closure, Directly adjoining Tennessee Campbell County 47013950500 Directly adjoining Tennessee Campbell County 47013950601 Directly adjoining Tennessee Campbell County 47013950701 Directly adjoining Tennessee Campbell County 47013950800 Directly adjoining Tennessee Campbell County 47013951100 Directly adjoining Tennessee Claiborne County 47025970200 Directly adjoining Tennessee Claiborne County 47025970300 Directly adjoining Tennessee Claiborne County 47025970400 Mine closure, Directly adjoining Tennessee Claiborne County 47025970500 Mine closure, Directly adjoining Tennessee Claiborne County 47025970600 Directly adjoining Tennessee Cumberland County 47035970101 Directly adjoining Tennessee Cumberland County 47035970104 Directly adjoining Tennessee Cumberland County 47035970201 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Tennessee Cumberland County 47035970603 Directly adjoining Tennessee Cumberland County 47035970702 Directly adjoining Tennessee Cumberland County 47035970800 Mine closure Tennessee Davidson County 47037014400 Directly adjoining Tennessee Davidson County 47037016400 Directly adjoining Tennessee Davidson County 47037016500 Generating unit retirement Tennessee Davidson County 47037016600 Directly adjoining Tennessee Davidson County 47037016800 Directly adjoining Tennessee Davidson County 47037019501 Directly adjoining Tennessee Fentress County 47049965000 Directly adjoining Tennessee Fentress County 47049965100 Directly adjoining Tennessee Fentress County 47049965201 Mine closure Tennessee Fentress County 47049965202 Directly adjoining Tennessee Fentress County 47049965300 Directly adjoining Tennessee Franklin County 47051960600 Directly adjoining Tennessee Franklin County 47051960700 Directly adjoining Tennessee Greene County 47059091200 Directly adjoining Tennessee Greene County 47059091300 Directly adjoining Tennessee Greene County 47059091400 Directly adjoining Tennessee Grundy County 47061955000 Directly adjoining Tennessee Grundy County 47061955200 Mine closure, Directly adjoining Tennessee Grundy County 47061955300 Directly adjoining Tennessee Hamblen County 47063101000 Directly adjoining Tennessee Hawkins County 47073050100 Directly adjoining Tennessee Hawkins County 47073050200 Directly adjoining Tennessee Hawkins County 47073050301 Directly adjoining Tennessee Hawkins County 47073050302 Directly adjoining Tennessee Hawkins County 47073050400 Directly adjoining Tennessee Hawkins County 47073050700 Directly adjoining Tennessee Hawkins County 47073050800 Generating unit retirement Tennessee Hawkins County 47073050900 Directly adjoining Tennessee Humphreys County 47085130200 Directly adjoining Tennessee Humphreys County 47085130300 Directly adjoining Tennessee Humphreys County 47085130400 Directly adjoining Tennessee Humphreys County 47085130500 Generating unit retirement Tennessee Knox County 47093005908 Directly adjoining Tennessee Knox County 47093006003 Directly adjoining Tennessee Knox County 47093006103 Directly adjoining Tennessee Marion County 47115050102 Directly adjoining Tennessee Marion County 47115050203 Directly adjoining Tennessee Marion County 47115050302 Directly adjoining Tennessee Meigs County 47121960100 Directly adjoining Tennessee Meigs County 47121960200 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Tennessee Morgan County 47129110100 Directly adjoining Tennessee Morgan County 47129110200 Directly adjoining Tennessee Morgan County 47129110300 Directly adjoining Tennessee Morgan County 47129110400 Mine closure, Directly adjoining Tennessee Morgan County 47129110500 Directly adjoining Tennessee Rhea County 47143975000 Directly adjoining Tennessee Rhea County 47143975100 Generating unit retirement Tennessee Rhea County 47143975200 Directly adjoining Tennessee Roane County 47145030500 Directly adjoining Tennessee Roane County 47145030802 Directly adjoining Tennessee Roane County 47145030900 Directly adjoining Tennessee Scott County 47151975000 Directly adjoining Tennessee Scott County 47151975101 Directly adjoining Tennessee Scott County 47151975102 Directly adjoining Tennessee Scott County 47151975200 Directly adjoining Tennessee Scott County 47151975300 Mine closure, Directly adjoining Tennessee Scott County 47151975400 Directly adjoining Tennessee Sequatchie County 47153060102 Mine closure, Directly adjoining Tennessee Sequatchie County 47153060103 Directly adjoining Tennessee Sequatchie County 47153060104 Directly adjoining Tennessee Shelby County 47157004300 Directly adjoining Tennessee Shelby County 47157005300 Directly adjoining Tennessee Shelby County 47157011700 Directly adjoining Tennessee Shelby County 47157022210 Directly adjoining Tennessee Shelby County 47157022220 Directly adjoining Tennessee Shelby County 47157980200 Generating unit retirement, Directly adjoining Tennessee Shelby County 47157980300 Generating unit retirement, Directly adjoining Tennessee Union County 47173040300 Directly adjoining Tennessee Van Buren County 47175925000 Directly adjoining Tennessee Warren County 47177930900 Directly adjoining Texas Anderson County 48001950402 Directly adjoining Texas Anderson County 48001951100 Directly adjoining Texas Archer County 48009020200 Directly adjoining Texas Bastrop County 48021950102 Directly adjoining Texas Baylor County 48023950302 Directly adjoining Texas Bexar County 48029131401 Directly adjoining Texas Bexar County 48029131402 Directly adjoining Texas Bexar County 48029131801 Directly adjoining Texas Bexar County 48029131802 Directly adjoining Texas Bexar County 48029141700 Directly adjoining Texas Bexar County 48029141800 Directly adjoining Texas Bexar County 48029141900 Generating unit retirement Texas Brazos County 48041000106 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Texas Brazos County 48041002010 Directly adjoining Texas Brazos County 48041002016 Directly adjoining Texas Burleson County 48051970202 Directly adjoining Texas Camp County 48063950101 Directly adjoining Texas Camp County 48063950102 Directly adjoining Texas Dimmit County 48127950202 Directly adjoining Texas Dimmit County 48127950400 Directly adjoining Texas Duval County 48131950200 Directly adjoining Texas Duval County 48131950500 Directly adjoining Texas Falls County 48145000800 Directly adjoining Texas Foard County 48155950100 Directly adjoining Texas Franklin County 48159950101 Directly adjoining Texas Franklin County 48159950102 Directly adjoining Texas Franklin County 48159950300 Directly adjoining Texas Freestone County 48161000101 Directly adjoining Texas Freestone County 48161000102 Mine closure, Generating unit retirement Texas Freestone County 48161000200 Directly adjoining Texas Freestone County 48161000300 Directly adjoining Texas Freestone County 48161000600 Directly adjoining Texas Freestone County 48161000900 Directly adjoining Texas Gregg County 48183000201 Directly adjoining Texas Gregg County 48183001100 Directly adjoining Texas Gregg County 48183001400 Directly adjoining Texas Gregg County 48183001500 Directly adjoining Texas Gregg County 48183010501 Directly adjoining Texas Gregg County 48183010502 Directly adjoining Texas Grimes County 48185180202 Directly adjoining Texas Grimes County 48185180302 Directly adjoining Texas Grimes County 48185180303 Mine closure, Directly adjoining Texas Grimes County 48185180304 Generating unit retirement, Directly adjoining Texas Hardeman County 48197950100 Directly adjoining Texas Harrison County 48203020103 Mine closure, Directly adjoining Texas Harrison County 48203020104 Directly adjoining Texas Harrison County 48203020106 Directly adjoining Texas Harrison County 48203020301 Directly adjoining Texas Harrison County 48203020401 Directly adjoining Texas Harrison County 48203020402 Generating unit retirement, Directly adjoining Texas Harrison County 48203020501 Directly adjoining Texas Harrison County 48203020502 Directly adjoining Texas Harrison County 48203020603 Directly adjoining Texas Harrison County 48203020604 Mine closure, Generating unit retirement, Directly adjoining Texas Harrison County 48203020605 Directly adjoining Texas Harrison County 48203020606 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Texas Henderson County 48213950902 Directly adjoining Texas Hopkins County 48223950200 Directly adjoining Texas Hopkins County 48223950301 Directly adjoining Texas Hopkins County 48223950302 Mine closure Texas Hopkins County 48223950401 Directly adjoining Texas Hopkins County 48223950402 Directly adjoining Texas Hopkins County 48223950500 Directly adjoining Texas Hopkins County 48223950600 Directly adjoining Texas Hopkins County 48223950700 Directly adjoining Texas Hopkins County 48223950800 Directly adjoining Texas Kinney County 48271950100 Directly adjoining Texas La Salle County 48283950302 Directly adjoining Texas Lee County 48287000100 Mine closure, Directly adjoining Texas Lee County 48287000200 Directly adjoining Texas Limestone County 48293970800 Directly adjoining Texas McMullen County 48311950100 Directly adjoining Texas Madison County 48313000200 Directly adjoining Texas Madison County 48313000300 Directly adjoining Texas Maverick County 48323950207 Directly adjoining Texas Maverick County 48323950500 Directly adjoining Texas Maverick County 48323950701 Directly adjoining Texas Maverick County 48323950702 Mine closure Texas Milam County 48331950100 Directly adjoining Texas Milam County 48331950300 Directly adjoining Texas Milam County 48331950800 Mine closure, Generating unit retirement, Directly adjoining Texas Morris County 48343950100 Directly adjoining Texas Morris County 48343950200 Directly adjoining Texas Navarro County 48349970600 Directly adjoining Texas Panola County 48365950100 Directly adjoining Texas Panola County 48365950200 Mine closure, Directly adjoining Texas Panola County 48365950300 Directly adjoining Texas Panola County 48365950500 Directly adjoining Texas Robertson County 48395960100 Mine closure Texas Robertson County 48395960200 Directly adjoining Texas Robertson County 48395960300 Directly adjoining Texas Rusk County 48401950101 Directly adjoining Texas Rusk County 48401950102 Mine closure, Directly adjoining Texas Rusk County 48401950200 Directly adjoining Texas Rusk County 48401950501 Mine closure, Directly adjoining Texas Rusk County 48401950502 Directly adjoining Texas Rusk County 48401950600 Directly adjoining Texas Rusk County 48401950700 Directly adjoining Texas Rusk County 48401950800 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Texas Rusk County 48401950900 Directly adjoining Texas Rusk County 48401951000 Directly adjoining Texas Rusk County 48401951100 Directly adjoining Texas Titus County 48449950100 Directly adjoining Texas Titus County 48449950200 Mine closure, Generating unit retirement Texas Titus County 48449950301 Directly adjoining Texas Titus County 48449950302 Directly adjoining Texas Titus County 48449950400 Generating unit retirement Texas Titus County 48449950500 Directly adjoining Texas Titus County 48449950800 Directly adjoining Texas Webb County 48479001710 Mine closure Texas Webb County 48479001711 Directly adjoining Texas Webb County 48479001714 Directly adjoining Texas Webb County 48479001726 Directly adjoining Texas Webb County 48479001727 Directly adjoining Texas Webb County 48479001815 Directly adjoining Texas Webb County 48479001816 Directly adjoining Texas Wichita County 48485013700 Directly adjoining Texas Wichita County 48485013800 Directly adjoining Texas Wilbarger County 48487950300 Generating unit retirement Texas Wilbarger County 48487950500 Directly adjoining Texas Wilbarger County 48487950600 Directly adjoining Texas Wilbarger County 48487950700 Directly adjoining Texas Williamson County 48491020900 Directly adjoining Texas Williamson County 48491021300 Directly adjoining Texas Wilson County 48493000103 Directly adjoining Texas Wilson County 48493000201 Directly adjoining Texas Wilson County 48493000405 Directly adjoining Texas Wilson County 48493000406 Directly adjoining Utah Carbon County 49007000100 Directly adjoining Utah Carbon County 49007000200 Directly adjoining Utah Carbon County 49007000300 Mine closure, Directly adjoining Utah Carbon County 49007000500 Mine closure, Directly adjoining Utah Carbon County 49007000600 Mine closure, Generating unit retirement, Directly adjoining Utah Daggett County 49009960100 Directly adjoining Utah Duchesne County 49013940300 Directly adjoining Utah Duchesne County 49013940600 Directly adjoining Utah Emery County 49015976200 Mine closure, Directly adjoining Utah Emery County 49015976300 Mine closure, Directly adjoining Utah Emery County 49015976500 Mine closure, Directly adjoining Utah Garfield County 49017000300 Directly adjoining Utah Garfield County 49017000400 Directly adjoining Utah Grand County 49019000302 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Utah Iron County 49021110100 Directly adjoining Utah Iron County 49021110602 Directly adjoining Utah Kane County 49025130100 Mine closure Utah Kane County 49025130200 Directly adjoining Utah Salt Lake County 49035113105 Directly adjoining Utah Salt Lake County 49035113526 Directly adjoining Utah Salt Lake County 49035113540 Directly adjoining Utah Salt Lake County 49035113541 Directly adjoining Utah Salt Lake County 49035113542 Directly adjoining Utah Salt Lake County 49035113545 Directly adjoining Utah Salt Lake County 49035113905 Directly adjoining Utah Salt Lake County 49035113906 Directly adjoining Utah Salt Lake County 49035113908 Directly adjoining Utah Salt Lake County 49035113909 Generating unit retirement Utah Salt Lake County 49035114303 Directly adjoining Utah San Juan County 49037942100 Directly adjoining Utah San Juan County 49037978100 Directly adjoining Utah San Juan County 49037978200 Directly adjoining Utah Sanpete County 49039972101 Directly adjoining Utah Sanpete County 49039972102 Directly adjoining Utah Sanpete County 49039972500 Directly adjoining Utah Sevier County 49041975100 Directly adjoining Utah Sevier County 49041975200 Directly adjoining Utah Tooele County 49045130701 Directly adjoining Utah Uintah County 49047940201 Directly adjoining Utah Uintah County 49047968201 Directly adjoining Utah Utah County 49049010900 Directly adjoining Utah Washington County 49053270102 Directly adjoining Utah Wayne County 49055979100 Directly adjoining Virginia Alleghany County 51005080201 Directly adjoining Virginia Alleghany County 51005080202 Directly adjoining Virginia Alleghany County 51005080301 Generating unit retirement Virginia Alleghany County 51005080302 Directly adjoining Virginia Augusta County 51015070500 Directly adjoining Virginia Augusta County 51015071201 Directly adjoining Virginia Augusta County 51015071202 Directly adjoining Virginia Bath County 51017920102 Directly adjoining Virginia Bland County 51021040100 Directly adjoining Virginia Brunswick County 51025930302 Directly adjoining Virginia Buchanan County 51027010100 Mine closure, Directly adjoining Virginia Buchanan County 51027010200 Mine closure, Directly adjoining Virginia Buchanan County 51027010300 Mine closure, Directly adjoining Virginia Buchanan County 51027010400 Mine closure, Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Virginia Buchanan County 51027010500 Mine closure, Directly adjoining Virginia Buchanan County 51027010600 Mine closure, Directly adjoining Virginia Buchanan County 51027010700 Mine closure, Directly adjoining Virginia Charles City County 51036600100 Directly adjoining Virginia Chesterfield County 51041100300 Directly adjoining Virginia Chesterfield County 51041100403 Generating unit retirement Virginia Chesterfield County 51041100404 Directly adjoining Virginia Chesterfield County 51041100407 Directly adjoining Virginia Chesterfield County 51041100409 Directly adjoining Virginia Chesterfield County 51041100505 Directly adjoining Virginia Chesterfield County 51041100509 Directly adjoining Virginia Chesterfield County 51041100510 Directly adjoining Virginia Dickenson County 51051040100 Mine closure, Directly adjoining Virginia Dickenson County 51051040200 Mine closure, Directly adjoining Virginia Dickenson County 51051040300 Mine closure, Directly adjoining Virginia Dickenson County 51051040400 Mine closure, Directly adjoining Virginia Giles County 51071930200 Directly adjoining Virginia Giles County 51071930300 Generating unit retirement Virginia Giles County 51071930400 Directly adjoining Virginia Gloucester County 51073100500 Directly adjoining Virginia Henrico County 51087201601 Directly adjoining Virginia Henrico County 51087201602 Directly adjoining Virginia Henry County 51089010500 Directly adjoining Virginia King George County 51099040301 Directly adjoining Virginia King George County 51099040302 Generating unit retirement Virginia King George County 51099040400 Directly adjoining Virginia Lee County 51105950100 Mine closure, Directly adjoining Virginia Lee County 51105950200 Directly adjoining Virginia Lee County 51105950301 Directly adjoining Virginia Lee County 51105950500 Directly adjoining Virginia Lee County 51105950600 Directly adjoining Virginia Loudoun County 51107610300 Directly adjoining Virginia Loudoun County 51107610503 Directly adjoining Virginia Loudoun County 51107610507 Directly adjoining Virginia Loudoun County 51107611002 Directly adjoining Virginia Loudoun County 51107611009 Directly adjoining Virginia Loudoun County 51107611010 Directly adjoining Virginia Loudoun County 51107611101 Directly adjoining Virginia Loudoun County 51107611102 Directly adjoining Virginia Loudoun County 51107611202 Directly adjoining Virginia Loudoun County 51107611206 Directly adjoining Virginia Loudoun County 51107611208 Directly adjoining Virginia Mecklenburg County 51117930103 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Virginia Mecklenburg County 51117930104 Directly adjoining Virginia Mecklenburg County 51117930300 Directly adjoining Virginia Mecklenburg County 51117930600 Directly adjoining Virginia Mecklenburg County 51117930700 Generating unit retirement Virginia Mecklenburg County 51117930800 Directly adjoining Virginia Pittsylvania County 51143011100 Directly adjoining Virginia Prince George County 51149850302 Directly adjoining Virginia Russell County 51167030100 Mine closure, Directly adjoining Virginia Russell County 51167030201 Mine closure, Directly adjoining Virginia Russell County 51167030202 Directly adjoining Virginia Russell County 51167030300 Directly adjoining Virginia Russell County 51167030402 Directly adjoining Virginia Russell County 51167030403 Directly adjoining Virginia Russell County 51167030404 Directly adjoining Virginia Russell County 51167030500 Directly adjoining Virginia Russell County 51167030600 Mine closure, Generating unit retirement, Directly adjoining Virginia Scott County 51169030200 Directly adjoining Virginia Scott County 51169030300 Mine closure, Directly adjoining Virginia Scott County 51169030400 Directly adjoining Virginia Stafford County 51179010106 Directly adjoining Virginia Stafford County 51179010503 Directly adjoining Virginia Stafford County 51179010504 Directly adjoining Virginia Tazewell County 51185020100 Directly adjoining Virginia Tazewell County 51185020301 Mine closure, Directly adjoining Virginia Tazewell County 51185020302 Mine closure, Directly adjoining Virginia Tazewell County 51185020400 Mine closure, Directly adjoining Virginia Tazewell County 51185020500 Mine closure, Directly adjoining Virginia Tazewell County 51185020600 Directly adjoining Virginia Tazewell County 51185020800 Directly adjoining Virginia Tazewell County 51185020900 Mine closure, Directly adjoining Virginia Tazewell County 51185021000 Directly adjoining Virginia Tazewell County 51185021101 Directly adjoining Virginia Wise County 51195930700 Mine closure, Directly adjoining Virginia Wise County 51195930800 Mine closure, Directly adjoining Virginia Wise County 51195930900 Mine closure, Directly adjoining Virginia Wise County 51195931000 Mine closure, Directly adjoining Virginia Wise County 51195931100 Mine closure, Directly adjoining Virginia Wise County 51195931200 Directly adjoining Virginia Wise County 51195931300 Directly adjoining Virginia Wise County 51195931400 Mine closure, Directly adjoining Virginia Wise County 51195931500 Mine closure, Directly adjoining Virginia Wise County 51195931600 Mine closure, Directly adjoining Virginia Wise County 51195931700 Mine closure, Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Virginia York County 51199050303 Directly adjoining Virginia York County 51199050306 Directly adjoining Virginia York County 51199050401 Generating unit retirement Virginia York County 51199050402 Directly adjoining Virginia York County 51199050500 Directly adjoining Virginia York County 51199990100 Directly adjoining Virginia Alexandria city 51510201601 Directly adjoining Virginia Alexandria city 51510201602 Directly adjoining Virginia Alexandria city 51510201802 Directly adjoining Virginia Alexandria city 51510201803 Directly adjoining Virginia Alexandria city 51510201805 Generating unit retirement Virginia Alexandria city 51510980000 Directly adjoining Virginia Chesapeake city 51550020200 Directly adjoining Virginia Chesapeake city 51550020300 Directly adjoining Virginia Chesapeake city 51550020400 Generating unit retirement Virginia Chesapeake city 51550020500 Directly adjoining Virginia Chesapeake city 51550020600 Directly adjoining Virginia Chesapeake city 51550020903 Directly adjoining Virginia Chesapeake city 51550020910 Directly adjoining Virginia Chesapeake city 51550021301 Directly adjoining Virginia Chesapeake city 51550021304 Directly adjoining Virginia Chesapeake city 51550021401 Directly adjoining Virginia Chesapeake city 51550021402 Generating unit retirement Virginia Chesapeake city 51550021403 Directly adjoining Virginia Chesapeake city 51550021405 Directly adjoining Virginia Covington city 51580060100 Directly adjoining Virginia Covington city 51580060200 Directly adjoining Virginia Hampton city 51650011100 Directly adjoining Virginia Hopewell city 51670820100 Directly adjoining Virginia Hopewell city 51670820300 Directly adjoining Virginia Hopewell city 51670820700 Directly adjoining Virginia Hopewell city 51670980100 Generating unit retirement Virginia Newport News city 51700030100 Directly adjoining Virginia Norfolk city 51710000902 Directly adjoining Virginia Norfolk city 51710002400 Directly adjoining Virginia Norfolk city 51710980100 Directly adjoining Virginia Norton city 51720960100 Directly adjoining Virginia Portsmouth city 51740210200 Directly adjoining Virginia Portsmouth city 51740210300 Directly adjoining Virginia Portsmouth city 51740210400 Directly adjoining Virginia Portsmouth city 51740213001 Generating unit retirement Virginia Portsmouth city 51740213002 Directly adjoining Virginia Portsmouth city 51740213103 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Virginia Portsmouth city 51740213104 Directly adjoining Virginia Richmond city 51760060800 Directly adjoining Virginia Richmond city 51760060900 Generating unit retirement Virginia Richmond city 51760070901 Directly adjoining Virginia Suffolk city 51800075106 Directly adjoining Virginia Waynesboro city 51820003100 Directly adjoining Virginia Waynesboro city 51820003200 Generating unit retirement Virginia Waynesboro city 51820003300 Directly adjoining Virginia Waynesboro city 51820003400 Directly adjoining Virginia Waynesboro city 51820003500 Directly adjoining Washington Benton County 53005011600 Directly adjoining Washington King County 53033031202 Directly adjoining Washington King County 53033031204 Directly adjoining Washington King County 53033031501 Directly adjoining Washington King County 53033031603 Mine closure Washington King County 53033031604 Directly adjoining Washington King County 53033031605 Directly adjoining Washington King County 53033032003 Directly adjoining Washington King County 53033032010 Directly adjoining Washington King County 53033032011 Directly adjoining Washington Klickitat County 53039950101 Directly adjoining Washington Lewis County 53041970400 Directly adjoining Washington Lewis County 53041970700 Directly adjoining Washington Lewis County 53041970800 Directly adjoining Washington Lewis County 53041971000 Directly adjoining Washington Lewis County 53041971100 Generating unit retirement Washington Lewis County 53041971200 Directly adjoining Washington Lewis County 53041971300 Directly adjoining Washington Lewis County 53041971400 Directly adjoining Washington Lewis County 53041971800 Directly adjoining Washington Thurston County 53067012531 Directly adjoining Washington Thurston County 53067012620 Directly adjoining West Virginia Barbour County 54001965500 Mine closure, Directly adjoining West Virginia Barbour County 54001965600 Mine closure, Directly adjoining West Virginia Barbour County 54001965700 Directly adjoining West Virginia Barbour County 54001965800 Mine closure, Directly adjoining West Virginia Berkeley County 54003971101 Directly adjoining West Virginia Berkeley County 54003971103 Directly adjoining West Virginia Boone County 54005958200 Mine closure, Directly adjoining West Virginia Boone County 54005958300 Mine closure, Directly adjoining West Virginia Boone County 54005958400 Directly adjoining West Virginia Boone County 54005958501 Mine closure, Directly adjoining West Virginia Boone County 54005958502 Mine closure, Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code West Virginia Boone County 54005958600 Mine closure, Directly adjoining West Virginia Boone County 54005958700 Mine closure, Directly adjoining West Virginia Boone County 54005958800 Mine closure, Directly adjoining West Virginia Braxton County 54007967900 Directly adjoining West Virginia Braxton County 54007968000 Directly adjoining West Virginia Braxton County 54007968100 Mine closure, Directly adjoining West Virginia Brooke County 54009031102 Mine closure, Directly adjoining West Virginia Brooke County 54009031103 Directly adjoining West Virginia Brooke County 54009031104 Mine closure, Directly adjoining West Virginia Brooke County 54009031200 Directly adjoining West Virginia Brooke County 54009031401 Directly adjoining West Virginia Brooke County 54009031402 Directly adjoining West Virginia Brooke County 54009031600 Mine closure, Directly adjoining West Virginia Brooke County 54009031700 Mine closure, Directly adjoining West Virginia Cabell County 54011010500 Directly adjoining West Virginia Calhoun County 54013962600 Directly adjoining West Virginia Calhoun County 54013962700 Directly adjoining West Virginia Clay County 54015957900 Directly adjoining West Virginia Clay County 54015958000 Mine closure, Directly adjoining West Virginia Clay County 54015958100 Mine closure, Directly adjoining West Virginia Doddridge County 54017965000 Directly adjoining West Virginia Fayette County 54019020101 Mine closure, Directly adjoining West Virginia Fayette County 54019020102 Directly adjoining West Virginia Fayette County 54019020201 Directly adjoining West Virginia Fayette County 54019020202 Directly adjoining West Virginia Fayette County 54019020400 Directly adjoining West Virginia Fayette County 54019020500 Directly adjoining West Virginia Fayette County 54019020600 Mine closure, Directly adjoining West Virginia Fayette County 54019020700 Mine closure, Directly adjoining West Virginia Fayette County 54019020800 Mine closure, Generating unit retirement, Directly adjoining West Virginia Fayette County 54019020900 Mine closure, Directly adjoining West Virginia Fayette County 54019021000 Mine closure, Directly adjoining West Virginia Fayette County 54019021100 Mine closure, Directly adjoining West Virginia Gilmer County 54021967701 Mine closure, Directly adjoining West Virginia Gilmer County 54021967800 Directly adjoining West Virginia Gilmer County 54021980000 Directly adjoining West Virginia Grant County 54023969400 Mine closure, Generating unit retirement, Directly adjoining West Virginia Grant County 54023969500 Directly adjoining West Virginia Greenbrier County 54025950102 Directly adjoining West Virginia Greenbrier County 54025950200 Mine closure, Directly adjoining West Virginia Greenbrier County 54025950300 Mine closure, Directly adjoining West Virginia Greenbrier County 54025950401 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code West Virginia Greenbrier County 54025950402 Directly adjoining West Virginia Greenbrier County 54025950500 Directly adjoining West Virginia Greenbrier County 54025950600 Mine closure West Virginia Greenbrier County 54025950701 Directly adjoining West Virginia Greenbrier County 54025950702 Directly adjoining West Virginia Hampshire County 54027968401 Directly adjoining West Virginia Hancock County 54029020600 Directly adjoining West Virginia Hancock County 54029020700 Directly adjoining West Virginia Hancock County 54029020900 Directly adjoining West Virginia Hancock County 54029021100 Directly adjoining West Virginia Hancock County 54029021200 Directly adjoining West Virginia Hancock County 54029021300 Directly adjoining West Virginia Hancock County 54029021400 Directly adjoining West Virginia Hancock County 54029021500 Directly adjoining West Virginia Hardy County 54031970102 Directly adjoining West Virginia Hardy County 54031970300 Directly adjoining West Virginia Harrison County 54033030300 Directly adjoining West Virginia Harrison County 54033030501 Mine closure, Directly adjoining West Virginia Harrison County 54033030502 Directly adjoining West Virginia Harrison County 54033030601 Directly adjoining West Virginia Harrison County 54033030603 Directly adjoining West Virginia Harrison County 54033030604 Directly adjoining West Virginia Harrison County 54033030700 Mine closure, Directly adjoining West Virginia Harrison County 54033030801 Directly adjoining West Virginia Harrison County 54033030802 Directly adjoining West Virginia Harrison County 54033031000 Directly adjoining West Virginia Harrison County 54033031100 Mine closure, Directly adjoining West Virginia Harrison County 54033031200 Mine closure, Directly adjoining West Virginia Harrison County 54033031300 Mine closure, Directly adjoining West Virginia Harrison County 54033031400 Mine closure, Directly adjoining West Virginia Harrison County 54033031500 Mine closure, Directly adjoining West Virginia Harrison County 54033031600 Mine closure, Directly adjoining West Virginia Harrison County 54033031700 Mine closure, Directly adjoining West Virginia Harrison County 54033031800 Mine closure, Directly adjoining West Virginia Harrison County 54033031900 Directly adjoining West Virginia Harrison County 54033032000 Mine closure, Directly adjoining West Virginia Harrison County 54033032103 Directly adjoining West Virginia Harrison County 54033032104 Directly adjoining West Virginia Jackson County 54035963200 Directly adjoining West Virginia Jackson County 54035963300 Directly adjoining West Virginia Jackson County 54035963400 Directly adjoining West Virginia Kanawha County 54039001100 Directly adjoining West Virginia Kanawha County 54039001700 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code West Virginia Kanawha County 54039001800 Directly adjoining West Virginia Kanawha County 54039010100 Directly adjoining West Virginia Kanawha County 54039010200 Directly adjoining West Virginia Kanawha County 54039010300 Directly adjoining West Virginia Kanawha County 54039010400 Generating unit retirement West Virginia Kanawha County 54039010500 Directly adjoining West Virginia Kanawha County 54039010602 Directly adjoining West Virginia Kanawha County 54039011000 Directly adjoining West Virginia Kanawha County 54039011200 Directly adjoining West Virginia Kanawha County 54039011301 Mine closure, Directly adjoining West Virginia Kanawha County 54039011302 Directly adjoining West Virginia Kanawha County 54039011401 Directly adjoining West Virginia Kanawha County 54039011402 Mine closure, Directly adjoining West Virginia Kanawha County 54039011500 Directly adjoining West Virginia Kanawha County 54039011800 Mine closure, Generating unit retirement, Directly adjoining West Virginia Kanawha County 54039012100 Mine closure, Directly adjoining West Virginia Kanawha County 54039012200 Mine closure, Directly adjoining West Virginia Kanawha County 54039012301 Directly adjoining West Virginia Kanawha County 54039012302 Mine closure, Directly adjoining West Virginia Kanawha County 54039013200 Directly adjoining West Virginia Kanawha County 54039013400 Directly adjoining West Virginia Kanawha County 54039013500 Directly adjoining West Virginia Kanawha County 54039013701 Directly adjoining West Virginia Lewis County 54041967200 Directly adjoining West Virginia Lewis County 54041967300 Mine closure, Directly adjoining West Virginia Lewis County 54041967400 Directly adjoining West Virginia Lewis County 54041967500 Directly adjoining West Virginia Lewis County 54041967600 Mine closure, Directly adjoining West Virginia Lincoln County 54043955401 Mine closure, Directly adjoining West Virginia Lincoln County 54043955402 Directly adjoining West Virginia Lincoln County 54043955500 Directly adjoining West Virginia Lincoln County 54043955600 Directly adjoining West Virginia Lincoln County 54043955700 Directly adjoining West Virginia Lincoln County 54043955800 Mine closure, Directly adjoining West Virginia Logan County 54045956102 Directly adjoining West Virginia Logan County 54045956103 Directly adjoining West Virginia Logan County 54045956104 Directly adjoining West Virginia Logan County 54045956200 Mine closure, Directly adjoining West Virginia Logan County 54045956400 Mine closure, Directly adjoining West Virginia Logan County 54045956500 Mine closure, Directly adjoining West Virginia Logan County 54045956600 Mine closure, Directly adjoining West Virginia Logan County 54045956700 Mine closure, Directly adjoining West Virginia Logan County 54045956800 Mine closure, Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code West Virginia Logan County 54045956900 Directly adjoining West Virginia McDowell County 54047953600 Mine closure, Directly adjoining West Virginia McDowell County 54047953800 Mine closure, Directly adjoining West Virginia McDowell County 54047953900 Mine closure, Directly adjoining West Virginia McDowell County 54047954000 Mine closure, Directly adjoining West Virginia McDowell County 54047954200 Mine closure, Directly adjoining West Virginia McDowell County 54047954501 Mine closure, Directly adjoining West Virginia McDowell County 54047954503 Mine closure, Directly adjoining West Virginia McDowell County 54047954504 Mine closure, Directly adjoining West Virginia Marion County 54049020100 Mine closure West Virginia Marion County 54049020200 Directly adjoining West Virginia Marion County 54049020300 Directly adjoining West Virginia Marion County 54049020400 Mine closure, Directly adjoining West Virginia Marion County 54049020500 Directly adjoining West Virginia Marion County 54049020600 Directly adjoining West Virginia Marion County 54049020700 Directly adjoining West Virginia Marion County 54049020800 Directly adjoining West Virginia Marion County 54049020900 Directly adjoining West Virginia Marion County 54049021001 Directly adjoining West Virginia Marion County 54049021002 Mine closure West Virginia Marion County 54049021201 Directly adjoining West Virginia Marion County 54049021202 Directly adjoining West Virginia Marion County 54049021300 Mine closure, Directly adjoining West Virginia Marion County 54049021400 Directly adjoining West Virginia Marion County 54049021500 Mine closure, Generating unit retirement, Directly adjoining West Virginia Marion County 54049021601 Directly adjoining West Virginia Marion County 54049021602 Mine closure, Directly adjoining West Virginia Marion County 54049021700 Directly adjoining West Virginia Marion County 54049021800 Mine closure, Directly adjoining West Virginia Marshall County 54051020200 Directly adjoining West Virginia Marshall County 54051020702 Directly adjoining West Virginia Marshall County 54051020800 Directly adjoining West Virginia Marshall County 54051020900 Generating unit retirement, Directly adjoining West Virginia Marshall County 54051021001 Directly adjoining West Virginia Marshall County 54051021002 Directly adjoining West Virginia Mason County 54053954801 Directly adjoining West Virginia Mason County 54053954802 Mine closure, Generating unit retirement, Directly adjoining West Virginia Mason County 54053954901 Directly adjoining West Virginia Mason County 54053954902 Directly adjoining West Virginia Mercer County 54055000900 Directly adjoining West Virginia Mercer County 54055001000 Directly adjoining West Virginia Mercer County 54055001100 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code West Virginia Mercer County 54055001500 Directly adjoining West Virginia Mercer County 54055001600 Mine closure, Directly adjoining West Virginia Mercer County 54055001700 Directly adjoining West Virginia Mercer County 54055001800 Directly adjoining West Virginia Mercer County 54055002400 Directly adjoining West Virginia Mineral County 54057010400 Directly adjoining West Virginia Mineral County 54057010500 Directly adjoining West Virginia Mineral County 54057010600 Directly adjoining West Virginia Mineral County 54057010700 Mine closure, Directly adjoining West Virginia Mingo County 54059957100 Mine closure, Directly adjoining West Virginia Mingo County 54059957200 Mine closure, Directly adjoining West Virginia Mingo County 54059957300 Mine closure, Directly adjoining West Virginia Mingo County 54059957400 Mine closure, Directly adjoining West Virginia Mingo County 54059957500 Mine closure, Directly adjoining West Virginia Mingo County 54059957600 Mine closure, Directly adjoining West Virginia Mingo County 54059957700 Mine closure, Directly adjoining West Virginia Monongalia County 54061010101 Directly adjoining West Virginia Monongalia County 54061010103 Directly adjoining West Virginia Monongalia County 54061010104 Generating unit retirement West Virginia Monongalia County 54061010202 Directly adjoining West Virginia Monongalia County 54061010203 Directly adjoining West Virginia Monongalia County 54061010204 Directly adjoining West Virginia Monongalia County 54061010400 Directly adjoining West Virginia Monongalia County 54061010601 Directly adjoining West Virginia Monongalia County 54061010602 Directly adjoining West Virginia Monongalia County 54061010700 Directly adjoining West Virginia Monongalia County 54061010901 Directly adjoining West Virginia Monongalia County 54061011000 Directly adjoining West Virginia Monongalia County 54061011100 Directly adjoining West Virginia Monongalia County 54061011200 Mine closure, Directly adjoining West Virginia Monongalia County 54061011300 Mine closure, Directly adjoining West Virginia Monongalia County 54061011400 Mine closure, Directly adjoining West Virginia Monongalia County 54061011500 Mine closure, Directly adjoining West Virginia Monongalia County 54061011601 Directly adjoining West Virginia Monongalia County 54061011602 Directly adjoining West Virginia Monongalia County 54061011700 Directly adjoining West Virginia Monongalia County 54061011803 Directly adjoining West Virginia Monongalia County 54061011804 Directly adjoining West Virginia Monongalia County 54061011805 Directly adjoining West Virginia Monongalia County 54061011806 Directly adjoining West Virginia Monongalia County 54061011900 Mine closure, Directly adjoining West Virginia Monongalia County 54061012000 Mine closure West Virginia Monroe County 54063950300 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code West Virginia Nicholas County 54067950100 Mine closure, Directly adjoining West Virginia Nicholas County 54067950201 Mine closure, Directly adjoining West Virginia Nicholas County 54067950202 Mine closure, Directly adjoining West Virginia Nicholas County 54067950300 Mine closure, Directly adjoining West Virginia Nicholas County 54067950400 Mine closure, Directly adjoining West Virginia Nicholas County 54067950500 Directly adjoining West Virginia Nicholas County 54067950600 Mine closure, Directly adjoining West Virginia Nicholas County 54067950700 Mine closure, Directly adjoining West Virginia Ohio County 54069000200 Directly adjoining West Virginia Ohio County 54069000300 Directly adjoining West Virginia Ohio County 54069000400 Directly adjoining West Virginia Ohio County 54069000500 Directly adjoining West Virginia Ohio County 54069000600 Directly adjoining West Virginia Ohio County 54069000700 Directly adjoining West Virginia Ohio County 54069001400 Directly adjoining West Virginia Ohio County 54069001500 Directly adjoining West Virginia Ohio County 54069001600 Directly adjoining West Virginia Ohio County 54069001700 Directly adjoining West Virginia Ohio County 54069001800 Directly adjoining West Virginia Ohio County 54069002000 Mine closure, Directly adjoining West Virginia Ohio County 54069002100 Directly adjoining West Virginia Ohio County 54069002600 Directly adjoining West Virginia Ohio County 54069002700 Mine closure West Virginia Pendleton County 54071970400 Directly adjoining West Virginia Pleasants County 54073962100 Directly adjoining West Virginia Pleasants County 54073962200 Generating unit retirement West Virginia Pocahontas County 54075960102 Directly adjoining West Virginia Pocahontas County 54075960201 Directly adjoining West Virginia Pocahontas County 54075960300 Directly adjoining West Virginia Preston County 54077963801 Directly adjoining West Virginia Preston County 54077963802 Mine closure, Directly adjoining West Virginia Preston County 54077963900 Mine closure, Directly adjoining West Virginia Preston County 54077964000 Mine closure, Generating unit retirement, Directly adjoining West Virginia Preston County 54077964101 Mine closure, Directly adjoining West Virginia Preston County 54077964102 Directly adjoining West Virginia Preston County 54077964103 Mine closure, Directly adjoining West Virginia Preston County 54077964200 Mine closure, Directly adjoining West Virginia Preston County 54077964300 Mine closure, Directly adjoining West Virginia Preston County 54077964400 Mine closure, Directly adjoining West Virginia Preston County 54077964500 Mine closure, Directly adjoining West Virginia Putnam County 54079020700 Directly adjoining West Virginia Raleigh County 54081000300 Directly adjoining West Virginia Raleigh County 54081000500 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code West Virginia Raleigh County 54081000600 Directly adjoining West Virginia Raleigh County 54081000700 Directly adjoining West Virginia Raleigh County 54081000802 Directly adjoining West Virginia Raleigh County 54081000804 Directly adjoining West Virginia Raleigh County 54081000900 Mine closure, Directly adjoining West Virginia Raleigh County 54081001001 Directly adjoining West Virginia Raleigh County 54081001002 Mine closure, Directly adjoining West Virginia Raleigh County 54081001100 Mine closure, Directly adjoining West Virginia Raleigh County 54081001200 Mine closure, Directly adjoining West Virginia Raleigh County 54081001300 Mine closure, Directly adjoining West Virginia Raleigh County 54081001400 Directly adjoining West Virginia Raleigh County 54081001500 Directly adjoining West Virginia Randolph County 54083965900 Mine closure, Directly adjoining West Virginia Randolph County 54083966000 Directly adjoining West Virginia Randolph County 54083966200 Directly adjoining West Virginia Randolph County 54083966300 Mine closure, Directly adjoining West Virginia Randolph County 54083966400 Directly adjoining West Virginia Randolph County 54083966500 Mine closure, Directly adjoining West Virginia Ritchie County 54085962300 Directly adjoining West Virginia Ritchie County 54085962400 Directly adjoining West Virginia Ritchie County 54085962500 Directly adjoining West Virginia Summers County 54089000500 Directly adjoining West Virginia Summers County 54089000600 Directly adjoining West Virginia Summers County 54089000800 Directly adjoining West Virginia Taylor County 54091964600 Directly adjoining West Virginia Taylor County 54091964700 Directly adjoining West Virginia Taylor County 54091964800 Mine closure, Directly adjoining West Virginia Taylor County 54091964900 Mine closure, Directly adjoining West Virginia Tucker County 54093965200 Directly adjoining West Virginia Tucker County 54093965300 Mine closure, Directly adjoining West Virginia Tucker County 54093965400 Directly adjoining West Virginia Upshur County 54097966600 Mine closure, Directly adjoining West Virginia Upshur County 54097966700 Directly adjoining West Virginia Upshur County 54097966800 Directly adjoining West Virginia Upshur County 54097966900 Mine closure, Directly adjoining West Virginia Upshur County 54097967000 Mine closure, Directly adjoining West Virginia Upshur County 54097967100 Mine closure, Directly adjoining West Virginia Wayne County 54099020500 Directly adjoining West Virginia Wayne County 54099020600 Directly adjoining West Virginia Wayne County 54099020700 Directly adjoining West Virginia Wayne County 54099020800 Directly adjoining West Virginia Wayne County 54099020900 Mine closure, Directly adjoining West Virginia Wayne County 54099021000 Mine closure, Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code West Virginia Webster County 54101970101 Mine closure, Directly adjoining West Virginia Webster County 54101970102 Directly adjoining West Virginia Webster County 54101970200 Mine closure, Directly adjoining West Virginia Webster County 54101970300 Directly adjoining West Virginia Wetzel County 54103004900 Directly adjoining West Virginia Wetzel County 54103030400 Directly adjoining West Virginia Wetzel County 54103030500 Directly adjoining West Virginia Wetzel County 54103030700 Directly adjoining West Virginia Wood County 54107010101 Directly adjoining West Virginia Wood County 54107010200 Directly adjoining West Virginia Wood County 54107010400 Directly adjoining West Virginia Wood County 54107010601 Directly adjoining West Virginia Wood County 54107010602 Directly adjoining West Virginia Wyoming County 54109002800 Mine closure, Directly adjoining West Virginia Wyoming County 54109002901 Mine closure, Directly adjoining West Virginia Wyoming County 54109002902 Mine closure, Directly adjoining West Virginia Wyoming County 54109003000 Mine closure, Directly adjoining West Virginia Wyoming County 54109003100 Mine closure, Directly adjoining West Virginia Wyoming County 54109003200 Mine closure, Directly adjoining Wisconsin Brown County 55009000100 Generating unit retirement, Directly adjoining Wisconsin Brown County 55009000200 Directly adjoining Wisconsin Brown County 55009000500 Directly adjoining Wisconsin Brown County 55009000700 Directly adjoining Wisconsin Brown County 55009000800 Generating unit retirement, Directly adjoining Wisconsin Brown County 55009000900 Directly adjoining Wisconsin Brown County 55009001000 Directly adjoining Wisconsin Brown County 55009001802 Directly adjoining Wisconsin Brown County 55009020502 Directly adjoining Wisconsin Brown County 55009020800 Directly adjoining Wisconsin Brown County 55009020900 Directly adjoining Wisconsin Brown County 55009021303 Directly adjoining Wisconsin Buffalo County 55011960100 Directly adjoining Wisconsin Buffalo County 55011960300 Generating unit retirement Wisconsin Buffalo County 55011960400 Directly adjoining Wisconsin Calumet County 55015020308 Directly adjoining Wisconsin Crawford County 55023960200 Directly adjoining Wisconsin Dane County 55025001706 Directly adjoining Wisconsin Dane County 55025001707 Directly adjoining Wisconsin Dane County 55025001802 Directly adjoining Wisconsin Dane County 55025001804 Directly adjoining Wisconsin Dane County 55025001901 Generating unit retirement Wisconsin Dane County 55025001902 Directly adjoining Wisconsin Dane County 55025002100 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Wisconsin Dane County 55025991703 Directly adjoining Wisconsin Grant County 55043960300 Directly adjoining Wisconsin Grant County 55043960400 Directly adjoining Wisconsin Grant County 55043960500 Generating unit retirement Wisconsin Grant County 55043960600 Directly adjoining Wisconsin Grant County 55043960700 Directly adjoining Wisconsin Grant County 55043960800 Directly adjoining Wisconsin Grant County 55043961100 Directly adjoining Wisconsin Grant County 55043961200 Directly adjoining Wisconsin Kenosha County 55059001402 Directly adjoining Wisconsin Kenosha County 55059002500 Directly adjoining Wisconsin Kenosha County 55059002603 Directly adjoining Wisconsin Kenosha County 55059002604 Directly adjoining Wisconsin Kenosha County 55059002605 Generating unit retirement Wisconsin Kenosha County 55059002606 Directly adjoining Wisconsin Kenosha County 55059002700 Directly adjoining Wisconsin La Crosse County 55063010700 Directly adjoining Wisconsin Marathon County 55073001000 Directly adjoining Wisconsin Marathon County 55073001103 Directly adjoining Wisconsin Marathon County 55073001104 Directly adjoining Wisconsin Marathon County 55073001105 Directly adjoining Wisconsin Marathon County 55073001106 Generating unit retirement Wisconsin Marathon County 55073001203 Directly adjoining Wisconsin Marathon County 55073001204 Directly adjoining Wisconsin Marathon County 55073001300 Directly adjoining Wisconsin Marathon County 55073001600 Directly adjoining Wisconsin Marathon County 55073001700 Directly adjoining Wisconsin Marinette County 55075961300 Directly adjoining Wisconsin Marinette County 55075961400 Directly adjoining Wisconsin Marinette County 55075961500 Directly adjoining Wisconsin Milwaukee County 55079012800 Directly adjoining Wisconsin Milwaukee County 55079090300 Directly adjoining Wisconsin Milwaukee County 55079090600 Directly adjoining Wisconsin Milwaukee County 55079090700 Directly adjoining Wisconsin Milwaukee County 55079091200 Directly adjoining Wisconsin Milwaukee County 55079091300 Directly adjoining Wisconsin Milwaukee County 55079185300 Generating unit retirement Wisconsin Pepin County 55091950100 Directly adjoining Wisconsin Pepin County 55091950200 Directly adjoining Wisconsin Portage County 55097960200 Directly adjoining Wisconsin Portage County 55097960701 Directly adjoining Wisconsin Portage County 55097960702 Directly adjoining Wisconsin Portage County 55097960800 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Wisconsin Portage County 55097960900 Directly adjoining Wisconsin Portage County 55097961000 Directly adjoining Wisconsin Portage County 55097961101 Directly adjoining Wisconsin Portage County 55097961102 Generating unit retirement Wisconsin Sheboygan County 55117000800 Directly adjoining Wisconsin Sheboygan County 55117001000 Directly adjoining Wisconsin Sheboygan County 55117001100 Generating unit retirement Wisconsin Sheboygan County 55117010800 Directly adjoining Wisconsin Sheboygan County 55117990000 Directly adjoining Wisconsin Vernon County 55123960500 Directly adjoining Wisconsin Vernon County 55123960600 Directly adjoining Wisconsin Vernon County 55123960700 Generating unit retirement, Directly adjoining Wisconsin Waukesha County 55133200901 Directly adjoining Wisconsin Waukesha County 55133201002 Directly adjoining Wisconsin Winnebago County 55139002401 Directly adjoining Wisconsin Winnebago County 55139002800 Directly adjoining Wisconsin Winnebago County 55139002900 Directly adjoining Wisconsin Winnebago County 55139003000 Generating unit retirement Wisconsin Winnebago County 55139003100 Directly adjoining Wisconsin Winnebago County 55139003400 Directly adjoining Wyoming Albany County 56001963900 Directly adjoining Wyoming Big Horn County 56003962600 Directly adjoining Wyoming Big Horn County 56003962700 Directly adjoining Wyoming Big Horn County 56003962800 Directly adjoining Wyoming Campbell County 56005000101 Mine closure, Directly adjoining Wyoming Campbell County 56005000102 Directly adjoining Wyoming Campbell County 56005000103 Directly adjoining Wyoming Campbell County 56005000200 Directly adjoining Wyoming Campbell County 56005000300 Generating unit retirement, Directly adjoining Wyoming Campbell County 56005000400 Directly adjoining Wyoming Campbell County 56005000500 Directly adjoining Wyoming Campbell County 56005000600 Directly adjoining Wyoming Campbell County 56005000701 Directly adjoining Wyoming Campbell County 56005000702 Mine closure, Directly adjoining Wyoming Carbon County 56007967600 Directly adjoining Wyoming Carbon County 56007968000 Directly adjoining Wyoming Carbon County 56007968100 Mine closure, Directly adjoining Wyoming Converse County 56009956400 Directly adjoining Wyoming Converse County 56009956500 Directly adjoining Wyoming Converse County 56009956600 Mine closure, Directly adjoining Wyoming Converse County 56009956700 Directly adjoining Wyoming Crook County 56011950200 Directly adjoining Wyoming Crook County 56011950300 Directly adjoining State Name County or County-Equivalent 2020 Census Tract Tract Type Entity Name Number FIPS code Wyoming Fremont County 56013000302 Directly adjoining Wyoming Fremont County 56013000400 Directly adjoining Wyoming Fremont County 56013940100 Directly adjoining Wyoming Fremont County 56013940201 Directly adjoining Wyoming Hot Springs County 56017967800 Directly adjoining Wyoming Hot Springs County 56017967900 Mine closure Wyoming Johnson County 56019955100 Directly adjoining Wyoming Natrona County 56025001401 Directly adjoining Wyoming Natrona County 56025001801 Directly adjoining Wyoming Natrona County 56025001802 Directly adjoining Wyoming Niobrara County 56027957200 Directly adjoining Wyoming Park County 56029965302 Directly adjoining Wyoming Platte County 56031959100 Directly adjoining Wyoming Sheridan County 56033000100 Directly adjoining Wyoming Sheridan County 56033000200 Directly adjoining Wyoming Sheridan County 56033000300 Directly adjoining Wyoming Sheridan County 56033000400 Directly adjoining Wyoming Sheridan County 56033000501 Directly adjoining Wyoming Sheridan County 56033000502 Directly adjoining Wyoming Sheridan County 56033000600 Mine closure Wyoming Sweetwater County 56037970800 Mine closure Wyoming Sweetwater County 56037970902 Directly adjoining Wyoming Sweetwater County 56037970903 Directly adjoining Wyoming Sweetwater County 56037970904 Directly adjoining Wyoming Sweetwater County 56037971000 Directly adjoining Wyoming Sweetwater County 56037971100 Directly adjoining Wyoming Sweetwater County 56037971200 Directly adjoining Wyoming Sweetwater County 56037971600 Directly adjoining Wyoming Washakie County 56043000200 Directly adjoining Wyoming Weston County 56045951100 Generating unit retirement, Directly adjoining Wyoming Weston County 56045951300 Directly adjoining

Internal Revenue Service - Information Release IR-2021-49 Tax Time Guide: Didn't get Economic Impact Payments? Check eligibility for Recovery Rebate Credit March 2, 2021 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 Tax Time Guide: Didn't get Economic Impact Payments? Check eligibility for Recovery Rebate Credit IR-2021-49, March 2, 2021 WASHINGTON - The Internal Revenue Service reminds first-time filers and those who usually don't have a federal filing requirement to consider filing a 2020 tax return. They may be eligible to claim the Recovery Rebate Credit, a new refundable credit, authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the COVID-related Tax Relief Act. Most individuals eligible for the Recovery Rebate Credit have already received the full amount in two rounds of payments, known as Economic Impact Payments. All legally permitted first and second Economic Impact Payments have been issued. Individuals who were eligible but did not receive the first or second Economic Impact Payment or received less than the full amounts may be eligible to claim the Recovery Rebate Credit and must file a 2020 federal tax return, even if they do not usually file a tax return. The IRS offers free options to prepare and file a return. Taxpayers who received the full amounts of both Economic Impact Payments won't claim the Recovery Rebate Credit or include any information about the payments on their 2020 tax return because the IRS already issued their Recovery Rebate Credit in advance as Economic Impact Payments. Didn't get an Economic Impact Payment or got less than the full amount? People who didn't get an Economic Impact Payment or got less than the full amounts may be eligible to claim the Recovery Rebate Credit and must file a 2020 tax return, even if they don't usually file. The first Economic Impact Payment was based on an individual's 2019 tax year information or 2018 if the 2019 tax return information was not available. The second Economic Impact Payment was based on an individual's 2019 tax year information. The Recovery Rebate Credit is similar except that the eligibility and the amount are based on 2020 information on the tax return. The Recovery Rebate Credit is reduced by any Economic Impact Payments issued. People who were not eligible for either or both of the Economic Impact Payments may still be eligible for the Recovery Rebate Credit since it's based on their 2020 tax return information. Those with lower income in 2020 or who were claimed as a dependent on someone else's tax return in 2018 or 2019, but who cannot be claimed as a dependent on someone else's return in 2020, may now be eligible for the Recovery Rebate Credit. People eligible to claim the Recovery Rebate Credit based on their 2020 tax information must file a 2020 federal tax return. For more information about the Recovery Rebate Credit, see Frequently Asked Questions at IRS.gov. Filing a 2020 tax return To avoid refund delays, file a complete and accurate tax return. The best way to file a complete and accurate 2020 tax return is to file electronically. The tax software will ask questions about income, credits and deductions and help taxpayers figure their Recovery Rebate Credit. The Form 1040 and Form 1040-SR instructions includes a worksheet that can also help. Individuals will need to know the amount of their Economic Impact Payments to claim the Recovery Rebate Credit. Those who don't have their Economic Impact Payment notices can view the amounts of their first and second Economic Impact Payments through their individual online account. For married filing joint individuals, each spouse will need to log into his or her own account. The Recovery Rebate Credit will be included in any tax refund. It will not be issued separately. For those due a refund (which would include the Recovery Rebate Credit), combining electronic filing with direct deposit is the safest and fastest way to get their refund. IRS Free File Taxpayers with incomes of $72,000 or less, an use brand-name software to prepare and file their federal tax returns electronically for free with IRS Free File. IRS Free File is a great option for people who are only filing a tax return to claim the Recovery Rebate Credit. Free File Fillable Forms is the only IRS Free File option available for most taxpayers whose adjusted gross income is greater than $72,000. Taxpayers who have no taxable income but are filing a return to receive the Recovery Rebate Credit should look for several of the Free File products that have no minimum income for eligibility. Simply go to IRS.gov/Free File, select "Choose an IRS Free File Offer" and then select "Browse All Offers" to find a Free File product with no minimum income as part of its offer. Free online tax help for military service members, families and some veterans MilTax, Military OneSource's tax service, provides online software for eligible individuals to electronically file a federal return and up to three state returns for free. Free tax preparation in local communities First-time filers and those who usually don't have a filing requirement may also qualify for free assistance from IRS Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs in their community. These programs offer free basic tax return preparation to qualified individuals. The VITA program has operated for over 50 years, offering free tax help to: - People who generally make $57,000 or less - Persons with disabilities; and - Limited English-speaking taxpayers who need assistance in preparing their tax return. In addition to VITA, the TCE program offers free tax help, particularly for those who are 60 years of age and older, specializing in questions about pensions and retirement-related issues unique to seniors. This year, some VITA/TCE sites are not operating at full capacity and others are not opening. Check the VITA/TCE locator tool to search for nearby available sites. Help at IRS.gov IRS.gov has online resources to answer tax questions immediately. The Interactive Tax Assistant is a tool that provides answers to several tax-law questions specific to a taxpayer's individual circumstances. Visit IRS.gov/filing for details about IRS Free File, Free File Fillable Forms, free VITA or TCE tax preparation sites in the local community or finding a trusted tax professional.

Private Letter Ruling Number: 202336027 Internal Revenue Service June 13, 2023 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Number: 202336027 Release Date: 9/8/2023 Date: June 13, 2023 Taxpayer ID number (last 4 digits): Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: Last day to file petition with United States Tax Court: UIL: 501.03-00 CERTIFIED MAIL - Return Receipt Requested Dear ******: Why we are sending you this letter This is a final determination that you don't qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3), effective ******. Your determination letter dated ******, is revoked. Our adverse determination as to your exempt status was made for the following reasons: You did not respond to our requests for information regarding your purpose and activities. Organizations described in IRC section 501(c)(3) of the Code and exempt under Section 501(a) must be both organized and operated exclusively for exempt purposes. Further, no part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. You have not demonstrated that you are operated exclusively for charitable, educational, or other exempt purposes within the meaning of IRC Section 501(c)(3). Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns and pay tax, where applicable. For further instructions, forms and information please visit IRS.gov. Contributions to your organization are no longer deductible under IRC Section 170. What you must do if you disagree with this determination If you want to contest our final determination, you have 90 days from the date this determination letter was mailed to you to file a petition or complaint in one of the three federal courts listed below. How to file your action for declaratory judgment If you decide to contest this determination, you can file an action for declaratory judgment under the provisions of Section 7428 of the Code in either: - The United States Tax Court, - The United States Court of Federal Claims, or - The United States District Court for the District of Columbia You must file a petition or complaint in one of these three courts within 90 days from the date we mailed this determination letter to you. You can download a fillable petition or complaint form and get information about filing at each respective courts website listed below or by contacting the Office of the Clerk of the Court at one of the addresses below. Be sure to include a copy of this letter and any attachments and the applicable filing fee with the petition or complaint. You can eFile your completed U.S. Tax Court petition by following the instructions and user guides available on the Tax Court website at ustaxcourt.gov/dawson.html. You will need to register for a DAWSON account to do so. You may also file your petition at the address below: United States Tax Court 400 Second Street, NW Washington, DC 20217 ustaxcourt.gov The websites of the U.S. Court of Federal Claims and the U.S. District Court for the District of Columbia contain instructions about how to file your completed complaint electronically. You may also file your complaint at one of the addresses below: US Court of Federal Claims 717 Madison Place, NW Washington, DC 20439 uscfc.uscourts.gov US District Court for the District of Columbia 333 Constitution Avenue, NW Washington, DC 20001 dcd.uscourts.gov Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory judgment under IRC Section 7428. We'll notify the appropriate state officials (as permitted by law) of our determination that you aren't an organization described in IRC Section 501(c)(3). Information about the IRS Taxpayer Advocate Service The IRS office whose phone number appears at the top of the notice can best address and access your tax information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Contact your local Taxpayer Advocate Office at: Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights, go to taxpayeradvocate.IRS.gov. Do not send your federal court pleading to the TAS address listed above. Use the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time to file an action for declaratory judgment. Where you can find more information Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for more comprehensive information. Find tax forms or publications by visiting IRS.gov/forms or calling 800-TAX-FORM (800-829-3676). If you have questions, you can call the person shown at the top of this letter. If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best time to call, and a copy of this letter. You may fax your documents to the fax number shown above, using either a fax machine or online fax service. Protect yourself when sending digital data by understanding the fax service's privacy and security policies. Keep the original letter for your records. Sincerely, Lynn A. Brinkley Director, Exempt Organizations Examinations Enclosures: Publication 1 Publication 594 Publication 892 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Date: 09/20/2022 Taxpayer ID number: Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: Address: Manager's contact information: Name: ID number: Telephone: Response due date: CERTIFIED MAIL -- Return Receipt Requested Dear ******: Why you're receiving this letter We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to revoke your tax-exempt status as an organization described in Internal Revenue Code (IRC) Section 501(c)(3). If you agree If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. Well issue a final adverse letter determining that you aren't an organization described in IRC Section 501(c)(3) for the periods above. After we issue the final adverse determination letter, we'll announce that your organization is no longer eligible to receive tax deductible contributions under IRC Section 170. If you disagree 1. Request a meeting or telephone conference with the manager shown at the top of this letter. 2. Send any information you want us to consider. 3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information. The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For your protest to be valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't apply now that we've issued this letter. 4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the IRS. If you're considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals. If we don't hear from you If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final adverse determination letter. Contacting the Taxpayer Advocate Office is a taxpayer right The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778. Additional information You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person shown at the top of this letter. Sincerely, Christopher M. Holmes ****** for Lynn A. Brinkley Acting Director, Exempt Organizations Examinations Enclosures: Form 4621-A Form 886-A Form 6018 Publication 892 Publication 3498 ISSUES: Whether ****** exemption under section 501(c)(3) of the Internal Revenue Code ("IRC") should be revoked due to: 1. Its failure to operate for an exempt purpose; and 2. Its net earnings inured to the benefit of a disqualified person. FACTS: Background ****** ("the ******") was incorporated in the state of ****** by ****** on ******. The one-page article of incorporation states: - the ****** name is ******, a ****** Non Profit Religious Corporation, - its specific purpose is "to provide religious education programs and to continue development of religious educations", - it is organized and operated exclusively for charitable purpose within the meaning of IRC section 501(c)(3), and - upon dissolution, its assets remaining shall be distributed to an organization exempt under section 501(c)(3). On ******, ******, as ******, filed a Form 1023, Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code, for the ******. A letter from ****** was included with the Form 1023, stating that he was a founding board member and willing to make a gift to the ****** of at least $ ****** if the ****** received their tax-exempt status in the coming year. The Form 1023 listed the following board members: The ****** received their exemption under IRC section 170(b)(1)(A)(ii) on ******; the effective date of exemption was retroactive to ******. Additionally, the ****** was able to receive tax-deductible contributions under IRC section 170. On ******, the ****** filed a certificate of amendment with the state of ****** that changed their name to ******. Beginning with the ****** fiscal year, ending ******, the ****** began submitting ******. The filed ****** listed the ****** name as ****** and stated the following information: Examination An information document request was sent to the ****** by the initial examining revenue agent on ******. No response was received from the University and a delinquency notice was sent on ******. Additionally, the University was notified of the Service's intent to make third party contacts in a letter sent on ******. The subsequent examining revenue agent ("agent") attempted to locate the ****** officers, for the present and prior exam years, and was able to locate ******, the primary officer listed on the ******. A third-party summons for ****** testimony and available records was hand delivered to his last known personal residence on ******. Interview On ******, an individual answering to the name of ****** presented himself to the agent at the Service office located in ******. Upon examining his identification, the agent determined that this was not ****** but an acquaintance. The interview was rescheduled to the following day. ****** presented himself on ******, for an interview and to provide available documents. Key points taken from the interview were: - changes to the ****** accreditation authority caused a rush in the creation of post-secondary schools, - ****** stated he had incorporated the ****** and multiple other organizations with the state of ****** at the behest of individuals that he declined to name, - he was asked to help due to his familiarity with the school accreditation process, - he was involved in the filing of the ******, - the ****** address was owned by an associate of ******, who allowed him to use various suite numbers for mailing purposes based on vacancy, - the ****** address was a mailbox set up by ****** to handle the dissolution of the ******, - he could not recall a ****** or ******, and - the ****** had never been active as a school. ****** stated that he was a consultant and not involved in the day-to-day operations for the ******. When asked to list any of the other board members or provide the name of the individual who enlisted his services, ****** stated he did not remember or declined to answer. The agent asked if ****** was to be compensated for his consultant services and he stated he was a volunteer and not compensated. Banking Activity At the interview, ****** provided the ****** monthly bank statements for the exam period and stated that only he had access to the University's checking account and debit card. The monthly statements for the ****** checking account ending in ****** showed the following transactions. The agent asked ****** to provide additional information on the source of the cash deposits, the nature of the expenditures, names of individuals present at the restaurants, and how the ending balance at the fiscal year end of ******, was spent by the ****** stated that the deposits were donations, most from individuals residing in the ******; the expenditures were meals and gifts, and he speculated that the remaining funds were used to dissolve the ******. No additional documentation was received by the agent to support ****** statements. LAW: IRC section 501(c)(3) exempts from Federal income tax corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or education purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of the any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which 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. IRC section 4958(c) defines the term "excess benefit transaction" as any transaction in which an economic benefit is provided by an applicable tax-exempt organization directly or indirectly to or for the use of any disqualified person if the value of the economic benefit provided exceeds the value of the consideration (including the performance of services) received for providing such benefit. For purposes of the preceding sentence, an economic benefit shall not be treated as consideration for performance of services unless such organization clearly indicated its intent to so treat such benefit. IRC section 4958(e) defines "applicable tax-exempt organization" as an organization described in either section 501(c)(3) or section 501(c)(4) of the Internal Revenue Code or an organization which was so described at any time during the five-year period ending on the date of the excess benefit transaction. IRC section 4958(f)(1) defines a "disqualified person" as (A) any person who was, at any time during the five-year period ending on the date of such transaction, in a position to exercise substantial influence over the affairs of the organization, (B) a member of the family of a disqualified person, and (C) a 35% controlled entity. Section 1.501(c)(3)-1(a)(1) of the Federal Tax Regulations (the "Regulations") provides that in order to be exempt as an organization described in section 501(c)(3), an organization must be both organized and operated exclusively for one or more of the purposes specified in such section. If an organization fails to meet either the organizational test or the operational test, it is not exempt. Section 1.501(c)(3)-1(c)(1) of the Regulations states an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose. Section 1.501(c)(3)-1(c)(2) of the Regulations provides that an organization is not operated exclusively for one or more exempt purposes if its net earnings inure in whole or in part to the benefit of private shareholders or individuals. Section 1.501(c)(3)-1(d)(3)(i) of the Regulations defines the word "educational", as used in IRC section 501(c)(3), as - (a) The instruction or training of the individual for the purpose of improving or developing his capabilities; or (b) The instruction of the public on subjects useful to the individual and beneficial to the community. Section 1.501(c)(3)-1(f)(2)(ii) of the Regulations states that in determining whether to continue to recognize the tax-exempt status of an applicable tax-exempt organization (as defined in section 4958(e) and section 53.4958-2) described in section 501(c)(3) that engages in one or more excess benefit transactions (as defined in section 4958(c) and section 53.4958-4) that violate the prohibition on inurement under section 501(c)(3), the Commissioner will consider all relevant facts and circumstances, including, but not limited to, the following - A. The size and scope of the organization's regular and ongoing activities that further exempt purposes before and after the excess benefit transaction or transactions occurred; B. The size and scope of the excess benefit transaction or transactions (collectively, if more than one) in relation to the size and scope of the organization's C. Whether the organization has been involved in multiple excess benefit transactions with one or more persons; D. Whether the organization has implemented safeguard that are reasonably calculated to prevent excess benefit transactions; and E. Whether the excess benefit transaction has been corrected (within the meaning of section 4958(f)(6) and section 53.4958-7), or the organization has made good faith efforts to seek correction from the disqualified person(s) who benefited from the excess benefit transaction. TAXPAYER'S POSITION: The ****** position is unknown at this time; however, the ****** had dissolved with the state of ****** as of ******. GOVERNMENT'S POSITION: It is the government's position that the ****** exemption under IRC section 501(c)(3) should be revoked due to (1) failure to operate for an exempt purpose and (2) net earnings inured to the benefit of a disqualified person. The ****** received its exemption as a school; however, no evidence was provided to the agent that demonstrated or showed that the ****** attempted to instruct or train individuals, or the public, as described in section 1.501(c)(3)-1(d)(3)(i) of the Regulations. There was no curriculum provided to the agent, no evidence that instructors were hired, and no students found to be enrolled. In the interview with ******, he cited lack of support from others, who he did not name, for the ****** not becoming operational. Despite never being active, on ******, the ****** paid $ ****** to file ******, ****** a program of the Department of Homeland Security. A review of the available documents show that ****** was involved in the incorporation, application for exemption, opening and use of the bank account, filing the ******, and controlling the ****** mailing addresses. It is determined that ****** meets the criteria in IRC section 4958(f)(1) as exercising a substantial influence over the ****** operations and is a disqualified person. Additionally, the ****** meets the definition of an applicable tax-exempt organization as described in IRC section 4958(e). During the exam period, the ****** statements show that the ****** had the following bank transactions: As the only individual with access to this bank account and the sole debit card holder, ****** withdrew $ ****** in cash from this account and charged $ ****** in personal transactions that consisted of restaurants throughout ******, travel, retail store purchases, Department of Motor Vehicle fees, homeowner association fees, and personal medical expenses. Currently, it is unknown how the ****** spent the remaining funds of $ ****** and if this bank account is still open. CONCLUSION: Due to the ****** failure to operate for an exempt purpose and its net earnings inuring to the benefit of a disqualified person, the government proposes to revoke the ****** exemption under IRC section 501(c)(3) effective ******. If this revocation becomes final, the ****** will no longer be able to accept tax deductible contributions under IRC section 170 and will be required to file ******, for the fiscal period ending ******, and for all subsequent tax periods for which the ****** remains subject to Federal Income Tax.

Internal Revenue Service - Information Release IR-2024-25 IRS offering additional time at Taxpayer Assistance Centers for face-to-face help January 29, 2024 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 IRS offering additional time at Taxpayer Assistance Centers for face-to-face help Helped by Inflation Reduction Act funding, nearly 250 IRS Taxpayer Assistance Centers nationwide will have extended operating hours Tuesdays and Thursdays during the tax filing season IR-2024-25, Jan. 29, 2024 WASHINGTON -- The Internal Revenue Service today announced nearly 250 IRS Taxpayer Assistance Centers (TACs) around the country will extend their weekly office hours to give taxpayers additional time to get the help they need during the filing season. The extended office hours will continue through Tuesday, April 16. To see if a nearby TAC is offering extended hours, taxpayers can visit Contact your local office to access the IRS.gov TAC Locator tool. The site lists services offered, including extended hours and directions to each office. Taxpayers can call 844-545-5640 to make an appointment or walk in to get help at designated TACs offering the additional time. Normally, TACs are open from 8:30 a.m. to 4:30 p.m., Monday through Friday, and operate by appointment. The expanded hours at the assistance centers reflect funding and staffing made possible under the Inflation Reduction Act, which is being used across the IRS to improve taxpayer service, add new technology and tools as well as help tax compliance efforts. "This is another example of how additional IRS resources are helping taxpayers across the country," said IRS Commissioner Danny Werfel. "Adding extra hours provide more options for hard-working taxpayers to get help with their tax issues. The IRS is continuing to work hard both during the upcoming tax season and throughout the year to find ways to make it easier for people to interact with us." "We're inviting anyone who wants or needs some assistance to stop by," added IRS Wage & Investment Division Commissioner and Taxpayer Experience Officer Ken Corbin. "This is one more way the IRS is delivering expanded services to help visitors resolve their tax issues, make a payment or answer general tax-related questions. Whatever the case, we're offering additional time for taxpayers to get the face-to-face help they may need." During these additional office hours, TACs will offer all regular services, however for cash payments, taxpayers must have an appointment. If a taxpayer needs in-person identity verification services, they must bring two forms of identification, and one must be a current government-issued photo ID. They should also bring a copy or digital image of the tax return in question if one was filed. Tax return preparation is not a service provided at any IRS TAC. If a taxpayer needs a sign language interpreter or help with foreign language interpretation, the IRS encourages them to make an appointment. Deaf or hard of hearing individuals who need sign language interpreter services, can call TTY/TDD 800-829-4059 to make an appointment. IRS can also arrange for language interpretation in many languages through an over-the-phone professional translation service. Tax return preparation options While tax return preparation is not a service offered at IRS TACs, qualified taxpayers can get help using the following free services: - Eligible individuals or families can get free help preparing their tax return at Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) sites. To find the closest free tax return preparation help, use the VITA Locator Tool or call 800-906-9887. - To find an AARP Tax-Aide site, use the AARP Site Locator Tool or call 888-227-7669. - Any individual or family earning $79,000 adjusted gross income (AGI) or less in 2023 can use IRS Free File's Guided Tax Software at no cost. There are products in English and Spanish. - Free File Fillable Forms are electronic federal tax forms, equivalent to a paper 1040 form. Taxpayers should know how to prepare their own tax return using form instructions and IRS publications, if needed. Anyone, regardless of income, can use the forms. It provides a free option to taxpayers whose AGI is greater than $79,000. - MilTax, a Department of Defense program, offers free return preparation software and electronic filing for federal tax returns and up to three state income tax returns. It's available for all military members, and some veterans, with no income limit. - The IRS is piloting a new tax filing service during the upcoming filing season called Direct File that gives eligible taxpayers a new choice to file their 2023 federal tax returns online, for free, directly with the IRS. Find more information on Direct File about Direct File pilot eligibility, scope and the participating states. Help available 24/7 at IRS.gov The fastest and easiest way for people to get the help they need is through IRS.gov. Go to IRS.gov for more information. Available resources include: - IRS Online Account: Taxpayers can securely access their individual account information. - Where's My Refund?: Taxpayers can check their refund status and estimated delivery date. - Identity Protection Pin (IP PIN): Taxpayers can prevent someone from using their information to file a fraudulent tax return. - Get Transcript: Taxpayers can view and print a tax transcript online. - Direct Pay: Taxpayers can make tax payments or estimated tax payments from their checking or savings account. - Electronic Federal Tax Payment System: Individuals or businesses can make all types of federal tax payments. - Online Payment Agreement: Taxpayers can set up installment payments to pay taxes they owe. - Where's My Amended Return ?: Taxpayers can track the status of their amended return. - Interactive Tax Law Assistant: Individuals can get answers to many tax questions. - All IRS Forms and Publications: Individuals can find and download current tax forms, instructions and publications. Those who do not have access to the internet can call 800-829-3676 to order tax forms by mail. For additional information on available services, see IRS Publication 5136, IRS Services Guide PDF.

Private Letter Ruling Number 202424015 Internal Revenue Service March 15, 2024 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202424015 Release Date: 6/14/2024 Index Number: 2010.04-00, 9100.35-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:B04 PLR-120555-23 Date: March 15, 2024 Dear ******: This letter responds to a letter dated September 25, 2023, and subsequent correspondence, submitted on behalf of Decedent's estate, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make an election. Decedent's estate is requesting to make an election under § 2010(c)(5)(A) of the Internal Revenue Code (a "portability" election) to allow a decedent's surviving spouse to take into account decedent's deceased spousal unused exclusion (DSUE) amount. The information submitted for consideration is summarized below. Decedent died on Date, survived by Spouse. It is represented that based on the value of Decedent's gross estate and taking into account any taxable gifts, Decedent's estate is not required under § 6018(a) to file an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return). It is further represented that there is an unused portion of Decedent's applicable exclusion amount and that a portability election is required to allow Spouse to take into account that amount (the "DSUE" amount). A portability election is made upon the timely filing of a complete and properly prepared estate tax return, unless the requirements for opting out are satisfied. See § 20.2010-2(a)(2) of the Estate Tax Regulations. For various reasons, an estate tax return was not timely filed, and a portability election was not effectively made. After discovery of this, Decedent's estate submitted this request for an extension of time under § 301.9100-3 to make a portability election. LAW AND ANALYSIS Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. Section 2010(a) provides that a credit of the applicable credit amount shall be allowed to the estate of every decedent against the tax imposed by § 2001. Section 2010(c)(1) provides that the applicable credit amount is the amount of the tentative tax that would be determined under § 2001(c) if the amount with respect to which such tentative tax is to be computed were equal to the applicable exclusion amount. On December 17, 2010, Congress amended § 2010(c), effective for estates of decedents dying and gifts made after December 31, 2010, to allow portability of a decedent's unused applicable exclusion amount between spouses. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111-312, § 303, 124 Stat. 3296, 3302 (2010). Section 2010(c)(2) provides that the applicable exclusion amount is the sum of the basic exclusion amount, and, in the case of a surviving spouse, the DSUE amount. Section 2010(c)(3) provides the basic exclusion amount available to the estate of every decedent, an amount to be adjusted for inflation annually after calendar year 2011. Section 2010(c)(4) defines the DSUE amount to mean the lesser of (A) the basic exclusion amount, or (B) the excess of -- (i) the applicable exclusion amount of the last deceased spouse of the surviving spouse, over (ii) the amount with respect to which the tentative tax is determined under § 2001(b)(1) on the estate of such deceased spouse. Section 2010(c)(5)(A) provides that a DSUE amount may not be taken into account by a surviving spouse under § 2010(c)(2) unless the executor of the estate of the deceased spouse files an estate tax return on which such amount is computed and makes an election on such return that such amount may be so taken into account. The election, once made, shall be irrevocable. No election may be made if such return is filed after the time prescribed by law (including extensions) for filing such return. Section 20.2010-2(a)(1) provides that the due date of an estate tax return required to elect portability is nine months after the decedent's date of death or the last day of the period covered by an extension (if an extension of time for filing has been obtained). Under § 20.2010-2(a)(1), an extension of time under § 301.9100-3 to make a portability election may be granted in the case of an estate that is not required to file an estate tax return under § 6018(a), as determined solely based on the value of the gross estate and any adjusted taxable gifts (and without regard to § 20.2010-2(a)). Under § 301.9100-1(c), the Commissioner has discretion to grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time to make an election whose due date is prescribed by a regulation (and not expressly provided by statute). Requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. In this case, based on the representation as to the value of the gross estate and any adjusted taxable gifts, the time for filing the portability election is fixed by the regulations. Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Decedent's estate to elect portability, provided Decedent's estate establishes it acted reasonably and in good faith, the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government. Information, affidavits, and representations submitted on behalf of Decedent's estate explain the circumstances that resulted in the failure to timely file a valid election. Based solely on the information submitted and the representations made, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Therefore, we grant an extension of time of 120 days from the date of this letter in which to make the portability election. The election should be made by filing a complete and properly prepared Form 706 and a copy of this letter, within 120 days from the date of this letter, with the Kansas City Service Center, at the following address: Department of the Treasury, Internal Revenue Service Center, Kansas City, MO 64999. For purposes of electing portability, a Form 706 filed by Decedent's estate within 120 days from the date of this letter will be considered to be timely filed. If it is later determined that, based on the value of the gross estate and taking into account any taxable gifts, Decedent's estate is required to file an estate tax return pursuant to § 6018(a), the Commissioner is without authority under § 301.9100-3 to grant an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void. See § 20.2010-2(a)(1). We neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In particular, we express no opinion as to the DSUE amount to be potentially taken into account by Spouse. Any claimed DSUE amount will be included in the applicable exclusion amount of Spouse only to the extent that Spouse can substantiate such amount and will be subject to determination by the Director's office upon audit of relevant Federal gift or estate tax returns. See § 20.2010-3(c)(1) and (d). The rulings contained in this letter are based upon information and representations submitted by the Taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. This ruling is directed only to the Taxpayer requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, we have sent a copy of this letter to your authorized representatives. Sincerely, Associate Chief Counsel Passthroughs and Special Industries / s / _________________________ Karlene M. Lesho Branch Chief, Branch 4 Office of the Associate Chief Counsel (Passthroughs and Special Industries) Enclosure Copy for § 6110 purposes cc:

Revenue Procedure 2022-5 Internal Revenue Service 2022-1 I.R.B. 256 26 CFR 601.201: Rulings and determination letters. Rev. Proc. 2022-5 SECTION 1. WHAT IS This revenue procedure sets forth procedures for issuing determination letters on issues under THE PURPOSE OF THIS the jurisdiction of the Director, Exempt Organizations (EO) Rulings and Agreements. Specifically, REVENUE PROCEDURE? it explains the procedures for issuing determination letters on tax-exempt status (in response to applications for recognition of exemption from Federal income tax under § 501 or § 521 other than those subject to Rev. Proc. 2022-4, this Bulletin (relating to pension, profit-sharing, stock bonus, annuity, and employee stock ownership plans)), private foundation status, and other determinations related to tax-exempt organizations. These procedures also apply to revocation or modification of determination letters. This revenue procedure also provides guidance on the exhaustion of administrative remedies for purposes of declaratory judgment under § 7428. Finally, this revenue procedure provides guidance on applicable user fees for requesting determination letters. Description of terms used.01 For purposes of this revenue procedure-- in this revenue procedure (1) The term "Service" means the Internal Revenue Service. (2) The term "EO Rulings and Agreements" means the office in Exempt Organizations & Government Entities that is primarily responsible for up-front, customer-initiated activities such as determination letter requests, taxpayer assistance, and assistance to other Exempt Organizations & Government Entities offices. The EO Rulings and Agreements office includes the offices of EO Determinations and EO Determinations Quality Assurance. (3) The term "EO Determinations" means the office in EO Rulings and Agreements of the Service that is primarily responsible for processing requests for determination letters. (4) The term "Independent Office of Appeals" (Internal Revenue Service Independent Office of Appeals) means any office under the direction and control of the Chief of Appeals. The purpose of the Independent Office of Appeals is to resolve tax controversies, without litigation, on a fair and impartial basis. The Independent Office of Appeals is independent of EO Rulings and Agreements. (5) The term "determination letter" means a written statement issued by EO Determinations or the Independent Office of Appeals in response to a request for the Service's ruling on a question of tax-exempt status, foundation status, or other determination under the jurisdiction of the Director, EO Rulings and Agreements. This includes a written statement issued by EO Determinations or an office of the Independent Office of Appeals on the basis of advice secured from the Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes) pursuant to the procedures prescribed in Rev. Proc. 2022-2, this Bulletin. A determination letter applies the principles and precedents previously announced to a specific set of facts. (6) The term "request" means the written submission that an organization uses to obtain a determination letter in accordance with the requirements of this revenue procedure. (7) The term "application" means a request for recognition of exemption from Federal income tax under § 501 or § 521. Updated annually.02 This revenue procedure is updated annually, but may be modified or amplified during the year. SECTION 2. NATURE OF CHANGES TO REV. PROC. 2021-5 AND RELATED REVENUE PROCEDURES AND FORMS What changes have been.01 This revenue procedure updates Rev. Proc. 2021-5, 2021-1 IRB 250, which deals with made to Rev. Proc. 2021-5? procedures for issuing Exempt Organization determination letters. Notable changes to Rev. Proc. 2021-5 that appear in this year's update include-- (1) Edits were made throughout to reflect Rev. Proc. 2021-8, 2021-4 IRB 502 (2021), which provided information and procedures on the electronic Form 1024-A, Application for Recognition of Exemption Under Section 501(c)(4) of the Internal Revenue Code. (2) Section 2.04 of this revenue procedure was updated to announce that an electronic version of Form 1024, Application for Recognition of Exemption Under Section 501(a), is expected to be released in 2022. (3) Section 3.02 was amended to include that the Service will not issue a determination letter when the request concerns an organization seeking to qualify under§ 501(c)(5) whose purpose is directed to the betterment of conditions of those engaged in the pursuits of labor, agriculture, or horticulture, the improvement of the grade of their products, and the development of a higher degree of efficiency in their respective occupations relating to an activity involving controlled substances (within the meaning of schedule I and II of the Controlled Substances Act, 21 USC §801 et seq.) which is prohibited by Federal law regardless of its legality under the law of the state in which such activity is conducted. (4) Section 16 of this revenue procedure was updated to explain that this revenue procedure supersedes Rev. Proc. 2021-8. (5)The OMB control numbers in Section 18 of this revenue procedure were updated. (6) Editorial changes were made throughout including minor non-substantive changes, dates, and cross-references. Citations to other revenue procedures were changed to reflect the appropriate annual revenue procedures. Related revenue procedures.02 This revenue procedure supplements the following revenue procedures- (1) Rev. Proc. 80-27, 1980-1 CB 677, which sets forth procedures under which tax-exempt status may be recognized on a group basis for subordinate organizations affiliated with and under the general supervision and control of a central organization. (2) Rev. Proc. 72-5, 1972-1 CB 709, which provides information for religious and apostolic organizations seeking recognition of exemption under § 501(d). (3) Rev. Proc. 2015-17, 2015-7 IRB 599, which provides information regarding procedures for organizations described in § 501(c)(29). (4) Rev. Proc. 2014-11, 2014-3 IRB 411, which sets forth procedures for reinstating the tax- exempt status of organizations that have had their tax-exempt status automatically revoked under § 60330)(1). (5) Rev. Proc. 2016-41, 2016-30 IRB 165, which sets forth the procedure for an organization to notify the Service, consistent with § 506, that it is operating as an organization described in § 501(c)(4). (6) Rev. Proc. 2018-15, 2018-9 IRB 379, which describes the circumstances under which a domestic § 501(c) organization that changes its form or place of organization will not be required to file a new exemption application and such an organization's reporting requirements. Related forms that are not a.03 Forms that are not requests for a determination. Certain organizations are required to request for a determination submit the following forms, but such forms are not requests for a determination and, thus, are not letter subject to the procedures in this revenue procedure. (1) Form 3115, Application for Change in Accounting Method. A tax-exempt organization described in § 501(c) that wants to change its method of accounting for computing taxable income must follow the procedures that are generally applicable to all taxpayers for requesting the Commissioner's consent to an accounting method change, including, if applicable, filing a Form 3115, Application for Change in Accounting Method (see, e.g., Rev. Proc. 2015-13, 2015-5 IRB 419, as modified and clarified by Rev. Proc. 2021-34, 2021-35 IRB 337 (or any successor)). A tax-exempt organization described in § 501(c) must request consent to change its method of accounting for computing taxable income only if the tax-exempt organization has previously adopted a method of accounting for computing taxable income for the item(s) being changed. A taxpayer generally adopts a method of accounting in the first year in which an item is taken into account in computing taxable income. Thus, a tax-exempt organization that has adopted a method of accounting for an item of income or expense from an unrelated trade or business must generally request consent in order to change its method of accounting for reporting the item in any subsequent year, regardless of whether the gross income from the unrelated trade or business is greater than or equal to $1,000 in such subsequent year. However, a tax-exempt organization that has not yet adopted a method of accounting for an item does not have to request consent to change the methodology of reporting the item. Thus, a tax-exempt organization that is required to file a Form 990-T, Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e)) solely due to owing a§ 6033(e)(2) proxy tax but has not yet adopted a method of accounting for an item of income or expense does not have to request consent to change its methodology for reporting such item on its Form 990-T (or Form 990, as applicable). See Rev. Proc. 2015-13, as modified and clarified by Rev. Proc. 2021-34, and Section 9 of Rev. Proc. 2022- 1, this Bulletin for procedures applicable to taxpayers, including tax-exempt organizations, for requesting changes in method of accounting. (2) Form 8871, Political Organization Notice of Section 527 Status. A political party, a campaign committee for a candidate for Federal, state or local office, and a political action committee are all political organizations subject to tax under§ 527. To be tax-exempt, a political organization may be required to notify the Service that it is to be treated as a § 527 organization by electronically filing Form 8871, Political Organization Notice of Section 527 Status. See irs. gov ("Tax Information for Political Organizations"). (3) Form 8976, Notice of Intent to Operate Under Section 501(c)(4). An organization described in § 501(c)(4) must, no later than 60 days after the date the organization is established, notify the Service that it is operating as an organization described in § 501(c)(4) by submitting a completed Form 8976, Notice of Intent to Operate Under Section 501(c)(4) and accompanying user fee. See irs.gov ("Electronically Submit Your Form 8976, Notice of Intent to Operate Under Section 501(c)(4)"). SECTION 3. UNDER WHAT CIRCUMSTANCES DOES EO DETERMINATIONS ISSUE DETERMINATION LETTERS? Matters on which EO.01 EO Determinations issues determination letters on the following matters-- Determinations will issue a determination letter (1) Initial qualification for tax-exempt status of organizations described in § 501 or § 521 (including reinstatement of organizations that have been automatically revoked pursuant to § 60330) and subordinate organizations included in a group exemption letter that have been revoked pursuant to that provision). See Rev. Proc. 2018-15 for procedures applicable to an entity changing its form or state of organization; (2) Updated tax-exempt status letter (affirmation letter) to reflect changes to an organization's name or address, or to replace a lost tax-exempt status letter; (3) Classification or reclassification of private foundation status, including whether an organization is-- (a) A private foundation; (b) A public charity described in §§ 509(a)(1) and 170(b)(1)(A) (other than clauses (v), (vii), and (viii)); (c) A public charity described in § 509(a)(2) or (4); (d) A public charity described in § 509(a)(3), whether such organization is described in § 509(a) (3)(B)(i), (ii), or (iii) (supporting organization type), and whether or not a Type III supporting organization is functionally integrated; (e) A private operating foundation described in § 4942(j)(3); or (f) An exempt operating foundation described in § 4940(d)(2). (4) Recognition of unusual grants to certain organizations under §§ 170(b)(1)(A)(vi) and 509(a) (2); (5) Requests for relief under Treas. Reg. § 301.9100-1 in connection with applications for recognition of exemption; (6) Terminations of private foundation status under§ 507(b)(1)(B); (7) Advance approval of certain set-asides described in § 4942(g)(2); (8) Advance approval under § 4945(g) of organizations' grant making procedures; (9) Advance approval of voter registration activities described in § 4945(f); (10) Whether an organization is exempt from filing annual information returns under § 6033, as provided in Treas. Reg. § 1.6033-2(g)(1), Rev. Proc. 95-48, 1995-2 CB 418, and, Rev. Proc. 96-10, 1996-1 CB 577; (11) Determination of foundation status under § 509(a)(3) of non-exempt charitable trusts described in § 4947(a)(1); and (12) Government entity voluntary termination of § 501(c)(3) recognition (must include documentation that the organization is not subject to income tax, other than under § 501(a)). Circumstances under which.02 The Service may decline to issue a determination letter when appropriate in the interest of determination letters are sound tax administration or on other grounds whenever warranted by the facts or circumstances not issued of a particular case. In addition, the Service will not issue a determination letter in response to any request if-- (1) the request involves an issue under the jurisdiction of the Office of Associate Chief Counsel described in Rev. Proc. 2022-1; (2) the same issue involving the same taxpayer, or a related taxpayer, is pending in a case in litigation or before the Independent Office of Appeals. If the issue in litigation involving the same taxpayer or a related taxpayer is not the taxpayer or a related taxpayer's qualification as a tax-exempt entity (such as a declaratory judgment action under § 7428), the Service may issue a determination letter on tax-exempt status after consultation with counsel; (3) the determination letter is requested by an industry, trade association, or similar group on behalf of individual taxpayers within the group ( other than subordinate organizations covered by a group exemption letter); (4) the determination letter is requested by an organization seeking to qualify under § 501(c)(5) whose purpose is directed to the betterment of conditions of those engaged in the pursuits of labor, agriculture, or horticulture, the improvement of the grade of their products, and the development of a higher degree of efficiency in their respective occupations relating to an activity involving controlled substances (within the meaning of schedule I and II of the Controlled Substances Act, 21 USC § 801 et seq.) which is prohibited by Federal law regardless of its legality under the law of the state in which such activity is conducted; (5) the determination letter is requested by an organization seeking to qualify under § 501(c) (6) whose purpose is directed to the improvement of business conditions of one or more lines of business relating to an activity involving controlled substances (within the meaning of schedule I and II of the Controlled Substances Act, 21 USC § 801 et seq.) which is prohibited by Federal law regardless of its legality under the law of the state in which such activity is conducted; (6) the request is based on alternative plans of proposed transactions or on hypothetical situations. An application based on proposed activities that satisfies section 6.07(2) of this revenue procedure (related to recognizing tax-exempt status in advance of actual operations) is not considered to be based on hypothetical situations; (7) an organization currently recognized as exempt under § 501(c) of the Code seeks a new determination letter confirming that the organization is still recognized under the same Code section under the current facts; (8) an organization seeks a determination of foundation status that is identical to its current foundation status as determined by EO Determinations. For example, an organization that is already recognized as described in §§ 509(a)(1) and 170(b)(1)(A)(ii) as a school generally will not receive a new determination letter that it is still described in §§ 509(a)(1) and 170(b)(1)(A)(ii) under the current facts; (9) an organization currently recognized as described in § 501(c)(3) seeks a determination letter recognizing the organization as described in a different subsection of § 501(c); (10) an organization currently recognized as exempt under § 501(c) (other than a government entity as specified in section 3.01(12) of this revenue procedure) requests a determination to relinquish its tax-exempt status under § 501(a); (11) a domestic organization currently recognized as exempt under § 501(c) seeks a determination letter but is not required to reapply because it has changed its form or state of organization in accordance with the requirements in Rev. Proc. 2018-15. An organization may request an affirmation letter to reflect changes to its name or address as provided in section 3.01(2) of this revenue procedure; or (12) an organization applies for a group exemption letter. Notice 2020-36, 2020-21 IRB 840, provides that the Service will not accept any requests for group exemption letters until publication of the final revenue procedure described in the Notice or other guidance in the Internal Revenue Bulletin. Note: In some circumstances, an organization may seek a letter ruling from the Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes) on a specific legal issue, including whether an activity furthers an organization's exempt purpose. See Rev. Proc. 2022-1 and Rev. Proc. 2022-3, this Bulletin. Technical advice may be.03 EO Determinations generally issues determination letters only if the question presented is requested in certain cases answered by a statute, tax treaty, regulation, court opinion, or guidance published in the Internal Revenue Bulletin. At any time during the course of consideration by EO Determinations, if either EO Determinations or the organization believes that its case involves an issue on which there is no published precedent, or there has been non-uniformity in the Service's handling of similar cases, EO Determinations may decide to seek, or the organization may request that EO Determinations seek, technical advice from the Office of Associate Chief Counsel with subject matter jurisdiction over the issue. See Rev. Proc. 2022-2. Review of determination.04 Determination letters issued under this revenue procedure are not generally reviewed by any letters other office outside of EO Rulings and Agreements before they are issued. For post-determination review of determination letters by EO Determinations Quality Assurance, see section 11.03 of this revenue procedure. Determination letter based.05 A determination letter is issued based solely upon the facts, attestations, and representations solely on administrative contained in the administrative record. record (1) The taxpayer is responsible for the accuracy of any factual representations or attestations contained in the request. (2) Any oral representation of additional facts, or modification of facts, as represented or alleged in the request, must be reduced to writing and signed by the taxpayer under a penalty of perjury statement, in accordance with section 4.06of this revenue procedure. (3) The failure to disclose a material fact or misrepresentation of a material fact on the request, which includes an incorrect representation or attestation, may adversely affect the reliance that the organization submitting the request would otherwise obtain through issuance by the Service of a favorable determination letter. See section 11.02 of this revenue procedure for additional information. SECTION 4. WHAT ARE THE GENERAL INSTRUCTIONS FOR REQUESTING DETERMINATION LETTERS? In general.01 This section explains the general instructions for requesting determination letters. However, certain procedures do not apply to requests submitted on Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, or Form 1024-A, Application for Recognition of Exemption Under Section 501(c)(4) of the Internal Revenue Code, as indicated in this revenue procedure or in the forms and their instructions. In addition to these general instructions, specific procedures apply to requests submitted by letter (as described in section 5 of this revenue procedure), applications for recognition of exemption from Federal income tax under § 501 or § 521 (as described in section 6 of this revenue procedure), and to requests for determinations submitted on Form 8940, Request for Miscellaneous Determination (as described in section 7 of this revenue procedure). Format of request.02 Which form, if any, should be used for the request? Some requests are made by letter and some requests are made by submitting a specific form. Form 1023 application (1) Form 1023 application. An organization seeking recognition of exemption under § 501(c) (3) (including an organization to which § 501(e), (f), (k), (n), (q), or (r) is applicable) must electronically submit a completed Form 1023 at www.pay.gov. In the case of an organization that provides credit counseling services, see § 501(q). In the case of an organization that is a hospital and is seeking tax-exempt status under § 501(c)(3), see § 501(r). Notwithstanding the foregoing, eligible organizations may seek recognition of exemption under § 501(c)(3) by submitting a completed Form 1023-EZ, as described in section 6.06(2)of this revenue procedure, rather than by submitting Form 1023. For additional information about the electronic submission process, refer to Form 1023 and its Instructions. Form 1023-EZ application (2) Form 1023-EZ application. An eligible organization, as described in section 6.05 of this revenue procedure, may, but is not required to, seek recognition of exemption under § 501(c)(3) by submitting a completed electronic Form 1023-EZ. Alternatively, an eligible organization may seek tax-exempt status under § 501(c){3) by submitting a completed Form 1023, as described in section 6.06(1)of this revenue procedure. For additional information about the electronic submission process, refer to Form 1023-EZ and its Instructions. Form 1024 application (3) Form 1024 application. An organization seeking a determination letter from the Service recognizing tax-exempt status under § 501(c)(2), (5), (6), (7), (8), (9), (10), (12), (13), (15), (17), (19), or (25) must submit a completed Form 1024, Application for Recognition of Exemption Under Section 501(a), along with Form 8718, User Fee for Exempt Organization Determination Letter Request. Organizations that seek to operate under § 501(c)(9) or (17) must apply for recognition of exemption. See § 505. Other organizations may choose to seek a determination letter recognizing tax-exempt status under § 501 by filing Form 1024, but are not required to do so except in certain cases (see, for example, § 6033(j)(2) regarding failures to file annual information returns or annual electronic notifications required under § 6033(a) or (i)). Form 1024-A application (4) Form 1024-A application. An organization seeking a determination letter from the Service recognizing tax-exempt status under § 501(c)(4) must electronically submit a completed Form 1024-A and the accompanying user fee at www.pay.gov. In the case of an organization that provides credit counseling services and seeks recognition of exemption under § 501(c)(4), see § 501(q). Section 501(c)(4) organizations may choose to seek a determination letter recognizing tax- exempt status under § 501(c)(4) by filing Form 1024-A, but are not required to do so except in certain cases ( see, for example, § 6033(j)(2) regarding failures to file annual information returns or annual electronic notifications required under § 6033(a) or (i)). Submission of Form 1024-A does not relieve an organization of the requirement to submit Form 8976, Notice of Intent to Operate Under Section 501(c)(4). For additional information about the electronic submission process, refer to Form 1024-A and its Instructions. Form 1028 application (5) Form 1028 application. An organization seeking recognition of exemption under § 521 must submit a completed Form 1028, Application for Recognition of Exemption Under Section 521 of the Internal Revenue Code, along with Form 8718. Form 8940 request (6) Form 8940 request for miscellaneous determination. The Form 8940, Request for for miscellaneous Miscellaneous Determination, is used for the following determination letter requests-- determination (a) Advance approval of certain set-asides described in § 4942(g)(2); (b) Advance approval of voter registration activities described in § 4945(f); (c) Advance approval of scholarship procedures described in § 4945(g); (d) Exemption from Form 990 filing requirements; (e) Advance approval that a potential grant or contribution constitutes an unusual grant; (f) Change in Type (or initial determination of Type) of a § 509(a)(3) organization; (g) Reclassification of foundation status, including a voluntary request from a public charity for private foundation status; (h) Termination of private foundation status under § 507(b)(1)(B)--advance ruling request; and (i) Termination of private foundation status under § 507(b )(1 )(B)--60-month period ended. Letter request (7) Letter request. (a) Letter applications. (i) An organization seeking recognition of exemption under § 501(c) (11), (14), (16), (18), (21), (22), (23), (26), (27), (28), or (29), or under § 501(d), must submit a letter application along with Form 8718. (ii) A central organization that has previously received or is concurrently requesting recognition of its own tax-exempt status can request a group exemption letter by submitting a letter application along with Form 8718. But see, section 3.02(11) of this revenue procedure. (b) Other letter requests. Any determination letter request which is not required to be submitted on a form may be submitted by letter. Language requirements.03 All requests must be submitted in English. All documents submitted in support of such requests must be in English or accompanied by an accurate and complete English translation. Signature on request.04 Signature on request. The request for determination letter must be signed and dated by the taxpayer or, when applicable, the taxpayer's authorized representative. Neither a stamped signature nor a faxed signature is permitted. However, a faxed signature is permitted if requested by the Service in the case of an organization replacing its initial request with a request for a determination under a different subsection of § 501(c) during processing of an initial request, or as otherwise requested during the processing of an initial request. (1) Individual authorized to sign Form 1023, 1023-EZ, or 8940 on behalf of an organization. In the case of a request for a determination letter made by filing Form 1023, Form 1023-EZ, or Form 8940, an officer, director, trustee, or other official who is authorized to sign for the organization must sign the applicable form. The signature of a representative authorized by a power of attorney who is not an officer, director, trustee, or other official of the organization will not satisfy the signature requirement for Form 1023, Form 1023-EZ, or Form 8940. See the instructions to the applicable form for more information on who may sign the application on behalf of an organization. (2) Individual or representative authorized to sign Form 1024. In the case of a request for a determination letter made by filing Fo1m 1024, an officer, a trustee who is authorized to sign, or a representative authorized by a power of attorney ( see section 4.05 of this revenue procedure), must sign the application. (3) Individual or representative authorized to sign Form 1024-A. In the case of a request for a determination letter made by filing Form 1024-A, an officer, a director, a trustee, or other official who is authorized to sign for the organization must sign the application. The signature of a representative authorized by a power of attorney who is not an officer, director, trustee, or other official of the organization will not satisfy the signature requirement for Form 1024-A. See the instructions to the Form 1024-A for more information on who may sign the application on behalf of an organization. (4) Authorized representatives for all other requests. Except as provided in (1), (2), and (3) of this section 4.04 to sign the request, or to appear before the Service in connection with the request, the authorized representative must be listed in Appendix B. Power of attorney.05 Power of attorney and declaration of representative. Any representative authorized by and declaration of a power of attorney, whether or not licensed to practice, must comply with the conference and representative practice requirements of the Statement of Procedural Rules (26 CFR §§ 601.501-601.509) and Treasury Department Circular No. 230, which provide the rules for representing a taxpayer before the Service. Form 2848, Power of Attorney and Declaration of Representative must be used to provide the authorized representative's authorization (Part I of Form 2848, Power of Attorney ) and the authorized representative's qualification (Part II of Form 2848, Declaration of Representative ). The name of the individual signing Part I of Form 2848 should also be typed or printed on this form. A stamped signature is not permitted. An original, a copy, or a facsimile transmission (fax) of the power of attorney is acceptable so long as its authenticity is not reasonably disputed. Penalty of perjury.06 statement (1) Penalty of perjury statement requirements for requests for determination letters made on Form 1023, 1023-EZ, 1024, 1024-A, or 8940. The signature of an individual described in section 4.04(1), (2), or (3) of this revenue procedure satisfies the penalty of perjury statement signature requirements for requests on Form 1023, 1023-EZ, 1024, 1024-A, or 8940, as applicable. (2) Penalty of perjury statement requirements for letter requests and responses to requests for additional information. Any letter request or information submitted at a later time (regardless of the format of the original request), must be accompanied by the following declaration-- "Under penalties of perjury, I declare that I have examined this request, or this modification to the request, including accompanying documents, and, to the best of my knowledge and belief, the request or the modification contains all the relevant facts relating to the request, and such facts are true, correct, and complete." This declaration must be signed and dated by the taxpayer, not the taxpayer's representative authorized by a power of attorney. The signature of an individual described in section 4.04(1) of this revenue procedure is the signature of the taxpayer for purposes of the penalty of perjury statement. The signature of an authorized representative described in section 4.04(2), (3), or (4) of this revenue procedure will not satisfy the penalty of perjury statement requirements (except as otherwise provided in Appendix B). See the instructions to the relevant form for additional detail. Neither a stamped signature nor a faxed signature is permitted. However, a faxed signature is permitted if requested by the Service in the case of information submitted in response to a request by the Service for additional information after the request for a determination. The individual who signs for a corporate taxpayer must be an officer of the corporate taxpayer who has personal knowledge of the facts, and whose duties are not limited to obtaining a determination letter from the Service. The individual signing for a trust, a state law partnership, or a limited liability company must be, respectively, a trustee, general partner, or member-manager who has personal knowledge of the facts. Applicable user fee.07 Section 7528 requires taxpayers to pay user fees for requests for determination letters. See section 14 and Appendix A of this revenue procedure for more information. Where will copies of the.08 The original of the determination letter will be sent to the taxpayer and a copy of the determination letter be determination letter will be sent to up to two authorized representatives listed on Form 2848 as sent? appointed to receive notices and communications. Expedited processing.09 Requests for determination letters are normally processed in the order of receipt by the Service. However, expedited processing of a request for a determination letter may be approved where a request for expedited processing is made in writing and contains a compelling reason for processing the request for a determination letter ahead of others. Upon approval of a request for expedited processing, a request for a determination letter will be considered ahead of the normal order. This does not mean the request for a determination letter will be immediately approved or denied. (1) Procedures for requesting expedited handling. Except for a request on the electronically submitted Form 1023 or Form 1024-A, the request for expedited handling must be made in writing, preferably in a separate letter sent with, or soon after filing, the request for the determination letter. If the request is not made in a separate letter, then the letter in which the determination letter request is made should say, at the top of the first page: "Expedited Handling Is Requested. See page ___ of this letter." In the case of the electronically submitted Form 1023 or Form 1024-A, a request for expedited handling must be indicated on the form and a supporting written statement must be submitted as an attachment with the completed application. A request for expedited handling will not be forwarded to the appropriate group for action unless the application has been accepted for processing. See section 6.06(1) of this revenue procedure (requirements for a complete application). Whether the request will be granted is within the Service's discretion. Circumstances generally warranting expedited processing include-- (a) a grant to the applicant is pending and the failure to secure the grant may have an adverse impact on the organization's ability to continue to operate; (b) the purpose of the newly created organization is to provide disaster relief to victims of emergencies such as flood and hurricane; and (c) there have been undue delays in issuing a determination letter caused by a Service error. Because most requests for determination letters cannot be processed ahead of their regular order, the Service urges all taxpayers to submit their requests well in advance of the contemplated transaction. In addition, in order to facilitate prompt action on determination letter requests, taxpayers are encouraged to ensure that their initial submissions comply with all of the requirements of this revenue procedure, and to promptly provide any additional information requested by the Service. (2) Applications on Form 1023-EZ are ineligible for expedited handling. An organization may not request expedited handling of a Form 1023-EZ. Non-acceptance for.10 The Service will not accept for processing any request that is substantially incomplete. processing (1) Requests other than Form 1023-EZ. An application other than Form 1023-EZ that is missing any item of information listed in section 6.06(1) of this revenue procedure will be considered substantially incomplete and will not be accepted for processing. A request other than an application may be considered substantially incomplete if it does not contain the information, documentation, and other materials required by sections 4, 5, or 7 of this revenue procedure, or Form 8940 and its Instructions, as applicable to the particular request. (2) Requests on Form 1023-EZ. (a) Incomplete Form 1023-EZ. A submitted Form 1023-EZ that is not a completed Form 1023-EZ within the meaning of section 6.06(2) of this revenue procedure will not be accepted for processing by the Service. The Service may, but is not required to, request additional information to validate information presented or to clarify an inconsistency on a Form l 023-EZ. (b) Form 1023-EZ and pending application. The Service will not accept for processing a Form 1023-EZ from an organization that has an application for recognition of exemption pending with the Service. (3) Effect of non-acceptance. An organization will be notified if its request is not accepted for processing and any user fee that was paid with the request will be refunded. See section 14.09 of this revenue procedure. An organization may then submit a new request, including the missing information, with a new user fee. How to check on status of.11 The taxpayer or the taxpayer's authorized representative should refer to irs.gov ("Where's request My Exemption Application?") for guidelines on when to expect to hear from the Service and may obtain information regarding the status of a request by calling the toll-free Customer Account Services number, 877-829-5500. SECTION 5. WHAT ARE THE SPECIFIC PROCEDURES FOR REQUESTING A DETERMINATION LETTER BY LETTER? In general.01 This section explains the specific procedures for requesting a determination letter by letter. Any determination letter request which is not required to be submitted on a form may be submitted by letter. For example, an organization seeking to be described in § 501(d) would submit a letter application in accordance with this section 5 and other applicable sections of this revenue procedure, and Rev. Proc. 72-5, 1972-1 CB 709. Other specific procedures may apply, depending on the type of request. See section 6 of this revenue procedure for applications for recognition of exemption under § 501 or § 521. Certain information.02 required Statement of facts (1) Complete statement of facts and other information. Each request for a determination letter must contain a complete statement of all facts relating to the request. These facts include the organization's name, address, telephone number, and Employer Identification Number (EIN). Documents (2) Copies of all organizing documents, bylaws, contracts, wills, deeds, agreements, instruments, and other documents. All documents that are pertinent to the request (including organizing documents, bylaws, contracts, wills, deeds, agreements, instruments, trust documents, and proposed disclaimers) must be submitted with the request. Original documents should not be submitted because they become part of the Service's file and will not be returned to the taxpayer. Instead, true copies of all such documents should-be submitted with the request. Each document, other than the request, should be labeled alphabetically and attached to the request in alphabetical order. Analysis of material facts (3) Analysis of material facts. All material facts in documents must be included, rather than merely incorporated by reference, in the taxpayer's initial requestor in supplemental letters. These facts must be accompanied by an analysis of their bearing on the request, specifying the provisions that apply. Same or similar issue (4) Statement regarding whether same or similar issue was previously ruled on or previously submitted or requested, or is currently pending. The request must also state whether, to the best of the currently pending knowledge of both the taxpayer and the taxpayer's authorized representatives- (a) the Service or the Office of Associate Chief Counsel previously ruled on the same or similar issue for the taxpayer (or a related taxpayer within the meaning of § 267, or a member of an affiliated group of which the taxpayer is also a member within the meaning of § 1504) or a predecessor; (b) the taxpayer, a related taxpayer, a predecessor, or any authorized representatives previously submitted the same or similar issue to the Service or the Office of Associate Chief Counsel but withdrew the request before a letter ruling or determination letter was issued; (c) the taxpayer, a related taxpayer, or a predecessor previously submitted a request involving the same or a similar issue that is currently pending with the Service or the Office of Associate Chief Counsel; or (d) at the same time as this request, the taxpayer or a related taxpayer is presently submitting another request involving the same or a similar issue to the Service or the Office of Associate Chief Counsel. If the statement is affirmative for (a), (b), (c), or (d) of this section 5.02(4), the statement must give the date the request was submitted, the date the request was withdrawn or ruled on, if applicable, and other details of the Service's or Office of Associate Chief Counsel's consideration of the issue. Statement of authorities (5) The request must include a statement of whether the law in connection with the request is uncertain and whether the issue is adequately addressed by relevant authorities. (a) Statement of supporting authorities. If the taxpayer advocates a particular conclusion, an explanation of the grounds for that conclusion and the relevant authorities to support it must also be included. Even if not advocating a particular tax treatment of a proposed transaction, the taxpayer must still furnish views on the tax results of the proposed transaction and a statement of relevant authorities to support those views. (b) Statement of contrary authorities. The taxpayer is also encouraged to inform the Service about, and discuss the implications of, any authority believed to be contrary to the position advanced, such as legislation (or pending legislation), tax treaties, court decisions, regulations, revenue rulings, revenue procedures, notices or announcements. If the taxpayer determines that there are no contrary authorities, a statement in the request to this effect would be helpful. If the taxpayer does not furnish either contrary authorities or a statement that none exists, the Service in complex cases or those presenting difficult or novel issues may request submission of contrary authorities or a statement that none exists. Failure to comply with this request may result in the Service's refusal to issue a determination letter. Identifying and discussing contrary authorities will generally enable Service personnel to understand the issue and relevant authorities more quickly. When Service personnel receive the request, they will have before them the taxpayer's thinking on the effect and applicability of contrary authorities. This information should make research easier and lead to earlier action by the Service. If the taxpayer does not disclose and distinguish significant contrary authorities, the Service may need to request additional information, which will delay action on the request. SECTION 6. WHAT ARE THE SPECIFIC PROCEDURES FOR APPLICATIONS FOR RECOGNITION OF EXEMPTION UNDER § 501 OR § 521? In general.01 This section sets forth procedures for applying for and issuing determination letters in response to applications for recognition of exemption under § 501 or § 521, other than those subject to Rev. Proc. 2022-4 (relating to pension, profit-sharing, stock bonus, annuity, and employee stock ownership plans). Terrorist organizations.02 An organization that is identified or designated as a terrorist organization within the meaning not eligible to apply for of § 501(p)(2) is not eligible to apply for recognition of exemption. recognition of exemption Format of application.03 An organization seeking recognition of exemption under § 501 or § 521 is required to submit the appropriate completed application form or the appropriate completed letter request. In the case of a numbered application form, the current version of the form must be submitted. The current version of the form can be found on irs.gov ("Forms & Instructions"). Form 8718.04 An organization applying for recognition of exemption must attach a completed Form 8718, User Fee for Exempt Organization Determination Letter Request, to its application, unless the organization is submitting Form 1023, Form 1023-EZ, or Form 1024-A. Form 8718 is an attachment related to user fees that is not, itself, a determination letter application. Form 1023-EZ applications.05 (1) Eligibility for Form 1023-EZ application. An organization that is an eligible organization may use Form 1023-EZ to apply for recognition of exemption under § 50l(c)(3), unless the organization is designated in section 6.05(2) of this revenue procedure as an organization that is ineligible to submit Form 1023-EZ. An organization is an eligible organization if the organization satisfies all of the following criteria-- (a) The organization has projected annual gross receipts of $ 50,000 or less in the current taxable year and the next two years; (b) The organization had annual gross receipts of $50,000 or less in each of the past three years for which the organization was in existence; and (c) The organization has total assets the fair market value of which does not exceed $250,000. For purposes of this eligibility requirement, a good faith estimate of the fair market value of the organization's assets is sufficient. (2) Ineligibility for Form 1023-EZ application. The following organizations are not eligible to submit Form 1023-EZ and must use Form 1023 to apply for recognition of exemption under § 501(c)(3)-- (a) Organizations formed under the laws of a foreign country (United States territories and possessions are not considered foreign countries); (b) Organizations that do not have a mailing address in the United States (territories and possessions are considered the United States for this purpose); (c) Organizations that are successors to, or controlled by, an entity suspended under § 501(p) (suspension of tax-exempt status of terrorist organizations); (d) Organizations that are not corporations, unincorporated associations, or trusts, such as a limited liability corporation (LLC); (e) Organizations that are formed as for-profit entities or are successors to for-profit entities; (f) Organizations that were previously revoked or that are successors to a previously revoked organization ( other than an organization the tax-exempt status of which was automatically revoked for failure to file a Form 990 series return or notice for three consecutive years under§ 6033(j)); (g) Churches or conventions or associations of churches described in§ 170(b)(1)(A)(i); (h) Schools, colleges, or universities described in § 170(b)(1)(A)(ii); (i) Hospitals or medical research organizations described in § 170(b)(1)(A)(iii) or § 501(r)(2) (A)(i) ( cooperative hospital service organizations described in § 501(e)); (j) Cooperative service organizations of operating educational organizations described in § 501(f); (k) Qualified charitable risk pools described in§ 501(n); (1) Supporting organizations described in § 509(a)(3); (m) Organizations that have as a substantial purpose providing assistance to individuals through credit counseling activities such as budgeting, personal finance, financial literacy, mortgage foreclosure assistance, or other consumer credit areas; (n) Organizations that invest, or intend to invest, five percent or more of their total assets in securities or funds that are not publicly traded; (o) Organizations that participate, or intend to participate, in partnerships (including entities or arrangements treated as partnerships for Federal tax purposes) in which they share profits and losses with partners other than § 501(c)(3) organizations; (p) Organizations that sell, or intend to sell, carbon credits or carbon offsets; (q) Health Maintenance Organizations (HMOs); (r) Accountable Care Organizations (ACOs), or organizations that engage in, or intend to engage in, ACO activities (such as participation in the Medicare Shared Savings Program (MSSP) or in activities unrelated to the MSSP described in Notice 2011-20, 2011-16 IRB 652); (s) Organizations that maintain, or intend to maintain, one or more donor advised funds; (t) Organizations that are organized and operated exclusively for testing for public safety and that are requesting a foundation classification under § 509(a)(4); (u) Private operating foundations; (v) Organizations that are applying for retroactive reinstatement of tax-exempt status under sections 5 or 6of Rev. Proc. 2014-11, 2014-3 IRB 411, after being automatically revoked ( see section 6.05(3) of this revenue procedure for additional information); (w) Organizations applying for retroactive reinstatement under section 4 of Rev. Proc. 2014-11, after being automatically revoked that are seeking a foundation classification that is different from the classification they had at the time of revocation; (x) Agricultural research organizations described in§ 170(b)(l)(A)(ix); and (y) Organizations that are currently or were previously exempt under another subsection of § 50l(c). Further information regarding these eligibility requirements may be provided in the Instructions for Form 1023-EZ. Form 1023 and Form (3) Form 1023 and Form 1023-EZ applications for reinstatement after automatic 1023-EZ applications revocation. Organizations that claim tax-exempt status under § 501(c) generally must file annual for reinstatement after Form 990 series returns or notices, even if they have not yet received their determination letter automatic revocation recognizing their tax-exempt status. If an organization fails to file required Form 990 series returns or notices for three consecutive years, its tax-exempt status will be automatically revoked by operation of § 6033(i). Such an organization may apply for reinstatement of its tax-exempt status, and such recognition may be granted retroactively, as provided in Rev. Proc. 2014-11. Consistent with the eligibility requirements for using Form 1023-EZ that are set forth in section 6.05(1)-(2) of this revenue procedure, only an organization requesting reinstatement of § 501(c)(3) status under section 4 (streamlined retroactive reinstatement of tax-exempt status for small organizations within 15 months of revocation) or section 7 (reinstatement of tax-exempt status from postmark date) of Rev. Proc. 2014-11 may apply using Form 1023-EZ (other than an organization also seeking a foundation status change as explained in section 6.05(2)(w) of Rev. Proc. 2014-11). An organization requesting reinstatement of § 501 ( c)(3) status under section 5 (retroactive reinstatement of tax-exempt status within 15 months of revocation) or section 6 (retroactive reinstatement more than 15 months after revocation) of Rev. Proc. 2014-11 must apply using Form 1023. What are the requirements.06 for a completed application? Requirements for a (1) A completed application (other than a Form 1023-EZ), including a letter application, is one completed application that- other than a Form 1023-EZ application (a) is signed or, in the case of a Form 1023 or Form 1024-A, is electronically signed, by an authorized individual under penalties of perjury ( see sections 4.04 and 4.06 of this revenue procedure); (b) includes the organization's correct EIN; (c) (i) for organizations other than those described in § 501(c)(3) or § 501(c)(4), includes a statement of receipts and expenditures and a balance sheet for the current year and the three preceding years ( or the years the organization was in existence, if less than four years), and if the organization has not yet commenced operations or has not completed one accounting period, a proposed budget for two full accounting periods and a current statement of assets and liabilities; (ii) for organizations described in § 501(c)(3) or § 501(c)(4), see Form 1023 and Instructions for Form 1023 or Form 1024-A and Instructions for Form 1024-A, respectively; (d) includes a detailed narrative statement of proposed activities, including each of the fundraising activities of a § 501(c)(3) organization, and a narrative description of anticipated receipts and contemplated expenditures; (e) includes a copy of the organizing or enabling document that is signed by a principal officer or two members in the case of an unincorporated association, or is accompanied by a written declaration signed by an authorized individual certifying that the document is a complete and accurate copy of the original or otherwise satisfies the requirements of a "conformed copy" as outlined in Rev. Proc. 68-14, 1968-1 CB 768; (f) if the organizing or enabling document is in the form of articles of incorporation, includes evidence that it was filed with, and approved by, an appropriate state official ( e.g., stamped "Filed" and dated by the Secretary of State); alternatively, a copy of the articles of incorporation may be submitted if accompanied by a written declaration signed by an authorized individual that the copy is a complete and accurate copy of the original copy that was filed with and approved by the state; if a copy is submitted, the written declaration must include the date the articles were filed with the state; (g) if the organization has adopted bylaws or similar governing rules, includes a current copy; the bylaws need not be signed if submitted as an attachment to the application for recognition of exemption; otherwise, the bylaws must be verified as current by an authorized individual ( see section 4.04 of this revenue procedure); and (h) is accompanied by the correct user fee (and Form 8718, when applicable). Requirements for a (2) A Form 1023-EZ submitted online at www.pay.gov by an eligible organization is complete completed Form 1023-EZ if it-- application (a) includes responses for each required line item of the form, including an accurate date of organization and an attestation that the organization has completed the Form 1023-EZ eligibility worksheet, as in effect on the date of submission, is eligible to apply for tax-exempt status using Form 1023-EZ, and has read the Instructions for Form 1023-EZ and understands the requirements to be exempt under§ 501(c)(3) as expressed therein; (b) includes the organization's correct EIN; (c) is electronically signed, under penalties of perjury, by an individual authorized to sign for the organization (as specified in sections 4.04 and 4.06 of this revenue procedure and the Instructions for Form 1023-EZ); and (d) is accompanied by the correct user fee. A Form 1023-EZ will not be considered complete if the organization's name and EIN do not match the records in the Service's Business Master File. Furthermore, a Form 1023-EZ submitted by an organization that is not an eligible organization within the meaning of section 6.05 of this revenue procedure will not be considered complete. What are the standards.07 for issuing a determination letter on tax-exempt status? Tax-exempt status must be (1) A favorable determination letter will be issued to an organization if its completed application, established in application, including attestations and supporting documents, along with any additional information requested including attestation and by the Service and provided by the organization, establishes that it satisfies the particular supporting documents requirements of the section under which exemption from Federal income tax is claimed. Tax-exempt status may be (2) (a)For all applications other than a Form 1023-EZ, tax-exempt status may be recognized recognized in advance of in advance of the organization's operations if the proposed activities are described in sufficient actual operations detail to permit a conclusion that the organization will clearly meet the particular requirements for tax-exempt status pursuant to the section of the Code under which tax-exempt status is claimed. (i) A mere restatement of exempt purposes or a statement that proposed activities will be in furtherance of such purposes will not satisfy this requirement. (ii) The organization must fully describe all of the activities in which it expects to engage, including the standards, criteria, procedures, or other means adopted or planned for carrying out the activities, the anticipated sources of receipts, and the nature of contemplated expenditures. (iii) Where the organization cannot demonstrate to the satisfaction of the Service that it qualifies for tax-exempt status pursuant to the section of the Code under which tax-exempt status is claimed, the Service will generally issue a proposed adverse determination letter. See section 9 of this revenue procedure. (b) For Form 1023-EZ applications, tax-exempt status may be recognized in advance of the organization's operations if the attestations contained in the organization's completed Form 1023-EZ (along with any additional information requested by the Service and provided by the organization) establish that it satisfies the requirements for tax-exempt status under § 501(c)(3). Even if application is (3) Even though an application is complete, the Service may request additional information complete, additional before issuing a determination letter. The failure to respond to a request for additional information information may be may result in the closure of the application without a determination letter being issued and without required a refund of the user fee. If the failure to respond to a request for additional information results in the Service issuing a proposed adverse determination letter to the organization, the proposed adverse determination letter will inform the organization of its opportunity to protest/appeal the decision and request a conference. See section 9 of this revenue procedure for the applicable appeal/protest procedures. (a) In the case of an application under§ 501(c)(3), the period of time beginning on the date the Service requests additional information until the date the information is submitted to the Service will not be counted for purposes of the 270-day period referred to in § 7428(b)(2). (b) The Service will select a statistically valid random sample of Form 1023-EZ applications for pre-determination reviews, which will result in requests for additional information. Effective date of tax-exempt.08 status (1) In general. A determination letter recognizing tax-exempt status of an organization described in § 50l(c), other than § 501(c)(29), is effective as of the date of formation of an organization if: (1) its purposes and activities prior to the date of the determination letter have been consistent with the requirements for tax-exempt status; and (2) it has filed an application for recognition of exemption within 27 months from the end of the month in which it was organized. (2) When an application is not submitted within 27 months of formation. An organization that otherwise satisfies the requirements for tax-exempt status and the issuance of a determination letter but does not meet the requirements for recognition from date of formation will be recognized from the postmark date of its application or the submission date of its Form 1023, Form 1023-EZ, or Form 1024-A, as applicable. (3) Application of Treas. Reg.§ 301.9100-3: Organizations required to apply for tax-exempt status under §§ 505, 508, and 501(c)(29) and the regulations thereunder. Unlike other tax- exempt organizations, an organization described in § 501(c)(3), (9), or (17) generally is required to apply for recognition of exemption within 27 months from the end of the month in which it was organized in order to be recognized and treated as tax-exempt effective as of the date of formation. See §§ 505 and 508, Treas. Reg. §§ l.505(c)-1T, 1.508-1(a), and 301.9100-2(a)(2)(iii) and (iv). A similar rule applies to organizations described in § 501(c)(29). See § 501(c)(29), Treas. Reg. § 1.501(c)(29)-1, and Rev. Proc. 2015-17, 2015-7 IRB 599. In its application for recognition of exemption under § 501(c)(3), (9), (17), or (29), an organization that has not filed its application within the required time period may request relief under Treas. Reg. § 301.9100-3 in order to be recognized and treated as tax-exempt effective as of a date earlier than the date of application, and EO Determinations may grant such relief if the requirements for relief are met. An organization applying for recognition of exemption under § 501(c)(3) after 27 months from formation may not use Form 1023-EZ if it requests an effective date earlier than the submission date, but instead must file a Form 1023. An organization will not be granted relief under Treas. Reg.§ 301.9100-3 if either (1) granting the request for relief would result in the organization's tax-exempt status being automatically revoked under § 6033(j)(1) effective before the application date (without regard to the provisions of § 6033(j)(3) and guidance issued thereunder), or (2) the period of limitations on assessment under § 6501(a) for any taxable year for which the organization claims tax-exempt status has expired prior to the date of application. (4) Application of Treas. Reg.§ 301.9100-3: Organizations not required to apply for tax- exempt status under § 505, § 508, or § 50l(c)(29) and the regulations thereunder. Treas. Reg. § 301.9100-3 does not apply to an organization that is not required to apply for recognition of exemption in order to be tax-exempt, and the Service will not consider a request for relief under Treas.Reg. § 301.9100-3 from such an organization. (5) When the Service requires the organization to make amendments. (a) If the Service requires the organization to alter its activities or make substantive amendments to its enabling instrument, tax-exempt status will be effective as of the date specified in the determination letter. (b) If the Service requires the organization to make a nonsubstantive amendment, tax-exempt status will ordinarily be recognized as of the date of formation if it satisfies the requirements in section 6.08(1) of this revenue procedure. Examples of nonsubstantive amendments include correction of a clerical error in the enabling instrument or the addition of a dissolution clause where the activities of the organization prior to the determination letter are consistent with the requirements for tax-exempt status. SECTION 7. WHAT ARE THE SPECIFIC PROCEDURES FOR DETERMINATION LETTER REQUESTS ON FORM 8940? In general.01 This section explains the specific procedures for requesting a determination letter by submitting Form 8940, including requests for a determination letter on foundation status. Requests made on Form.02 A request described in section 4.02(5) of this revenue procedure must be submitted on 8940 Form 8940 (except where otherwise permitted, including when such request is made as part of an application for recognition of exemption), along with all information, documentation, and other materials required by Form 8940 and the instructions thereto, as well as the appropriate user fee provided in Appendix A. For complete information about filing requirements and the submission process, refer to Form 8940 and the Instructions for Form 8940. Initial classification of.03 All § 501(c)(3) organizations are classified as private foundations under § 509(a) unless private foundation status they qualify as a public charity under§ 509(a)(l) (which cross-references § 170(b)(1)(A)(i)- (vi), and (ix)), (2), (3), or (4)). See Treas. Reg. §§ 1.170A-9 and 1.509(a)-1 through 1.509(a)-7. The Service determines an organization's private foundation or public charity status when the organization files its Form 1023, or when eligible, Form 1023-EZ. This status will be included in the organization's determination letter on tax-exempt status. Under what circumstances.04 (1) Requests to change from one public charity classification to another public charity must an organization classification. On its Form 990, Return of Organization Exempt From Income Tax Under section request a determination 501(c), 527, or 4947(a)(1) of the Internal Revenue Code (except private foundations), a public of foundation status, and charity indicates the paragraph of § 509(a), and subparagraph of § 170(b)(1)(A), if applicable, when is such a request under which it qualifies as a public charity. Because of changes in its activities or operations, this optional? may differ from the public charity status listed in its original determination letter. Although an organization is not required to obtain a determination letter to qualify for the new public charity status, in order for Service records to recognize any change in public charity status, an organization must obtain a new determination of foundation status by filing Form.8940 pursuant to this revenue procedure. (2) Requests from public charities for private foundation status. If a public charity no longer qualifies as a public charity under § 509(a)(1)-(4), then it becomes a private foundation, and, as a private foundation, it must file Form 990-PF, Return of Private Foundation or Section 4947(a) (1) Trust Treated as Private Foundation. The organization is not required to, but may, obtain a determination letter on its new private foundation status. The organization indicates this change in foundation status by filing its Form 990-PF return and following any procedures specified in the form, instructions, or other published guidance. Thereafter, the organization may terminate its private foundation status, such as by giving notice and qualifying as a public charity again under § 509(a)(1)-(3) during a 60-month termination period in accordance with the procedures under § 507(b)(1)(B) and Treas. Reg. § 1.507-2(6). (3) Requests from private foundations for public charity status. An organization that erroneously determined that it was a private foundation (for example, by erroneously classifying an item or items in its calculation of public support) and wishes to correct the error can request a determination letter classifying it as a public charity by showing that it continuously met the public support tests during the relevant periods. (4) Requests for private operating foundation status. A private foundation may qualify as an operating foundation under § 4942(j)(3) without a determination letter from the Service, but the Service will not recognize such status in its records without a determination letter from the Service. An organization claiming to be an exempt operating foundation under § 4940(d)(2) must obtain a determination letter from the Service recognizing such status to be exempt from the § 4940 tax on net investment income. Not applicable to notices.05 submitted by private foundations regarding (1) The procedures in this revenue procedure do not apply to the notice an organization must terminations under § 507 or submit in seeking to terminate its private foundation status under § 507. changes of status pursuant to examination (2) The procedures in this revenue procedure also do not apply to the examination of an organization which results in changes to its foundation status. SECTION 8. WITHDRAWALOF A REQUESTFOR DETERMINATION LETTER Request may be withdrawn.01 A taxpayer may withdraw a request for a determination letter at any time before the prior to issuance of a determination letter is issued by the Service. An authorized individual must make such a request determination letter in writing in accordance with the instructions to the form on which the request for a determination letter was submitted, if applicable. For purposes of this section 8.01, the issuance of a determination letter includes a proposed adverse determination letter. (1) When a request for determination letter is withdrawn, the Service will retain the application, Form 8940, or letter request and all supporting documents. (2) The Service may consider the information submitted in connection with the withdrawn request in a subsequent examination of the organization, or in connection with a subsequent application submitted by the organization. (3) Generally, the user fee will not be refunded if a request is withdrawn. See section 14 of this revenue procedure. Section 7428 implications of.02 The withdrawal of an application under§ 501(c) or (d) is not a failure to make a determination withdrawal of application within the meaning of § 7428(a)(2) or an exhaustion of administrative remedies within the meaning under § 501(c) or (d) of § 7428(b)(2). SECTION 9. PROCEDURES FOR ADVERSE DETERMINATION LETTERS In general.01 This section explains the procedures for issuing adverse determination letters. Different procedures apply to adverse determination letters relating to issues that may receive consideration by the Independent Office of Appeals and to all other types of adverse determination letters. Types of requests that may.02 The following types of determination letter requests will provide an organization with an receive Independent Office opportunity to protest/appeal a proposed adverse determination-- of Appeals consideration (1) the initial qualification of the organization as exempt from tax under §§ 501(a) or 521, or as an organization described in § 170(c)(2); (2) the classification or reclassification of the organization's foundation status under§ 509(a); and (3) the classification of the organization as a private operating foundation under § 4942(j)(3). Contents of proposed.03 If EO Determinations reaches the conclusion that the organization does not meet the adverse determination requirements for a favorable determination letter and the letter is a type for which an opportunity letter for requests with for protest/appeal is available under section 9.02 of this revenue procedure, the Service will issue appeals rights a proposed adverse determination letter, which will-- (1) include a detailed discussion of the basis for the Service's conclusion; and (2) inform the organization of its opportunity to protest/appeal the decision and request a conference with the Independent Office of Appeals. The non-acceptance under section 4.10 of this revenue procedure of a request for a determination letter is not a proposed adverse determination. Protest/appeal of a.04 To protest/appeal a proposed adverse determination letter described in section 9.02 of this proposed adverse revenue procedure, the organization must submit a statement of the facts, law and arguments in determination letter on support of its position within 30 days from the date of the proposed adverse determination letter. certain issues The organization must also state whether it is requesting a conference with the Independent Office of Appeals. Final adverse determination.05 If an organization does not submit a timely protest/appeal of a proposed adverse determination letter where no protest/ letter on an issue described in section 9.02 of this revenue procedure, a final adverse determination appeal is submitted letter will be issued to the organization. The final adverse letter will provide information about the disclosure of the proposed and final adverse letters. See section 13.04 of this revenue procedure. The non-acceptance under section 4.10 of this revenue procedure of a request for a determination letter is not a final adverse determination. Review of protest by EO.06 If an organization submits a protest/appeal of a proposed adverse determination letter Determinations described in section 9.02of this revenue procedure, EO Determinations will review the protest, and, if it determines that the organization satisfies the requirements for approval of its request, issue a favorable determination letter. If EO Determinations maintains its adverse position after reviewing the protest, it will forward the case file to the Independent Office of Appeals. If new information is raised in the protest, EO Determinations will follow the procedures described in section 9.08 of this revenue procedure, which may require the issuance of a new proposed denial, prior to sending the case to the Independent Office of Appeals. Consideration by the.07 The Independent Office of Appeals will consider the organization's protest/appeal submitted Independent Office of in response to a proposed adverse determination letter described in section 9.02 of this revenue Appeals procedure. If the Independent Office of Appeals agrees with the proposed adverse determination, it will either issue a final adverse determination or, if a conference was requested, contact the organization to schedule a conference. At the end of the conference process, which may involve the submission of additional information, the Independent Office of Appeals will generally issue a final adverse determination letter or a favorable determination letter. If the Independent Office of Appeals believes that tax-exempt status or private foundation status issue is not covered by published precedent or that there is non-uniformity, the Independent Office of Appeals must request technical advice from the Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). See Rev. Proc. 2022-2. Effect of new information.08 If the organization submits new information as part of a protest, or during consideration by raised in protest/appeal the Independent Office of Appeals, the matter may be returned to EO Determinations for further consideration. As a result of its review of the new information, EO Determinations may issue a favorable determination letter, rebuttal letter, or new proposed adverse determination letter. If a rebuttal letter is issued, EO Determinations will forward the case to the Independent Office of Appeals. If a new proposed adverse determination letter is issued, the organization must submit a protest/appeal of the new proposed adverse determination letter in order to have consideration of the issue by the Independent Office of Appeals. An appeal or protest may.09 An organization may withdraw its protest/appeal before the Service issues a final adverse be withdrawn determination letter. Upon receipt of the withdrawal request, the Service will complete the processing of the case in the same manner as if no appeal or protest was received. An organization that withdraws a protest/appeal will not be considered to have exhausted its administrative remedies within the meaning of § 7428(b)(2). Appeal and conference.10 The opportunity to appeal a proposed adverse determination letter and the conference rights rights not applicable in described above are not applicable to matters where delay would be prejudicial to the interests certain situations of the Service (such as in cases involving fraud, jeopardy, the imminence of the expiration of the statute of limitations, or where immediate action is necessary to protect the interests of the Federal government). Adverse determination.11 If EO Determinations reaches the conclusion that the organization does not meet the letter on an issue that will requirements for a favorable determination on an issue that is not described in section 9.02 of not receive consideration by this revenue procedure ( e.g., advance approval that a potential grant or contribution constitutes an the Independent Office of unusual grant; exemption from Form 990 filing requirements), the Service generally will advise Appeals the organization of its adverse position and give the organization a chance to submit additional information or withdraw the request before issuing an adverse determination letter, which will include a detailed discussion of the basis for the Service's conclusion. The organization will not have the opportunity to protest/appeal the adverse determination letter. Possible future updates.12 As part of the implementation of the Taxpayer First Act, Pub. L. 116-25 (2019), the Service related to review by the and the Independent Office of Appeals continue to review current policies and procedures and Independent Office of prior administrative pronouncements. As a result of this review, there may be additional updates Appeals to this revenue procedure or other forms of guidance. SECTION 10. DECLARATORY JUDGMENT PROVISIONS OF § 7428 Actual controversy.01 Generally, a declaratory judgment proceeding under§ 7428 can be filed in the United States involving certain issues Tax Court, the United States Court of Federal Claims, or the District Court of the United States for the District of Columbia with respect to an actual controversy involving a determination by the Service or a failure of the Service to make a determination with respect to (1) the initial qualification or continuing qualification of an organization as an organization described in § 501(c)(3) which is exempt from tax under § 501(a) or as an organization described in § 170(c)(2); (2) the initial classification or continuing classification of an organization as a private foundation (as defined in § 509(a)); (3) the initial classification or continuing classification of an organization as a private operating foundation (as defined in § 4942(j)(3)); (4) the initial classification or continuing classification of a cooperative as an organization described in § 521(b) which is exempt from tax under § 521(a); or (5) the initial qualification or continuing qualification of an organization as an organization described in § 501(c) (other than paragraph (3)) or § 501(d) and exempt from tax under § 501(a). Final determination to.02 A final determination to which § 7428 applies is a determination letter, sent by certified or which § 7428 applies registered mail, which holds that the organization is-- (1) not described in§ 50l(c), § 501(d), or § 170(c)(2); (2) a public charity described in a part of § 509 or § 170(b)(1)(A) other than the part under which the organization requested classification; (3) not a private operating foundation as defined in § 4942(j)(3); or (4) a private foundation and not a public charity described in a part of § 509 or § 170(b)(1)(A). Failure to make a.03 If the Service declines to issue a determination letter under section 3.02 of this revenue determination to which procedure to an organization seeking a determination described in section 10.01 of this revenue § 7428 applies procedure, the organization may be able to pursue a declaratory judgment under § 7428, provided that it has exhausted its administrative remedies. Section 7428 does not apply.04 (1) The non-acceptance for processing of a request under section 4.10 of this revenue to the non-acceptance or procedure is not a final determination, or a failure to make a determination, to which § 7428 withdrawal of a request applies. (2) The withdrawal of an application pursuant to section 8 of this revenue procedure is not a failure to make a determination within the meaning of § 7428(b)(2). Exhaustion of.05 Before filing a declaratory judgment action, an organization must exhaust its administrative administrative remedies remedies by taking, in a timely manner, all reasonable steps to secure a determination from the Service. These include-- (1) (a) For an organization seeking to be described in § 501(c)(3), the filing of a completed application Form 1023 (within the meaning of section 6.06(1) of this revenue procedure) or a completed Form 1023-EZ (within the meaning of section 6.06(2) of this revenue procedure); (b) For an organization seeking private foundation classification, a completed Form 8940; or (c) For an organization seeking to be described in § 501(c) (other than paragraph (3)) or in § 501(d), a completed appropriate Form or letter request (within the meaning of section 6.06(1) of this revenue procedure). · (2) In appropriate cases, requesting relief pursuant to Treas. Reg. § 301.9100-1 regarding the extension of time for making an election or application for relief from tax; (3) When applicable, the timely submission of all additional information requested by the Service to perfect a determination letter request; (4) In appropriate cases, requesting relief under § 7805(b) in the manner provided in section 12.04 of this revenue procedure; and (5) Exhaustion of all administrative appeals available within the Service pursuant to section 9 of this revenue procedure. An organization will not have exhausted its administrative remedies by completing the steps in this section 10.05 if the organization submitted Form 1023-EZ but was not eligible to submit Form 1023-EZ, as described in section 6.05(1)-(2) of this revenue procedure. Not earlier than 270 days.06 An organization will in no event be deemed to have exhausted its administrative remedies after seeking determination prior to the earlier of-- (1) the completion of all reasonable steps to secure a determination from the Service, including the applicable steps in section 10.05 of this revenue procedure, and the issuance by the Service by certified or registered mail of a final determination letter; or (2) the expiration of the 270-day period described in § 7428(b)(2) in a case where the Service has not issued a final determination letter, and the organization has taken, in a timely manner, all reasonable steps to secure a determination letter as provided in sectionJ0.05 of this revenue procedure. The 270-day period referred to in § 7428(b)(2) will not be considered to have started prior to the date a completed application is submitted to the Service. If the Service requests additional information from an organization, the period of time beginning on the date the Service requests additional information until the date the information is submitted to the Service will not be counted for purposes of the 270-day period referred to in § 7428(b)(2). Service must have.07 The steps described in section 10.05 of this revenue procedure will not be considered reasonable time to act on an completed until the Service has had a reasonable time to act upon a protest/appeal. appeal or protest SECTION 11. FAVORABLE DETERMINATION LETTERS Reliance on determination.01 A taxpayer ordinarily may rely on a favorable determination letter received from the Service, letter regardless of the format of request submitted, subject to the conditions and limitations described in this section 11. Limitations on reliance.02 (1) Will not apply to another taxpayer. A taxpayer may not rely on, use, or cite as precedent a determination letter issued to another taxpayer. See § 6110(k)(3). (2) Material change in facts. A determination letter may not be relied upon by the organization submitting the request if there is a material change in facts. For a determination letter on tax- exempt status, a material change includes a change in the character, the purpose, or the method of operation of the organization that is inconsistent with the organization's tax-exempt status. See section 12.01 of this revenue procedure. (3) Inaccurate information on request. A determination letter issued to an organization that submitted a request in accordance with this revenue procedure may not be relied upon by the organization submitting the request if it was based on any omission or inaccurate material information submitted by the organization. Inaccurate material information includes an incorrect representation or attestation as to the organization's organizational documents, the organization's exempt purpose, the organization's conduct of prohibited and restricted activities, or the organization's eligibility to file Form1023-EZ. See section 12:01 of this revenue procedure. (4) Change in law. A change in law may affect reliance. See section 12.01 of this revenue procedure. Post-determination review.03 (1) Determination letters may be post-reviewed. Determination letters may be reviewed by EO Determinations Quality Assurance to assure uniform application of the statutes, tax treaties, regulations, court opinions, or guidance published in the Internal Revenue Bulletin. (2) Procedures for addressing determination letters reviewed and found to have been issued in error. If upon post-determination review EO Determinations Quality Assurance concludes, based on the information contained in the existing application file, that a determination letter issued by EO Determinations was issued in error, the matter will be referred to EO Examinations for consideration. SECTION 12..01 In general. A determination letter may be revoked or modified-- REVOCATION OR MODIFICATION OF (1) by a notice to the taxpayer to whom the determination letter was issued; A DETERMINATION LETTER (2) by enactment of legislation or ratification of a tax treaty; (3) by a decision of the Supreme Court of the United States; (4) by the issuance of temporary or final regulations; (5) by the issuance of a revenue ruling, revenue procedure, or other statement published in the Internal Revenue Bulletin; or (6) automatically, by operation of § 6033(j), for failure to file a required annual return or notice for three consecutive years. Note: If an organization no longer qualifies under the Code section for which it originally applied for recognition of exemption, then the determination letter will be revoked, rather than modified. Appeal and conference.02 In the case of a revocation or modification of a determination letter described in section procedures in the case of 9.02 of this revenue procedure, the procedures to protest/appeal the revocation or modification revocation or modification are generally the same as set out in section 9of this revenue procedure. However, organizations of tax-exempt status letter revoked under § 6033(j) will not have an opportunity for consideration by the Independent Office of Appeals. Revocation or modification.03 The revocation or modification of a determination letter may be retroactive if-- of a determination letter may be retroactive (1) there has been a change in the applicable law; (2) the organization omitted or misstated material information. A misstatement of material information includes an incorrect representation or attestation as to the organization's organizational documents, the organization's exempt purpose, the organization's conduct of prohibited and restricted activities, or the organization's eligibility to file Form 1023-EZ; (3) the organization operated in a manner materially different from that originally represented in an application for recognition of exemption; or (4) in the case of an organization to which § 503 applies, the organization engaged in a prohibited transaction with the purpose of diverting corpus or income of the organization from its exempt purpose and such transaction involved a substantial part of the corpus or income of such organization. If a determination letter is revoked or modified by a letter with retroactive effect, the letter will, except in fraud cases, state the grounds on which the determination letter is being revoked or modified and explain the reasons why it is being revoked or modified retroactively. Organization may request.04 An organization may seek relief from retroactive revocation or modification of a that retroactivity be limited determination letter under § 7805(b). A request for relief under § 7805(b) must be in writing and under § 7805(b) must be submitted to the agent or specialist assigned to the case. The request for relief under § 7805(b) must be submitted before issuance of the final adverse determination letter. (1) Form of request for relief. An organization's request to limit the retroactive effect of the revocation or modification of the determination letter must-- (a) state that it is being made under § 7805(b); (b) state the relief sought; (c) explain the reasons and arguments in support of the relief sought; and (d) include any documents bearing on the request. (2) Notice of denial of request for relief. If the request for relief under § 7805(b) is denied, the organization will be notified in writing of the denial. (3) Organization must exhaust its administrative remedies. If an organization seeks declaratory judgment under § 7428 in response to a retroactive revocation or modification, to preserve judicial review of a claim for relief under § 7805(b), the organization must follow the steps in this revenue procedure in order to have exhausted its administrative remedies with respect to its request under § 7805(b). If the organization does not complete the applicable steps, the organization will not have exhausted its administrative remedies as required by § 7428(b)(2) with respect to its request for § 7805(b) relief, and will thus be precluded from obtaining § 7805(b) relief in any declaratory judgment it seeks under§ 7428. If the organization has requested § 7805(b) relief, the organization's administrative remedies with respect to its § 7805(b) request will not be considered exhausted until the Se1vice has had a reasonable amount of time to act upon the request. Effective date of revocation.05 Effective date of revocation or modification. or modification of a determination letter on tax- exempt status (1) Where the organization omitted or misstated material information in a request, revocation or modification will be effective as of the effective date of the determination letter issued in response to the request. (2) Where there is a material change in facts, inconsistent with the conclusion of a determination letter, revocation or modification will ordinarily take effect as of the date of such material change. (3) If a determination letter was issued in error or is no longer in accord with the Service's position, and § 7805(b) relief is granted ( see section 12.04 of this revenue procedure), ordinarily, the revocation or modification will be effective not earlier than the date on which the Service modifies or revokes the original determination letter. SECTION 13. DISCLOSURE OF APPLICATIONS AND DETERMINATION LETTERS INCLUDING THAT OF FOUNDATION STATUS Determination letter will.01 Sections 6104 and 6110 provide rules for the disclosure of requests, including forms, be disclosed under § 6104 supporting documents, and determination letters issued in response to requests. or § 6110 depending on the type of request and the type of determination letter (1) A favorable determination letter issued in response to an application for recognition of issued exemption from Federal income tax under § 501 or § 521, as well as certain determination letters regarding foundation status are disclosed under § 6104. Determination letters that an applicant organization is exempt from Federal income tax and letters or documents issued by the Service that an organization is or is not a private foundation, or described in § 509(a), § 4940(d) (2), § 4942(j)(3), or § 4943(f) are disclosed under § 6104. (2) Other determination letters are disclosed under § 6110. Any determination letter that is not disclosed under § 6104 is disclosed under § 6110. This includes proposed and final denial of tax-exempt status when such denial becomes final, advance approval of grant making procedures described in § 4545(g), advance approval of certain set-asides described in § 4942(g)(2), advance approval of voter registration activities described in § 4945(f), and advance approval of an unusual grant per Rev. Proc. 2018-32, 2018-23 IRB 739. (3) Whether other determination letters are disclosed under § 6104 or § 6110 will vary based on the type of determination. Disclosure of applications,.02 If a favorable determination letter is issued in response to an application for recognition of supporting documents, and exemption from Federal income tax under § 501 or § 521, the application form, any supporting favorable determination documents, and any determination letter issued in response to the application (including a proposed letters under § 6104 adverse determination letter), are available for public inspection upon request under § 6104(a)(1). In addition, letters or documents issued by the Service that an organization is or is not a private foundation, or described in § 509(a), § 4940(d)(2), § 4942(j)(3), or § 4943(f) are disclosed under § 6104. However, there are certain limited disclosure exceptions for a trade secret, patent, process, style of work, or apparatus, if the Service determines that the disclosure of the information would adversely affect the organization. (1) The public can request information available for public inspection under § 6104(a)(1) by submitting Form 4506-A, Request for Public Inspection or Copy of Exempt or Political Organization IRS Form, or by using such other form or procedure as the IRS may specify. Organizations should ensure that applications and supporting documents do not include unnecessary personal identifying information (such as bank account numbers or social security numbers) that could result in identity theft or other adverse consequences if publicly disclosed. (2) The tax-exempt organization is required to make its application for recognition of exemption, supporting documents, and any determination letter issued in response to the application (including a proposed adverse determination letter) available for public inspection without charge. For more information about the tax-exempt organization's disclosure obligations, see Publication 557, Tax- Exempt Status for Your Organization. Disclosure of determination.03 The Service is required to make any determination letter that is not disclosed under letters under § 6110 § 6104, including adverse determinations of tax-exempt status, available for public inspection under § 6110. Upon issuance of the final adverse dete1mination letter to an organization, both the proposed adverse determination letter and the final adverse determination letter will be released pursuant to § 6110. In addition, determinations of advance approval of grant making procedures described in § 4945(g), advance approval of certain set-asides described in § 4942(g)(2), advance approval of voter registration activities described in § 4945(f), and advance approval of an unusual grant per Rev. Proc. 2018-32, will be released pursuant to § 6110. The written determination and background file documents are made available to the public after the deletion of names, addresses, and any other information that might identify the taxpayer. See § 6110(c) for other specific disclosure exemptions. Taxpayer may protest.04 If the determination letter is being disclosed under § 6110, the determination letter will disclosure under § 6110 of enclose Notice 437, Notice of Intention to Disclose, and redacted copies of the final and proposed certain information in a adverse determination letters. Notice 437 provides procedures to follow and instructions if the determination letter organization disagrees with the deletions proposed by the Service. Within 20 calendar days after the Service receives the response to the Notice 437, the Service will mail to the taxpayer its final administrative conclusion regarding the deletions to be made. The taxpayer does not have the right to a conference to resolve any disagreements concerning material to be deleted from the text of the determination letter. However, these matters may be taken up at a conference with the Independent Office of Appeals that is otherwise scheduled regarding the request, if available under section 9 of this revenue procedure. Taxpayer may request delay.05 After receiving the Notice 437, but within 60 calendar days after the date of notice, the of public inspection under taxpayer may send a request for delay of public inspection under either § 6110(g)(3) or (4). The § 6110 request for delay must be sent to the Service office indicated on the Notice 437. The request for delay under § 6110(g)(4) must contain a statement from which the Commissioner of Internal Revenue may determine that there are good reasons for the delay. Note: Section 6110(l)(1) states that § 6110 disclosure provisions do not apply to any matter to which § 6104 applies. Therefore, disclosure of determination letters and related background file documents dealing with an approved application for recognition of exemption under § 501(a) as an organization described in § 501(c) or (d), or a notice of status as a political organization under Disclosure to state officials § 527 (covered by § 6104) may not be protested or delayed by request of the taxpayer. when the Service refuses to recognize tax-exempt status under § 501(c)(3).06 The Service may notify the appropriate state officials of a refusal to recognize an organization as tax-exempt under § 501(c)(3). See § 6104(c). The notice to the state officials may include a copy of a proposed or final adverse determination letter the Service issued to the organization. In addition, upon request by the appropriate state official, the Service may make available for inspection and copying, the application for recognition of exemption and other information relating to the Service's determination on tax-exempt status. The Service does not consider the non-acceptance of an application under section 4.10 of this revenue procedure to be a refusal to recognize an organization as tax-exempt. Disclosure to state officials.07 The Service may disclose to state officials the name, address, and identification number of of information about any organization that has applied for recognition of exemption under § 501(c)(3). The Service § 501(c)(3) applicants does not consider an organization the application of which is not accepted under section 4.10 of this revenue procedure to have applied for recognition of exemption. SECTION 14. WHAT ARE THE USER FEE REQUIREMENTS FOR DETERMINATION LETTERS? Legislation authorizing user.01 Section 7528 directs the Secretary of the Treasury or delegate (Secretary) to establish a fees program requiring the payment of user fees for requests to the Service for determination letters and similar requests. The fees charged under the program: (1) are to vary according to categories or subcategories established by the Secretary; (2) are to be determined after taking into account the average time for, and difficulty of, complying with requests in each category and subcategory; and (3) are payable in advance. Section 7528(b)(2) directs the Secretary to provide for exemptions and reduced fees under the program as the Secretary determines to be appropriate, but the average fee applicable to each category must not be less than the amount specified in § 7528(b)(3). Requests to which user fees.02 In general, user fees apply to all requests for determination letters described in this revenue apply procedure. Requests to which a user fee applies must be accompanied by the appropriate fee as determined from the fee schedule provided in Appendix A of this revenue procedure. The fee may be refunded in limited circumstances as set forth in section 14.09 of this revenue procedure. Requests and other actions.03 Actions which do not require the payment of a user fee include the following- to which user fees do not apply (1) Elections pertaining to automatic extensions of time under Treas. Reg. § 301.9100-1; and (2) Confirmation of tax-exempt status (affirmation letter) (to replace lost tax-exempt status letter, and to reflect name and address changes). Exemption from the user.04 Departments, agencies, or instrumentalities of the United States that certify that they are fee requirements seeking a dete1mination letter on behalf of a program or activity funded by Federal appropriations are exempt from the user fee requirements. The fact that a user fee is not charged under § 7528 has no bearing on whether an applicant is treated as an agency or instrumentality of the United States for purposes of any other provision of the Code. In addition, Canadian registered charities do not pay a user fee. See Appendix A. Requests involving multiple.05 fee categories, issues, or entities (1) Requests involving several fee categories. Requests submitted as part of an initial application ( e.g., foundation classification; exemption from Form 990 filing requirements) are considered part of the initial application and aren't subject to an additional user fee. (2) Multiple requests on a single Form 8940. A separate Form 8940 and user fee are generally required for each type of request for which an organization has checked a box on Form 8940. However, the following scenarios are considered a single request- (a) A request for reclassification as a public charity under § 509(a)(3) that checks boxes f and g of Form 8940; or (b) A request for advance approval of grant making procedures for a program described in both § 4945(g)(1) and (3) is considered a single request. (3) Requests for separate determination letters for several entities. Each entity involved in a request that desires a separate determination letter in its own name (for example, subordinate organizations seeking change of filing requirements) must pay a separate fee. Payment of a separate fee is required regardless of whether the requests may be viewed as related. Method of payment.06 (1) Payment of user fees for applications of recognition of exemption on Form 1023, Form 1023-EZ, or Form 1024-A. User fees for applications for recognition of exemption on Form 1023, Form 1023-EZ, or Form 1024-A must be paid through www.pay.gov. (2) Payment of user fees for all other requests. Except as provided in section 14.06(1) of this revenue procedure, each request to the Service for a determination letter must be accompanied by a check, payable to the United States Treasury, in the appropriate amount. Taxpayers should not send cash. The check may be converted to an electronic fund transfer. "Electronic fund transfer" is the term used to refer to the process in which the Service electronically instructs the financial institution holding the funds to transfer funds from the account named on the check to the United States Treasury account, rather than processing the check. By sending a completed, signed check to the Service, the Service is authorized to copy the check and to use the account information from the check to make an electronic fund transfer from the account for the same amount as the check. If the electronic fund transfer cannot be processed for technical reasons, the Service is authorized to process the copy of the check. The electronic fund transfer from an account will usually occur within 24 hours, which is faster than a check is normally processed. Therefore, it is necessary to ensure there are sufficient funds available in the checking account when the check is sent to the Service. The check will not be returned from the financial institution. Transmittal forms.07 Form 8718 is intended to be used as an attachment to applications other than Form 1023, Form 1023-EZ, or Form 1024-A for the attachment of the applicable user fee check. Effect of nonpayment.08 It will be the general practice of the Service that-- or payment of incorrect amount (1) An application for a determination letter containing the correct user fee will generally be accepted for processing even if Form 8718 was not attached. (2) If a check is for more than the correct amount, the submission will be accepted for processing and the amount of the excess payment will be returned to the requester. (3) If a check is for less than the correct amount or no check is received, the submission will not be accepted for processing and any user fee that was paid with the request will be refunded. See section 4.10 of this revenue procedure. Refunds of user fees.09 In general, the user fee will not be refunded unless the Service does not accept the request for processing or declines to make a determination on all issues for which a determination letter is requested. (1) Examples in which the user fee will not be refunded: (a) The request for a determination letter is withdrawn at any time subsequent to its receipt by the Service. For example, no fee will be refunded where the taxpayer has been advised that an adverse ruling is contemplated and the taxpayer subsequently withdraws its submission. (b) A determination letter is revoked in whole or in part. The fee paid at the time the original determination letter was requested will not be refunded. (c) The request contains several issues and the Service rules on some, but not all, of the issues. The highest fee applicable to the issues on which the Service rules will not be refunded. (2) The following situations are examples in which the user fee will be refunded: (a) The request is not accepted for processing under section 4.10 of this revenue procedure. (b) The Service declines to rule on the request in accordance with section 3.02 of this revenue procedure. Request for reconsideration.10 A taxpayer that believes the user fee charged by the Service for its request for a determination of user fee letter is either not applicable or incorrect, and wishes to receive a refund of all or part of the amount paid ( see section 14.09 of this revenue procedure) may request reconsideration and, if desired, the opportunity for an oral discussion by sending a letter to the Internal Revenue Service at the applicable Post Office Box or other address given in section 15 of this revenue procedure. Both the incoming envelope and the letter requesting such reconsideration should be prominently marked SECTION 15. "USER FEE RECONSIDERATION REQUEST." No user fee is required for these requests. The MAILING ADDRESS request should be marked for the attention of "Manager, EO Determinations Quality Assurance." FOR REQUESTING DETERMINATION LETTERS.01 (1) The following types of requests and applications handled by the EO Determinations Office should be sent to the Internal Revenue Service Center, at the address in section 15.01(2) of this revenue procedure: (a) applications for recognition of exemption on Form 1024, and Form 1028; (b) requests for determination letters submitted on Form 8940; and (c) requests submitted by letter. (2) The address is: Internal Revenue Service P.O. Box 12192 TE/GE Stop 31A Team 105 Covington, KY 41012-0192.02 Applications for recognition of exemption on Form 1023, Form 1023-EZ, and Form 1024-A are handled by the EO Determinations Office but must be submitted electronically online at www. pay.gov. Paper submissions of Form 1023, Form 1023-EZ, and Form 1024-A will not be accepted..03 Determinations and requests not subject to a user fee (including a Form 1023 that a Canadian registered charity as referenced in Appendix A submits in order to be listed in the Tax Exempt Organization Search database for organizations eligible to receive tax-deductible charitable contributions (Pub. 78 data) or to determine public charity status) should be sent to the Internal Revenue Service at the address shown below: Internal Revenue Service P.O. Box 2508 Cincinnati, OH 45201.04 Requests shipped by Express Mail or a private delivery service for all of the above should be sent to: Internal Revenue Service 7940 Kentucky Drive TE/GE Mail Stop 31A Team 105 Florence, KY 41042 SECTION 16. EFFECT Revenue Procedures 2021-5 and 2021-8 are superseded. OF THIS REVENUE PROCEDURE ON OTHER DOCUMENTS SECTION 17. EFFECTIVE This Revenue Procedure is effective January 3, 2022. DATE SECTION 18. The collections of information contained in this revenue procedure have been reviewed and PAPERWORK approved by the Office of Management and Budget in accordance with the Paperwork Reduction REDUCTION ACT Act (44 USC § 3507) under multiple control numbers. The collection of information on Forms 1023 and 1023-EZ have been reviewed and approved under control number 1545-0047. The collection of information on Forms 1024 and 1024-A have been reviewed and approved under control number 1545-0047. The collection of information on Form 1028 has been reviewed and approved under control number 1545-0047. The collection of information on these forms is required if an organization wants to be recognized as tax-exempt by the Service. The Service needs the information to determine whether the organization satisfies the legal requirements for tax-exempt status. The specific information collected in connection with requesting a letter application has been approved and reviewed under control number 1545-0047. The Service needs this information to determine whether the organization satisfies the legal requirements for tax-exempt status. The collection of information for Form 8940 has been approved and reviewed under control number 1545-2211. This information is required to evaluate and process the request for a determination letter. The collection of information on Form 2848 has been reviewed and approved under control number 1545-0150. It is used to authorize someone to act for the respondent in tax matters. It grants all powers that the taxpayer has except signing a return and cashing refund checks. Data is used to identify authorized representatives and to ensure that confidential information is not divulged to unauthorized persons. The collection of information on Form 8718 has been reviewed and approved under control number 1545-0047. The Omnibus Reconciliation Act of 1990, Pub. L. 101-508, requires payment of a "user fee" with each application for a tax-exempt organization determination letter. Because of this requirement, the Form 8718 was created to provide filers the means to enclose their payment and indicate what type of request they are making. The collections of information are voluntary, to obtain a benefit. The likely respondents are tax- exempt organizations and their authorized representatives. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB number. Books and records relating to the collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by § 6103. DRAFTING The principal author of this Revenue Procedure is Ingrid Vatamanu of the Office of Associate INFORMATION Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). For additional information, please contact Ms. Vatamanu at 202-317-6177 (not a toll-free call). APPENDIXA Schedule of User Fees This table summarizes the various types of Exempt Organization determination letter user fees. ISSUE USER FEE / (1) Application for recognition of exemption under § 501(c)(3) submitted on Form 1023-EZ $275 (2) All other applications for recognition of exemption under § 501 except for those included in (1) of Appendix A of this revenue procedure and under § 521 (other than pension, profit-sharing, and stock bonus plans described in § 401). $600 (3) Group exemption letters $2,500 Note: An additional user fee under (1) or (2) of Appendix A of this revenue procedure above is also required when a central organization submits an initial application for recognition of exemption with its request for a group exemption letter. As explained in Section 3.02(11) of this revenue procedure, the Service is not current- ly accepting requests for group exemption letters. (4) Canadian registered charities None Note: In accordance with the income tax treaty between the United States and Canada, and pursuant to a mutual arrangement between the competent authorities of the two countries, Canadian registered charities are automatically recognized as exempt under § 501(c)(3) without filing an application for recognition of exemption. For details, see Notice 99-47, 1999-2 CB 391. Therefore, no user fee is required when a Canadian registered charity submits a written request to be listed in Tax Exempt Organization Search database for orga- nizations eligible to receive tax-deductible charitable contributions (Pub. 78 data), or for a determination on its private foundation status. For additional information about the submission process, refer to the Form 1023 Instructions. (5) Affirmation Letter - Confirmation of tax-exempt status (to replace lost tax-exempt status letter, and to reflect name and address changes) None (6) Reclassification of private foundation status, including - operating foundation status described in § 4942(j)(3) and exempt operating foundation status described in § 4940(d); - a determination that a public charity is described in § 509(a)(3)(i), (ii), or (iii), including whether or not a Type III supporting organization is functionally integrated; - reclassification of foundation status, including voluntary requests from public charities for private foun- dation status and voluntary requests from public charities, including requests from subordinate organiza- tions, to change from one public charity status to another public charity status; or - final public charity classification determination for organizations whose advance ruling periods expired prior to June 9, 2008, without providing the required information (Form 8940). (a) Submissions postmarked prior to July1, 2022 $500 (b) Submissions postmarked on or after July 1, 2022 $550 (7) Regulations § 301.9100 relief in connection with applications for recognition of exemption None (8) Section 507 terminations - advance or final ruling under § 507(b)(1)(B) (Form 8940) (a) Submissions postmarked prior to July 1, 2022 $500 (b) Submissions postmarked on or after July1, 2022 $550 (9) Section 4942(g)(2) set asides - advance approval (Form 8940) $2,500 (10) Section 4945 advance approval of organization's grant making procedures (Form 8940) $2,500 (11) Section 4945(f) advance approval of voter registration activities (Form 8940) $2,500 (12) Section 6033 annual information return filing requirements (including a subordinate organization's change of filing requirements) (Form 8940) (a) Submissions postmarked prior to July1, 2022 $500 (b) Submissions postmarked on or after July 1, 2022 $550 ISSUE USERFEE (13) Unusual grants to certain organizations under§§ l 70(b)(1)(A)(vi) and 509(a)(2) (Form 8940) (a) Submissions postmarked prior to July 1, 2022 $500 (b) Submissions postmarked on or after July 1, 2022 $550 (14) User Fee for determination letters under the jurisdiction of the Determinations Office not otherwise described or covered in this Appendix. (a) Submissions postmarked prior to July 1, 2022 $500 (b) Submissions postmarked on or after July 1, 2022 $550 APPENDIX B Authorized Representatives To sign a request for a determination letter or to appear before the Service in connection with the request, the representative must be: Attorney (a) An attorney who is a member in good standing of the bar of the highest court of any state, possession, ter- ritory, commonwealth, or the District of Columbia and who is not currently under suspension or disbarment from practice before the Service. He or she must file a written declaration with the Service on Form 2848 showing current qualification as an attorney and current authorization to represent the taxpayer. Certified public (b) A certified public accountant who is qualified to practice in any state, possession, territory, commonwealth, accountant or the District of Columbia and who is not currently under suspension or disbarment from practice before the Service. He or she must file a written declaration with the Service on Form 2848 showing current qualification as a certified public accountant and current authorization to represent the taxpayer. Enrolled agent (c) An enrolled agent, other than an attorney or certified public accountant, that is currently enrolled to practice before the Service and is not currently under suspension or disbarment from practice before the Service, in- cluding a person enrolled to practice only for employee plans matters. He or she must file a written declaration with the Service on Form 2848 showing current enrollment and authorization to represent the taxpayer. Either the enrollment number or the expiration date of the enrollment card must be included in the declaration. For the rules on who may practice before the Service, see Treasury Department Circular No. 230. A person with (d) Any other person, including a foreign representative, who has received a "Letter of Authorization" from a "Letter of the Director, Office of Professional Responsibility under section 10.7(d) of Treasury Department Circular No. Authorization" 230. He or she must file a written declaration with the Service on Form 2848 (or equivalent power of attorney and declaration of representative) showing authorization to represent the taxpayer with a copy of the "Letter of Authorization" attached. A person may make a written request for a "Letter of Authorization" to: Director, Office of Professional Re- sponsibility, Internal Revenue Service, 1111 Constitution Avenue N.W., Washington, DC 20224. Circular No. 230 section 10.7(d) ("Special appearances") authorizes the Commissioner, or delegate, to allow an individual who is not otherwise eligible to practice before the Service to represent another person in a particular matter. Employee, (e) A regular full-time employee representing his or her employer, a general partner representing his or her general partner, partnership, a bona fide officer representing his or her corporation, association, or organized group, a trustee, bona fide officer, receiver, guardian, personal representative, administrator, or executor representing a trust, receivership, guard- administrator, ianship, or estate, or an individual representing his or her immediate family. He or she may be required to file a trustee, etc. written declaration with the Service on Form 2848 showing authorization to represent the taxpayer. See Form 2848 for more information. A preparer of a return (other than a person referred to in paragraph (a), (b), or (c) of this Appendix B) who is not a full-time employee, general partner, a bona fide officer, an administrator, trustee, etc., or an individual representing his or her immediate family may not represent a taxpayer in connection with a determination letter or a technical advice request. See section 10.7(c) of Treasury Department Circular No. 230. Foreign (f) A foreign representative (other than a person referred to in paragraph (a), (b), or (c) of this Appendix B) is representative not authorized to practice before the Service and, therefore, must withdraw from representing a taxpayer in a request for a determination letter. In this situation, the nonresident alien or foreign entity must submit the request for a determination letter on the individual's or entity's own behalf or through a person referred to in paragraph (a), (b ), or (c) of this Appendix B.

Private Letter Ruling Number: 202336001 Internal Revenue Service June 13, 2023 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202336001 Release Date: 9/8/2023 Index Number: 856.00-00, 9100.00-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:FIP:B02 PLR-100586-23 Date: June 13, 2023 Dear ******: This letter responds to a letter dated December 19, 2022, submitted on behalf of Taxpayer. Taxpayer requests an extension of time under sections 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations to make an election under section 856(c) of the Internal Revenue Code (the Code) to be treated as a real estate investment trust (REIT) effective Date 2. FACTS Taxpayer is a State limited liability company that was formed on Date 1 as a disregarded entity of Fund. Taxpayer always intended to be a REIT, which is evident from multiple provisions in its Limited Liability Company Agreement (LLC Agreement). For example, the LLC Agreement provides that Taxpayer was established to provide for the governance and operation of the company as a REIT within the meaning of sections 856 through 860 of the Code. The LLC Agreement also provides that the Board of Managers shall cause the company to issue up to y preferred units to a sufficient number of persons to permit the company to qualify as a REIT. Consistent with this provision, on Date 3, Taxpayer added y preferred shareholders to permit it to qualify as a REIT for Year 1. The LLC Agreement also provides that the Board of Managers shall use commercially reasonable efforts to take actions as are necessary or appropriate for the company to qualify as a REIT and to preserve its status as a REIT. Taxpayer does not have employees and engages Accounting Firm to ensure it complies with federal and state tax obligations, including extensions. Accounting Firm is a reputable national accounting firm with a sophisticated real estate tax practice and strong expertise in REITs. Accounting Firm has a longstanding relationship with Fund, preparing and filing federal and state tax returns for Fund and more than x of its related entities, including Taxpayer (collectively, the Fund Group). In addition, Accounting Firm performed quarterly REIT asset testing for Taxpayer through Year 1 and annual gross receipts testing at Year 1 end. Accounting Firm intended to electronically file Fund's Year 1 Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, by Date 4. Accounting Firm also intended to electronically file a Year 1 Form 7004 for Taxpayer by Date 5 to extend the time to file Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts, for Taxpayer's first REIT taxable year. Due to administrative oversights, Accounting Firm did not file Form 7004s for Fund or Taxpayer for Year 1. Because Taxpayer's Form 7004 was not timely filed, the deadline for Taxpayer's REIT election was not extended from Date 5 to Date 6. After Date 5, the tax partner at Accounting Firm who was assigned to the Fund Group retired. In Month 1 of Year 2, Taxpayer's return and the returns of the entire Fund Group were transitioned to a new tax partner. At that time, the new tax partner believed that Taxpayer's Year 1 Form 7004 had been timely filed by Date 5, along with the many other federal and state extensions of the Fund Group that were previously due. In late Month 1/early Month 2 of Year 2, Accounting Firm first became aware that certain Fund Group federal extensions may not have been filed. At such time, the exact population was not immediately known to Accounting Firm, or whether Taxpayer was part of that population. Accounting Firm reviewed the files for each Fund Group entity to gain clarity on which entities may have been impacted. In early Month 3 of Year 2 (prior to the intended extended due date), upon Accounting Firm's review of Form 1120-REIT for Taxpayer's first REIT taxable year, it appeared that Taxpayer's Form 7004 may have been part of the population of unfiled extensions. Accounting Firm filed Form 1120-REIT on Date 6 consistent with Taxpayer's intention to be a REIT, including electing Year 1 as the year of Taxpayer's REIT status election. Subsequently, Accounting Firm informed Taxpayer of the omission and its potential impact on the validity of Taxpayer's initial REIT election. Accounting Firm also advised Taxpayer to seek a ruling under sections 301.9100-1 and 301.9100-3 for an extension of time to elect under section 856(c) to be treated as a REIT effective Date 2. At all times prior to discovery, Taxpayer intended to timely file Form 7004 and, subsequently Form 1120-REIT. Until Month 3 of Year 2, Taxpayer believed that Taxpayer's Form 7004 for the first REIT taxable year had been timely filed. REPRESENTATIONS Taxpayer makes the following representations in connection with this request for an extension of time: 1. Taxpayer filed the request for relief before the failure to make the election was discovered by the Service. 2. The interests of the government are not prejudiced within the meaning of section 301.9100-3(c). Granting the relief will not result in Taxpayer having a lower U.S. income tax liability in the aggregate for all years to which the regulatory election applies than Taxpayer would have had if the election had been timely made (taking into account the time value of money). 3. Taxpayer does not seek to alter a return position for which an accuracy-related penalty has been or could be imposed under section 6662 at the time it requested relief and the new position requires or permits a regulatory election for which relief is requested. 4. Being fully informed of the required regulatory election and related tax consequences, Taxpayer did not choose not to file the election. 5. Taxpayer is not using hindsight in requesting this relief. No specific facts have changed since the due date for making the election that makes this election advantageous to Taxpayer. 6. The period of limitations on assessment under section 6501(a) has not expired for Taxpayer for the taxable year for which the election should have been made, nor for any taxable year(s) that would have been affected by the election had it been timely made. In addition, affidavits on behalf of Taxpayer have been provided as required by section 301.9100-3(e)(2) and (3). LAW AND ANALYSIS Section 856(c)(1) provides that a corporation, trust, or association shall not be considered a REIT for any taxable year unless it files with its return for the taxable year an election to be a REIT or has made such an election for a previous taxable year, and such election has not been terminated or revoked. Pursuant to section 1.856-2(b) of the Income Tax Regulations, the election shall be made by the trust by computing taxable income as a REIT in its return for the first taxable year for which it desires the election to apply. Section 301.9100-1(c) provides that the Commissioner has discretion to grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Code except subtitles E, G, H, and I. Section 301.9100-1(b) defines a regulatory election to mean an election whose due date is prescribed by a regulation, or a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin. Section 301.9100-3(a) through (c)(1) sets forth rules that the Service generally will use to determine whether, under the particular facts and circumstances of each situation, the Commissioner will grant an extension of time for regulatory elections that do not meet the requirements of section 301.9100-2. Section 301.9100-3(a) provides that requests for relief subject to this section will be granted when the taxpayer provides the evidence (including affidavits described in section 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government. Section 301.9100-3(b) provides that a taxpayer generally is deemed to have acted reasonably and good faith if the taxpayer (i) requests relief under this section before the failure to make the regulatory election is discovered by the Service; (ii) failed to make the election because of intervening events beyond the taxpayer's control; (iii) failed to make the election because, after exercising reasonable diligence (taking into account the taxpayer's experience and the complexity of the return or issue), the taxpayer was unaware of the necessity for the election; (iv) reasonably relied on the written advice of the Service; or (v) reasonably relied on a qualified tax professional, including a tax professional employed by the taxpayer, and the tax professional failed to make, or advise the taxpayer to make, the election. A taxpayer will be deemed to have not acted reasonably and in good faith, however, if the taxpayer (i) seeks to alter a return position for which an accuracy-related penalty has been or could be imposed under section 6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested; (ii) was informed in all material respects of the required election and related tax consequences, but chose not to file the election; or (iii) uses hindsight in requesting relief. Section 301.9100-3(c)(1) provides that a reasonable extension of time to make a regulatory election will be granted only when the interests of the Government will not be prejudiced by the granting of relief. Section 301.9100-3(c)(1)(i) provides that the interests of the Government are prejudiced if granting relief would result in a taxpayer having a lower tax liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made (taking into account the time value of money). Section 301.9100-(3)(c)(ii) provides that the interests of the Government are ordinarily prejudiced if the taxable year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under section 6501(a) before the taxpayer's receipt of a ruling granting relief under this section. CONCLUSION Based on the information submitted and representations made, we conclude that Taxpayer has satisfied the requirements for granting a reasonable extension of time to elect under section 856(c) to be treated as a REIT effective Date 2. Accordingly, due to the reasonable extension of time granted to Taxpayer, Taxpayer's Form 1120-REIT filed on Date 6 is considered a timely election under section 856(c) for Taxpayer to be treated as a REIT under subchapter M of the Code effective Date 2. CAVEATS This ruling is limited to the timeliness of the filing of Taxpayer's election under section 856(c). This ruling's application is limited to the facts, representations, and Code and regulation sections cited herein. Except as provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In particular, no opinion is expressed regarding the timeliness of Taxpayer's federal income tax return. Furthermore, no opinion is expressed or implied regarding whether Taxpayer otherwise qualifies as a REIT under part II of subchapter M of chapter 1 of the Code. This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent. In accordance with the power of attorney on file with this office, a copy of this letter is being sent to your authorized representative. Sincerely, ___________________________ Andrea M. Hoffenson Senior Technician Reviewer, Branch 3 Office of Associate Chief Counsel (Financial Institutions & Products) cc:

Chief Counsel Advice Number: 202203013 Internal Revenue Service October 19, 2021 Office of Chief Counsel Internal Revenue Service Memorandum Number: 202203013 Release Date: 1/21/2022 CC:INTL:B02:JMOben POSTU-123407-16 UILC: 956.00-00 date: October 19, 2021 to: Lisa M. Rodriguez Senior Counsel (Large Business & International) from: Megan J. Hickman Special Counsel Associate Chief Counsel (International) subject: Application of anti-abuse rule in Treas. Reg. §1.956-1(b)(1)(ii) This Chief Counsel Advice responds to your request for assistance. This advice may not be used or cited as precedent. ISSUE Whether, under Treas. Reg. § 1.956-1(b)(1)(ii) (the "Anti-Abuse Rule"), CFC5 and CFC7 indirectly held in Tax Year certain Taxpayer loans held by CFC2 that were issued on or after September 1, 2015. CONCLUSION Yes. CFC5 and CFC7 indirectly held in Tax Year the Taxpayer loans held by CFC2 because CFC2, a foreign corporation that is controlled by CFC5 and CFC7, was funded with a principal purpose of avoiding the application of section 956 with respect to CFC5 and CFC7. FACTS A. Relevant Corporate Structure USP is a State A corporation and the common parent of an affiliated group of corporations that file a consolidated U.S. federal income tax return (" Taxpayer "). Taxpayer has a taxable year ending *******. Taxpayer wholly owns CFC1, a controlled foreign corporation (within the meaning of section 957) (" CFC "). CFC1 wholly owns CFC2. CFC2 wholly owns DRE1, a foreign entity that is disregarded as an entity separate from its owner for U.S. federal tax purposes (a " disregarded entity "). DRE1 wholly owns DRE2, a disregarded entity. DRE1 and DRE2 own x percent and y percent, respectively, of CFC3, a CFC. 1 CFC3 wholly owns CFC4, a CFC, and DRE3, a disregarded entity. DRE3 wholly owns CFC5, a CFC. CFC5 wholly owns DRE4, a disregarded entity. ******** 1 The Form 5471 for CFC3 indicates that it is a holding company with minimal income statement activity. ******** USP wholly owns Company, a State B corporation that USP acquired on Date 4. Company wholly owns CFC6, a CFC. CFC6 wholly owns CFC7, a CFC. USP is a United States shareholder (" U.S. shareholder ") (within the meaning of section 951(b)) of CFC1, CFC2, CFC3, CFC4, CFC5, CFC6 and CFC7. As of the end of Tax Year, CFC2 had earnings and profits (" E&P ") in the amount of CFC2 E&P, which included E&P from a cash distribution from CFC3 of CFC3 Distribution Amount. Also as of the end of Tax Year, CFC2 had foreign taxes in the amount of CFC2 Foreign Taxes. CFC5 and CFC7 had E&P in the amount of CFC5 E&P and CFC7 E&P, respectively. CFC2's E&P was effectively taxed at a rate of CFC2 ETR, which is approximately twice the effective tax rate of the CFC5 E&P and CFC7 E&P, which were taxed at CFC5 ETR and CFC7 ETR, respectively. CFC5 and CFC7 control CFC2 within the meaning of Treas. Reg. § 1.956-1(b)(2). CFC4 acts as Taxpayer's primary in-house financing and cash pooling entity by receiving deposits and loans from, and making loans to, Taxpayer's non-U.S. affiliates under deposit and loan arrangements and a cash pooling arrangement. Taxpayer's stated purpose of each of these arrangements is to centralize available cash through intra-group cash pooling to provide liquidity through intra-group loans. CFC4's deposit and loan arrangements are bilateral contracts between CFC4 and each of its depositors and lenders. Each deposit and loan arrangement has uniform terms, except for the loan limits and interest rates. Each deposit and loan arrangement designates CFC4 as the "Funding Coordinator," and the participating depositor/borrower as the "Participant." The Funding Coordinator accepts cash from Participants and lends funds to Participants, to the extent a Participant requires funding, up to the applicable credit limit, and invests any remaining cash with appropriate financial institutions outside Taxpayer. DRE4 and CFC7 executed deposit and loan arrangements with CFC4 on Date 1 and Date 5, respectively. B. Background on Taxpayer's Acquisition of Company and Financing Transactions Taxpayer acquired Company and executed several financing transactions before September 1, 2015. 2 Exam has not proposed adjustments under section 956 with respect to the financing transactions described in this section B. ******** 2 Treas. Reg. § 1.956-1(b) applies to taxable years of CFCs ending on or after September 1, 2015, and to taxable years of U.S. shareholders in which or with which such taxable years end, with respect to property acquired on or after September 1, 2015. Treas. Reg. § 1.956-1(g)(2). See paragraph (b)(4) of § 1.956 1T, as contained in 26 CFR part 1 revised as of April 1, 2015, for the rules applicable to taxable years of CFCs ending before September 1, 2015 and property acquired before September 1, 2015. ******** On Date 2, Taxpayer entered into an Agreement and Plan of Merger to acquire Company for Taxpayer stock and cash. Taxpayer would obtain the cash from external borrowings and from cash held by Taxpayer and its foreign subsidiaries. On Date 3, Taxpayer repatriated approximately Amount 3 in cash by executing a series of transactions. First, CFC4 loaned Amount 3 to CFC3. Second, CFC3 distributed cash equal to Amount 3 and two newly issued notes (" CFC3 Note 1 " and " CFC3 Note 2 ", collectively, the " CFC3 Notes "), with an aggregate principal amount of approximately Amount 4, to CFC2, through DRE1 and DRE2. 3 Lastly, CFC2 loaned Amount 3 to Taxpayer. ******** 3 CFC3 distributed CFC3 Note 1 to DRE2 and CFC3 Note 2 to DRE1. Then, DRE2 assigned CFC3 Note 1 to DRE1, and DRE1 assigned the CFC3 Notes to CFC2. Because DRE1 and DRE2 were disregarded entities, this series of transactions was treated for U.S. federal income tax purposes as though CFC3 distributed the CFC3 Notes directly to CFC2. ******** The CFC3 Notes had a stated interest rate of z percent, a 10-year term, and allowed CFC3 to prepay the notes, in whole or in part, without penalty at any time by giving a minimum five-day notice. Taxpayer asserts that these financing transactions resulted in less third-party lending, lower interest expense, and higher accretion to earnings per share than other options for financing the acquisition. ******. Finally, Taxpayer noted that it anticipated that, by using the offshore cash to lower the amount of external financing, it would improve its credit rating. Following these transactions, Taxpayer borrowed Amount 5 from third parties and, on Date 4, acquired Company in exchange for Taxpayer stock and cash. After the Company acquisition closed, the relevant Taxpayer affiliates engaged in another series of transactions that allowed Taxpayer to access additional cash held by its foreign subsidiaries, including CFC5 and CFC7, to pay down the acquisition debt. On Date 5, CFC7 withdrew Amount 6 that it had deposited with CFC6 and placed the funds on deposit with CFC4. Through a series of loans and a partial repayment of the CFC3 Notes, Taxpayer repatriated Amount 7 on Date 6 and Amount 8 on Date 7. C. Transactions at Issue: Taxpayer's Transactions to Access Offshore Cash Between Date 8 and Date 10, DRE4 and CFC7 deposited Amount 9 and Amount 10, respectively, with CFC4 (the " Deposits "). DRE4's deposits were treated for U.S. federal income tax purposes as if made by CFC5 to CFC4 because DRE4 was a disregarded entity. On Date 9, CFC4 loaned Amount 1 to CFC3 (" CFC4 Loan 1 "). Then, CFC3 transferred Amount 1 to CFC2 in partial satisfaction of the outstanding principal amount and accrued interest on the CFC3 Notes (" Repayment 1 "). CFC2 then loaned Amount 1 to Taxpayer (" CFC2 Loan 1 "). Two months later, on Date 10, CFC4 loaned Amount 2 to CFC3 (" CFC4 Loan 2," together with CFC4 Loan 1, the " CFC4 Loans "). Then, CFC3 transferred Amount 2 to CFC2 in satisfaction of the outstanding principal amount and accrued interest on the CFC3 Notes (" Repayment 2," together with Repayment 1, the " Repayments "). CFC2 then loaned Amount 2 to Taxpayer (" CFC2 Loan 2," together with CFC2 Loan 1 the " CFC2 Loans "). On both Date 9 and Date 10, CFC4 deposited Amount 1 and Amount 2, respectively, of cash with Taxpayer's bank. 4 ******** 4 Taxpayer indicated that neither CFC1 nor CFC3 has a bank account and that this allowed Taxpayer to avoid the time and costs required to transfer cash to each intermediate entity in each series of financing transactions. ******** D. Taxpayer's Income Inclusions with Respect to CFC2 For Tax Year, Taxpayer included in gross income its pro rata share of CFC2's subpart F income in the amount of CFC2 Subpart F Income. Taxpayer also included in gross income under section 956 an amount equal to CFC2 956 Inclusion. 5 ******** 5 In addition, CFC2 distributed an amount equal to CFC2 Distribution to CFC1, of which an amount equal to CFC2 Dividend Distribution was treated as a dividend and CFC2 Dividend Inclusion was included in Taxpayer's gross income. ******** LAW Section 951(a) generally requires that every person who is a U.S. shareholder of a CFC and owns (within the meaning of section 958(a)) stock of such CFC on the last day of the CFC's taxable year include in gross income the amount determined under section 956 for the relevant tax year (but only to the extent not excluded from gross income under section 959(a)(2)). 6 A CFC is a foreign corporation in which more than 50 percent of the total combined voting power of all classes of stock of the corporation entitled to vote or more than 50 percent of the total value of the stock of the corporation is owned, directly, indirectly, or constructively, by U.S. shareholders on any day during the taxable year of the foreign corporation. 7 A U.S. shareholder is a "United States person" (" U.S. person ") who owns, directly, indirectly, or constructively, 10 percent or more of the total combined voting power of all classes of stock entitled to vote of the foreign corporation or 10 percent or more of the total value of shares of all classes of stock of such foreign corporation. 8 For this purpose, a U.S. person includes a domestic corporation. 9 ******** 6 Section 951(a)(1)(B). 7 Section 957(a) and section 958(a) and (b). 8 Section 951(b) and section 958(a) and (b). For the year at issue, section 951(b) defined U.S. shareholder only by reference to voting power. P.L. 115-97, §14214(a), 131 Stat. 2054, 2218 (2017), amended I.R.C. § 951(b) to also include the "value test" for taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of U.S. shareholders with or within which such taxable years of foreign corporations end. 9 Sections 957(c) and 7701(a)(30). ******** The amount determined under section 956 with respect to a U.S. shareholder for any taxable year is generally the lesser of (i) the excess of the shareholder's pro rata share of the average of the amounts of United States property (" U.S. property ") held (directly or indirectly) by the CFC as of the close of each quarter of the taxable year over the amount of E&P described in section 959(c)(1)(A) with respect to the shareholder, or (ii) the shareholder's pro rata share of the applicable earnings of the CFC. 10 The amount of the section 956 income inclusion is computed after giving effect to subpart F income inclusions and distributions during the year. 11 ******** 10 Section 956(a). 11 Section 956(b)(1)(A). Under sections 951(a)(1)(B), 959(a)(2), and 959(f), only section 956(a) amounts in excess of section 959(c)(2) previously taxed E&P (attributable to subpart F income and measured at the end of the year taking into account current-year activity) give rise to a section 956 inclusion for U.S. shareholders. ******** Subject to certain exceptions not applicable to the facts of this case, U.S. property includes an obligation of a U.S. person. 12 For these purposes, an obligation generally includes a note, account receivable, note receivable, or other indebtedness. 13 The amount taken into account with respect to an obligation of a U.S. person is determined by reference to the CFC's adjusted basis in the obligation. 14 ******** 12 Section 956(c). 13 Treas. Reg. § 1.956-2(d)(2). 14 Section 956(a) and Treas. Reg. § 1.951-1(e)(1). ******** The Anti-Abuse Rule treats a CFC as indirectly holding U.S. property in certain circumstances. The Anti-Abuse Rule provides that a CFC is considered to hold indirectly United States property acquired by any other foreign corporation that is controlled by the [CFC] if a principal purpose of creating, organizing, or funding by any means (including through capital contributions or debt) the other foreign corporation is to avoid the application of section 956 with respect to the [CFC]. 15 ******** 15 Treas. Reg. § 1.956-1(b)(1)(ii). See T.D. 9792, 2016-48 I.R.B. 751, at 752. See also T.D. 8209, 1988-2 C.B. 174, 176 (preamble to an earlier version of the Anti-Abuse Rule from 1988 stating that "[t]he regulations under section 956 prevent the avoidance of section 956 by a CFC by providing that an investment in U.S. property made by a foreign corporation that is created or availed of by the CFC principally for the purpose of holding the U.S. property shall be considered to be an investment held by the CFC."). ******** For this purpose, a CFC controls a foreign corporation if the CFC and the other foreign corporation are related within the meaning of section 267(b) or 707(b), with a specified attribution rule. 16 ******** 16 See Treas. Reg. § 1.956-1(b)(2). ******** For taxable years of CFCs ending on or after September 1, 2015, and taxable years of U.S. shareholders in which or with which such taxable years end, with respect to property acquired on or after September 1, 2015, the Treasury Department and the IRS expanded the Anti-Abuse Rule by adding the phrase "by any means" so that the Anti-Abuse Rule "appl[ies] to all fundings, regardless of the form of the funding." 17 The Treasury Department and the IRS explained that this was necessary because "[t]he policy concerns addressed by the anti-avoidance rule are not limited to fundings by debt or equity." 18 ******** 17 T.D. 9792, 2016-48 I.R.B. 751, at 752. 18 Id. ******** The broad definition of the term "funding" generally extends to common business transactions, but these are subject to the Anti-Abuse Rule only if undertaken with a principal purpose of avoiding section 956. 19 When the Anti-Abuse Rule was expanded to apply to all fundings, the preamble acknowledged that "[w]hether a transaction is a 'funding' does not alone determine whether the transaction is subject to the anti-abuse rule because the rule applies only when a principal purpose of the funding is to avoid section 956 with respect to the funding CFC." 20 The preamble reiterated that the "by any means" language broadened the funding standard, but "the 'avoidance' requirement ensures that ordinary course transactions are not subject to the [Anti-Abuse Rule]." 21 Whether the avoidance requirement is met is based on objective facts. ******** 19 T.D. 9792, 2016-48 I.R.B. 751, at 753. 20 Id. 21 Id. ******** In response to a comment requesting clarification of the scope of the term funding with examples, the final regulations added "new examples that address common transactions highlighted by the comment to further illustrate the distinction between funding transactions that are subject to the [Anti-Abuse Rule] and common business transactions to which the [Anti-Abuse Rule] does not apply." 22 ******** 22 T.D. 9792, 2016-48 I.R.B. 751, at 752-53. ******** The example in Treas. Reg. §1.956-1(b)(4)(vi) (" Example 6 ") illustrates the application of the Anti-Abuse Rule to a fact pattern involving a loan repayment. Specifically, Example 6 illustrates that in certain circumstances a loan repayment is not subject to the Anti-Abuse Rule, but it does not provide a blanket exception to the Anti-Abuse Rule for all loan repayment transactions. In the example, P is a United States citizen that wholly owns two CFCs, FS1 and FS2. Example 6 provides: (A) Facts. In Year 1, FS2 loans $100x to FS1 to finance FS1's trade or business. The terms of the loan are consistent with those that would be observed among parties dealing at arm's length. In Year 2, FS1 repays the loan in accordance with the terms of the loan. Immediately after the repayment by FS1, FS2 loans $100x to P. FS2 has no earnings and profits, and FS1 has substantial accumulated earnings and profits. (B) Result. FS1 will not be considered to indirectly hold United States property under [Treas. Reg. §1.951-1(b)] because a repayment of a loan that has terms that are consistent with those that would be observed among parties dealing at arm's length and that is repaid consistent with those terms does not constitute a funding. As noted above, Example 6 does not create a blanket exception applicable to all loan repayments; it applies only where the facts are consistent with those in the example. Where the facts are not consistent with the example, a loan repayment may still fall within the scope of the Anti-Abuse Rule if the taxpayer enters into the arrangement with a principal purpose of avoiding section 956. Reading Example 6 as an exception to the Anti-Abuse Rule for all loan repayment arrangements would be inconsistent with the stated intent to not adopt a "narrow definition" of "funding" that "could allow taxpayers to engage in planning that would inappropriately avoid the application of section 956." 23 ******** 23 T.D. 9792, 2016-48 I.R.B. 751, at 752-53. ******** Further, the examples in Treas. Reg. §1.956-1(b)(4)(i) (" Example 1 ") and Treas. Reg. §1.956-1(b)(4)(ii) (" Example 2 ") highlight that a change in facts can transform an arrangement that would not be subject to the Anti-Abuse Rule into one that is. Both Example 1 and Example 2 deal with the sale of inventory from one CFC (FS1) to another CFC (FS2) in exchange for trade receivables due within 60 days. In each case, FS2 makes a loan to P, a U.S. citizen who wholly owns FS1 and FS2. In Example 1, the parties do not enter into the arrangement with a principal purpose of avoiding section 956 and FS2 pays the trade receivables according to their terms. That example concludes that the Anti-Abuse Rule does not apply. Conversely, in Example 2, the parties have a principal purpose of avoiding section 956, FS1 and FS2 agree to defer FS2's payment obligation, and FS2 does not timely pay. In that case, the Anti-Abuse Rule does apply. The example in Treas. Reg. §1.956-1(b)(4)(iii) (" Example 3 ") illustrates the application of the Anti-Abuse Rule where a funding results in an artificial increase in the foreign taxes that are deemed paid by the U.S. shareholder and the related increase in foreign tax credits. Specifically, Example 3 shows that the Anti-Abuse Rule applies to a funding by loan from FS2, a CFC with a significant amount of cash and E&P but no foreign income taxes, to FS1, a CFC without cash but with significant amounts of E&P and foreign income taxes, which in turn makes a loan to its U.S. shareholder with a principal purpose of avoiding the application of section 956 with respect to FS2. In this example, a single loan is deemed made directly to the U.S. shareholder by FS2 rather than the superfluous step of an intermediate loan to FS1 from FS2 followed by a second loan to the U.S. shareholder from FS1. ANALYSIS A. Funding Transactions 1. The Deposits and the CFC4 Loans Under the plain language of the Anti-Abuse Rule, loans are fundings. The rule specifically refers to "funding by any means (including through capital contributions or debt)...." 24 Both the Deposits and the CFC4 Loans are debt. In the case of the Deposits, CFC5 and CFC7 each deposited funds with CFC4, creating a debt obligation. 25 In the case of the CFC4 Loans, CFC4 loaned cash to CFC3. Therefore, both the Deposits and the CFC4 Loans are fundings within the meaning of the Anti-Abuse Rule. ******** 24 Treas. Reg. §1.956-1(b)(1)(ii). 25 See Thompson v. Riggs, 72 U.S. 663, at 678 (1866) ("the law is well settled that the depositor parts with the title to his money, and loans it to the bank"). ******** CFC5 and CFC7 deposited portions of the cash before the current version of the Anti-Abuse Rule was applicable. Nonetheless, a deposit is a loan and thus creates a debt that is a funding both under the current and prior versions 26 of the Anti-Abuse Rule. Therefore, the deposits of CFC5 and CFC7 are properly treated as fundings. ******** 26 Treas. Reg. §1.956-1T(b)(4)(i)(B), as in effect prior to September 1, 2015. ******** 2. The Repayments a. In General A loan repayment is also a funding for purposes of the Anti-Abuse Rule. The term "funding" is interpreted broadly in the context of section 956 and the section 956 regulations. 27 This approach is consistent with the addition of the technical language "by any means" in the regulations, which was included "so that the rule can also apply when a foreign corporation controlled by a CFC is funded other than through capital contributions or debt." 28 As noted above, the preamble reiterates that the funding standard was expanded so that it would apply to all fundings, regardless of the form of the funding, 29 with the "avoidance" requirement filtering any transactions that are not subject to the rule. 30 Because the term "funding" is not specifically defined in section 956, the section 956 regulations, or in any relevant case law, the term should be afforded its customary and ordinary meaning, which is "[t]he action or practice of providing money for a particular cause or purpose." 31 Here, pursuant to the Repayments CFC3 provided money (Amount 1 and Amount 2) to CFC2 for a particular cause or purpose (to finance the loans of Amount 1 and Amount 2 that CFC2 made to Taxpayer). Therefore, the Repayments are fundings under the Anti-Abuse Rule, unless they fall within the ambit of Example 6, which they do not. ******** 27 See T.D. 9792, 2016-48 I.R.B. 751, at 752. 28 T.D. 9733, 2015-41 I.R.B. 494, at 494. See also T.D. 9792, 2016-48 I.R.B. 751, at 752. 29 See T.D. 9792, 2016-48 I.R.B. 751, at 752. 30 Id., at 753. 31 Funding, Oxford English Dictionary (3d ed. 2017); see also Black's Law Dictionary (11th ed. 2019) ("The provision of financial resources to finance a particular activity or project, such as a research study."). ******** b. Example 6 Taxpayer incorrectly argues that Example 6 precludes the application of the Anti-Abuse Rule to its facts. As an initial matter, "examples incorporated into Treasury Regulations are generally considered illustrative only and are not to be considered as dispositive" 32 and do not create any rule or principle. Therefore, Example 6 must be read within the broader context of the Anti-Abuse Rule, not as providing a separate rule. Neither section 956 nor the section 956 regulations (including the preambles) suggests that the repayment of a loan is not a funding; indeed, as discussed above, the regulatory text, the relevant preambles, and the general definition of the term "funding" suggest that a loan repayment is a funding. Read in this context, the premise of Example 6 is that repayments that are not described by the example and that satisfy the "avoidance" requirement would be a funding. ******** 32 Tennessee Baptist Children's Homes, Inc. v. United States, 790 F.2d 534, 538-39 (6th Cir. 1986) (citing Nico v. C.I.R., 565 F.2d 1234, 1238 (2d Cir.1977) and other cases). ******** When analyzing the application of Example 6, it is necessary to compare the facts of the example to the facts of the matter at hand. One cannot simply apply the conclusion of the example to any fact pattern. 33 There are four important facts that are set forth in Example 6. First, one CFC transfers cash to another CFC in exchange for a note. Second, the cash is used by the CFC to fund its trade or business. Third, the terms of the note are arm's length. Finally, the note is repaid in accordance with its terms. ******** 33 See, e.g., Est. of Schwartz v. Comm'r of Internal Revenue, 83 T.C. 943, 955 (1984) (noting that results called for in examples do not follow where actual facts differ from those in the examples). ******** Here, CFC2 did not transfer any cash (or make any other economic outlay) to CFC3 in exchange for the CFC3 Notes. CFC3 also did not obtain from CFC2 any funds that it could use to finance a trade or business. Instead, CFC3 issued the CFC3 Notes to CFC2 as a distribution; in other words, the CFC3 Notes were essentially a promise that CFC3 would provide funds to CFC2 at a later date. Second, the CFC3 Notes were issued as a step in a series of transactions, including the Repayments, designed for the express purpose of repatriating cash to Taxpayer. Third, it appears that CFC3 is merely a holding company that does not have a trade or business. Fourth, a right of prepayment of a long-term note in its first year for no penalty and on 5 days' notice is not an arm's length term. Fifth, this case involves a prepayment of a loan with a 10-year term to facilitate the repatriation. None of these facts are present in Example 6. Rather, unlike the loan in Example 6, the CFC3 Notes served no purpose other than to facilitate the future transfer of cash once it was available. As such, the creation of the CFC3 Notes and the subsequent Repayments were merely steps in an overall transaction designed to repatriate cash from CFC5 and CFC7 to Taxpayer without direct loans from those entities to Taxpayer that would give rise to an inclusion under section 956 (with minimal resulting deemed paid foreign tax credits to offset the inclusion). Because the Repayments were designed to facilitate the repatriation of offshore cash held by CFC5 and CFC7 without giving rise to section 956 inclusions from those entities, the Repayments fall squarely within the text and policy of the Anti-Abuse Rule. Moreover, the facts regarding the Repayments are materially different than those in Example 6 (and that would be the case even if one or more factors described above were not present); 34 and so Example 6 is not inconsistent with this conclusion. Giving Example 6 an expansionary reading in order to claim coverage of transactions such as the Repayments would be inconsistent with the overall policy of the Anti-Abuse Rule because it would "allow taxpayers to engage in planning that would inappropriately avoid the application of section 956." 35 If a repayment of a loan were per se excluded from the Anti-Abuse Rule, taxpayers could easily plan out of section 956 by including a repayment step, as in the matter at hand, even if a principal purpose of the overall transaction is the avoidance of section 956. This result would be contrary to the Anti-Abuse Rule and the preamble's stated objective of preventing the avoidance of the purposes of section 956. 36 ******** 34 For example, even if the terms of the CFC3 Notes were arm's length in all respects. 35 T.D. 9792, 2016-48 I.R.B. 751, at 752-53. 36 Id., at 752. ******** 3. Overall Funding Arrangements Including the Deposits, the CFC4 Loans, and the Repayments An arrangement that includes the Deposits, the CFC4 Loans, and the Repayments is a funding resulting in CFC5 and CFC7 indirectly holding the CFC2 Loans, because each of these transactions individually is a funding. The Anti-Abuse Rule generally provides that U.S. property held indirectly by a CFC includes U.S. property acquired by any other foreign corporation that is controlled by the CFC if a principal purpose of funding by any means the other foreign corporation is to avoid the application of section 956 with respect to the CFC. The control test is met by each relevant corporation. 37 The Anti-Abuse Rule does not require that the CFC directly fund the foreign corporation that acquired the U.S. property or that the arrangement not involve multiple funding steps. To the contrary, the "by any means" phrase in the Anti-Abuse Rule confirms that the rule may apply to a transaction with multiple funding steps. A result of the broadly worded rule is to prevent a taxpayer from circumventing the application of the Anti-Abuse Rule by simply adding one or more intermediate steps between the funding CFC and the entity that acquires and holds the U.S. property for purposes of determining the section 956 amount. Because the Deposits, the CFC4 Loans, and the Repayments are each fundings, these transactions taken together are also treated as a funding of the CFC2 Loans by CFC5 and CFC7. ******** 37 See Treas. Reg. § 1.956-1(b)(2). ******** B. Taxpayer had a Principal Purpose of Avoiding the Purposes of Section 956 Taxpayer incorrectly argues that the Anti-Abuse Rule cannot apply because the Deposits were made in the ordinary course of business pursuant to its longstanding overall cash management function. 38 ******** 38 Taxpayer also argues that Exam conceded that the financing transactions that occurred before September 1, 2015, were not subject to the Anti-Abuse Rule and therefore the Repayments could not have had a principal purpose of avoiding section 956. Although Exam did not propose adjustments under section 956 with respect to these earlier transactions, Exam in no way conceded that those financing transactions were undertaken without a principal purpose of avoiding section 956. ******** The Anti-Abuse Rule applies to a funding only if a principal purpose of the funding is to avoid section 956 with respect to the funding CFC. 39 A principal purpose "needn't be the only purpose, it need only have been one of the factors that weighed heavily in the [taxpayer's] thinking." 40 This formulation is consistent with the preamble to the regulations that makes clear that there may be more than one principal purpose for a transaction. 41 Therefore, the Anti-Abuse Rule applies if a principal purpose of a funding transaction is to avoid the application of section 956, even if there also were one or more other principal purposes for the transaction. 42 ******** 39 Treas. Reg. § 1.956-1(b)(1)(ii). 40 Santa Fe Pac. Corp. v. Cent. States Se. and Sw. Areas Pension Funds, 22 F.3d 725, 727 (7th Cir. 1994). See also The Limited, Inc. v. Comm'r, 113 T.C. 169 (1999), rev'd on other grounds, 286 F.3d 324 (6th Cir. 2002) (Tax Court upheld the IRS's reliance on earlier version of the Anti-Abuse Rule (former Treas. Reg. § 1.956-1T(b)(4)) to attribute to an upper-tier CFC with considerable E&P certificates of deposit issued by a U.S. affiliate acquired by a lower-tier CFC with negligible E&P. The taxpayer had a valid business purpose but was also found to have had a second principal purpose of avoiding section 956). 41 T.D. 9733, 2015-41 I.R.B. 495 ("[Treas. Reg. §] 1.956-1T(b)(4) applies if 'one of the principal purposes' for the transaction is to avoid the application of section 956 with respect to the CFC. These temporary regulations apply when 'a principal purpose' for the transaction is to avoid the application of section 956 with respect to the CFC. The Treasury Department and the IRS do not view this modification as a substantive change, since both formulations appropriately reflect that there may be more than one principal purpose for a transaction.") (Emphasis added.) 42 Id. ******** The facts demonstrate that Taxpayer had a principal purpose of avoiding section 956 when it structured the repatriation of funds from CFC5 and CFC7 through CFC2, CFC3, and CFC4. Even if Taxpayer had considered other reasons when it decided how to repatriate its foreign cash as Taxpayer asserts, such as maintaining a certain credit rating, 43 and regardless of whether the transactions might be argued to be consistent with its historical cash management functions, the Anti-Abuse Rule applies to its transaction if a principal purpose of the funding transactions was to avoid the application of section 956. ******** 43 For example, a taxpayer may not use the fact that avoiding federal income tax obligations would result in greater cash flow or a more favorable balance sheet as a justification to avoid such obligations. ******** Several factors indicate that a principal purpose of the arrangement involving the Deposits, the CFC4 Loans, and the Repayments was to avoid the application of section 956 with respect to CFC5 and CFC7. First, the pattern created by the financing transactions undertaken prior to Tax Year shows an intent to move cash from CFC5 and CFC7 to Taxpayer in a way that avoids the application of section 956. When Taxpayer designed these earlier transactions, its advisors clearly believed that the insertion of loan repayments into the chain of financing transactions would defeat the application of the prior version of the Anti-Abuse Rule. 44 The Deposits, the CFC4 Loans, the Repayments, and the CFC2 Loans are merely the completion of that overall design to repatriate cash while avoiding the application of section 956, as demonstrated by the fact that the Repayments extinguished the CFC3 Notes. 45 Further, CFC4 would not have had sufficient cash available to make the CFC4 Loans without the Deposits. ******** 44 In support of its argument that the Repayments cannot be fundings, Taxpayer refers to a comment letter on the proposed regulations that argues that a repayment of a loan should not be a funding. 45 The prepayment notices related to the CFC3 Notes are labeled as "Step 16," further indicating that the Repayments were part of an overall plan. ******** Second, absent the application of the Anti-Abuse Rule, Taxpayer would have reduced its section 956 amount and increased the related foreign tax credits by transferring cash from CFC5 and CFC7 to Taxpayer through CFC4, CFC3, and CFC2. By routing the funding through CFC2, Taxpayer artificially increased the amount of foreign taxes that Taxpayer was deemed to pay with respect to the section 956 income inclusion because CFC2's E&P were effectively taxed at approximately twice the rate of tax at which CFC5's or CFC7's E&P were effectively taxed. As highlighted in Example 3 (discussed above), an increase in deemed paid taxes and related foreign tax credits is indicative of a principal purpose of avoiding the application of section 956 with respect to earnings of a low-taxed CFC. 46 If CFC5 and CFC7 had loaned the cash directly to Taxpayer, Taxpayer would have had a significantly greater inclusion with foreign taxes deemed paid at a lower effective tax rate. ******** 46 Treas. Reg. §1.956-1(b)(4)(iii). ******** Third, the Deposits, the CFC4 Loans, the Repayments, and the CFC2 Loans occurred within very close proximity in time. The Deposits occurred in the months leading up to Date 9 (on which CFC4 Loan 1, Repayment 1, and CFC2 Loan 1 occurred) and Date 10 (on which CFC4 Loan 2, Repayment 2, and CFC2 Loan 2 occurred). Further, the total Deposits were similar to the amounts repatriated on Date 9 and Date 10. In the end, Taxpayer could have accomplished the same economic result if CFC5 and CFC7 had loaned the cash directly to Taxpayer, but with less favorable tax consequences; this is the exact type of structure that the Anti-Abuse Rule is intended to prevent. C. CFC5 and CFC7 Indirectly Held the Taxpayer Notes Under the Anti-Abuse Rule, CFC5 and CFC7 indirectly held in Tax Year the CFC2 Loans because CFC2 was funded with a principal purpose of avoiding the application of section 956 with respect to CFC5 and CFC7. Accordingly, for purposes of section 951(a)(1)(B) and 956, CFC5 and CFC7 are treated as indirectly holding the CFC2 Notes in Tax Year proportionately based on CFC5's deposits of Amount 9 and CFC7's deposits of Amount 10. This writing may contain privileged information. Any unauthorized disclosure of this writing may undermine our ability to protect the privileged information. If disclosure is determined to be necessary, please contact this office for our views. Please call (202) 317-3800 if you have any further questions.

Notice 2022-23 Internal Revenue Service 2022-20 I.R.B. 1062 26 CFR 1.1441-1(e)(5) and (6). Proposed Amendments to the Qualified Intermediary Agreement in Rev. Proc. 2017-15. Notice 2022-23 SECTION 1. PURPOSE AND SCOPE This Notice sets forth proposed changes to the qualified intermediary (QI) withholding agreement (QI agreement) described in §1.1441-1(e)(5) and (6) that will permit a QI to assume withholding and reporting responsibilities for purposes of sections 1446(a) and (f). In general, the QI agreement allows foreign persons to enter into an agreement with the Internal Revenue Service (IRS) to simplify certain of their obligations as a withholding agent under chapters 3 and 4 and as a payor under chapter 61 and section 3406 for amounts paid to their account holders. The QI agreement currently in effect, as provided in Rev. Proc. 2017-15, 2017-3 I.R.B. 437 (the QI agreement), expires on December 31, 2022. This Notice sets forth proposed changes to the QI agreement that apply to a QI effecting a transfer of an interest in a publicly traded partnership (PTP) or receiving a distribution made by a PTP on behalf of an account holder of the QI. The Treasury Department and the IRS anticipate that the proposed changes to the QI agreement described in this Notice, subject to any modifications based on comments received, will be included in a revenue procedure containing the final QI agreement. The final QI agreement will apply to QI agreements that are in effect on or after January 1, 2023, to correspond with both the applicability date of final regulations relating to withholding under sections 1446(a) and (f) and the expiration of the QI agreement. Section 2 of this Notice provides background on the QI agreement and sections 1446(a) and (f). Section 3 of this Notice describes the highlights of the proposed changes to the QI agreement. Section 4 of this Notice contains the text of the proposed changes to the QI agreement. Section 5 of this Notice provides information on how to submit comments. Section 6 of this Notice provides drafting information. SECTION 2. BACKGROUND.01 Section 1446(f) Final Regulations. Sections 864(c)(8) and 1446(f) were added to the Internal Revenue Code (the Code) by the Tax Cuts and Jobs Act, Pub. L. 115-97 on December 22, 2017. Section 864(c)(8) generally provides that gain or loss derived by a foreign person on the sale or exchange of an interest in a partnership engaged in a trade or business within the United States is treated as effectively connected gain or loss to the extent provided in that section. Section 1446(f)(1) generally provides that if any portion of the gain on any disposition of an interest in a partnership would be treated under section 864(c)(8) as effectively connected with the conduct of a trade or business within the United States, then the transferee of the interest must withhold a tax equal to 10 percent of the amount realized on the disposition. On November 30, 2020, final regulations (TD 9926) were published in the Federal Register (85 FR 76910) to implement the withholding requirements of section 1446(f) (the final regulations). The final regulations include withholding and reporting requirements applicable to brokers that pay amounts realized on transfers made by foreign partners of interests in PTPs that are publicly traded on an established securities market or readily tradable on a secondary market (or the substantial equivalent thereof) (PTP interests). The final regulations allow brokers an exception from withholding on amounts realized paid to QIs that assume primary withholding responsibility for these amounts and provide guidance for brokers paying amounts realized to QIs that do not assume primary withholding responsibility (generally allowing the broker to accept from the QI either payee specific or withholding rate pool information). The final regulations provide brokers other exceptions to the withholding requirements, including for a foreign partner's valid claim for exemption based on an income tax treaty or partner's claim of status as a U.S. person. The final regulations also allow an exception to withholding (applicable to any partner) when the PTP publishes a qualified notice stating the applicability of a "10-percent exception." A 10-percent exception applies when either (i) a PTP's net gain from a deemed sale of its assets under section 864(c)(8) that would be effectively connected with a trade or business in the United States is less than 10% of the total net gain as of a designation date applicable to a partner's transfer of an interest in the PTP, or (ii) the PTP is not engaged in a trade or business in the United States. See §1.1446(f)-4(b) for these exceptions to withholding. The final regulations generally define an amount realized as the gross proceeds (as defined in §1.6045-1(d)(5)) from a sale of a PTP interest and the amount of a PTP distribution that is in excess of the cumulative net income of the PTP. They also allow a broker to rely on a certification of a modified amount realized when a transferor that is a foreign partnership provides certain information with respect to its partners that are allocated gain from the transfer of a PTP interest. See §1.1446(f)-4(c)(2)(ii). The final regulations also amend regulations under section 1446(a) relating to distributions by PTPs, which include an allowance for a QI to act as a nominee for purposes of assuming primary withholding responsibilities on a distribution from a PTP for purposes of section 1446(a) by assuming primary withholding responsibility for the entire distribution. Similar to an amount realized paid to a QI that does not assume primary withholding responsibility, the final regulations generally permit a PTP or a nominee to rely on either withholding rate pool information or specific payee information from a QI for purposes of section 1446(a) when the QI does not act as a nominee for a PTP distribution. The final regulations further provide a withholding default rule that applies to a nominee when a PTP either does not issue a qualified notice for a distribution or issues a qualified notice that lacks information necessary to determine all withholding required on the distribution. Under Notice 2021-51, 2021-36 IRB 1, the provisions of the final regulations related to withholding on transfers of PTP interests and withholding on PTP distributions apply to transfers and distributions that occur on or after January 1, 2023. As a result of the allowances in the final regulations for QIs to assume withholding and reporting responsibilities for purposes of sections 1446(a) and (f), this Notice proposes modifications to the QI agreement to incorporate the requirements for QIs with respect to sections 1446(a) and 1446(f). Highlights of the proposed modifications to the QI agreement are described in Section 3 of this Notice..02 Overview of QI Agreement. The QI agreement provides that a QI may assume primary withholding responsibility under chapters 3 and 4 for certain payments of U.S. source FDAP income made to its foreign account holders or the foreign account holders of another intermediary by providing a valid qualified intermediary withholding certificate to its withholding agent and designating the account(s) for which the QI assumes primary withholding responsibility. A QI is not required to assume primary chapter 3 and chapter 4 withholding responsibility for all accounts it holds with a withholding agent. A QI that does not assume primary chapter 3 and chapter 4 withholding responsibility for an account provides to its withholding agent a valid QI withholding certificate that indicates that the QI does not assume primary withholding responsibilities under chapters 3 and 4 and attaches a withholding statement that includes withholding rate pool information (i.e., aggregate information about the account holders and the withholding rate applicable to each pool). Notwithstanding a QI's allowance not to assume primary withholding responsibilities, a QI is still required to withhold if it knows that the appropriate amount has not been withheld by another withholding agent or if the QI made an error that results in withholding at less than the correct amount. For determining the amount to withhold, a QI may generally document account holders by obtaining either withholding certificates or documentary evidence under a country's approved "know your customer" rules. In a case in which overwithholding is applied on a payment, a QI is generally permitted to file a collective refund on behalf of its foreign account holders that are entitled to a refund of the tax withheld. Finally, a QI is generally permitted to report on Forms 1042-S on a pooled basis rather than file and furnish a Form 1042-S with respect to each account holder. Withholding under section 1446(a) is not currently within the scope of a QI's requirements under the QI agreement. As a result, a QI is not currently permitted to act as a QI with respect to an amount subject to withholding under section 1446(a) on a PTP distribution received on behalf of an account holder. The proposed modifications set forth in Section 4 of this Notice would extend the scope of the QI agreement to include sections 1446(a) and 1446(f). SECTION 3. HIGHLIGHTS OF THE PROPOSED MODIFICATIONS TO THE QI AGREEMENT.01 Withholding under sections 1446(a) and (f). The proposed modifications to section 3 of the QI agreement provide general requirements for QIs with respect to withholding under sections 1446(a) and (f). QIs are permitted to assume primary withholding responsibility under sections 1446(a) and (f) on a payment-by-payment basis based on a valid withholding certificate permitted under the modifications to section 6 of the QI Agreement and without regard to whether the QI assumes withholding under chapters 3 and 4 for payments other than PTP distributions. The modifications to section 3 of the QI agreement specifically provide that a QI that assumes primary withholding responsibility on any portion of a PTP distribution will be required to assume withholding responsibilities for the entire distribution. The modifications also reference each of the amounts subject to withholding on a PTP distribution and how a QI is to determine each amount for purposes of withholding. For cases in which a QI does not assume primary withholding under section 1446(a) or (f) for a payment, a QI is permitted to provide to its withholding agent the withholding statements and other information described in the modifications to section 6 of the QI agreement and is subject to the same residual withholding requirement that applies to its withholding under chapter 3 or 4 when another withholding agent withholds less than the required amount..02 Documentation for purposes of sections 1446(a) and (f). Under the modifications to section 5 of the QI agreement, a QI is permitted to document the status of an account holder that is a partner in a PTP as a foreign or U.S. person for purposes of sections 1446(a) and (f) under requirements generally similar to those for payments subject to chapter 3 or 4 withholding (that is, using either documentary evidence or withholding certificates). However, when a QI acts as a disclosing QI by providing specific partner documentation to a withholding agent for withholding under the final regulations, the QI is permitted to document the status of an account holder based on only a withholding certificate. See section 3.03 of this Notice. A QI must also document an account holder using only a withholding certificate for purposes of applying an exception to withholding under section 1446(a) or (f) based on an account holder's claim under an income tax treaty or for applying an exception to withholding under section 1446(a) for an entity described in section 501(c). The modifications also include requirements for QIs to document nonqualified intermediaries, flow-through entities, and other QIs to which a QI pays amounts realized or PTP distributions and describe how a QI reliably associates the documentation with payments made to account holders or interest holders in those entities. A limitation rule is added, however, that a QI may not reliably associate a payment of an amount realized under section 1446(f) with the account holders of a nonqualified intermediary regardless of whether specific information about the account holders of the nonqualified intermediary is provided to the QI. If a QI is unable to reliably associate a payment of an amount realized or an amount subject to withholding under section 1446(a) on a PTP distribution with valid documentation, the QI must treat the account holder as a foreign person under the presumption rule added to section 5.13(C)(5) of the QI agreement and withhold at the applicable rate under section 1446(a) or (f) except when backup withholding under section 3406 would apply to an amount realized. See §1.1446(f)-4(b)(4) for coordinating withholding under sections 3406 and 1446(f)..03 QI withholding certificates and withholding statements. The modifications to section 6 of the QI agreement allow a QI to furnish a qualified intermediary withholding certificate when paid an amount realized or PTP distribution. When a QI does not assume primary withholding responsibility under section 1446(a) or (f), the QI must also provide to its withholding agent a withholding statement that includes either withholding rate pools or specific payee information (and associated payee documentation) in lieu of withholding rate pool information when acting as a disclosing QI. If a QI provides withholding rate pool information to a withholding agent with respect to an amount realized, however, the QI may combine the withholding rate pool information for its account holders with the account holders of another intermediary only if the intermediary is a QI. In the case of a PTP distribution, a QI must determine its withholding rate pools based on each amount subject to withholding on the distribution as determined by the QI's withholding agent..04 Reporting on Form 1042-S. Under the modifications to section 8 of the QI Agreement, a QI may file Forms 1042-S on a pooled basis to report amounts realized and amounts subject to withholding on PTP distributions to the same extent generally permitted for other payments covered by the QI agreement. If a QI acts as a disclosing QI, however, the withholding agent or broker for the QI is required to file Forms 1042-S with respect to the account holders of the QI that are partners in a PTP, and the QI is not required to file a Form 1042-S unless it knows or has reason to know that a correct Form 1042-S was not issued to a partner. If a QI is provided account holder documentation from another QI acting as a disclosing QI, the QI is also required to report on Form 1042-S with respect to the account holder when the QI assumes primary withholding responsibility. In cases in which a QI does not act as a disclosing QI it must also issue a separate Form 1042-S when requested by an account holder under the conditions specified in the modifications. The modifications also include the conditions for a QI to issue a separate Form 1042-S to report an amount realized paid to an account holder of a nonqualified intermediary rather than to an unknown recipient (despite that reliance on account holder documentation is not permitted for the withholding) and require a QI to issue a separate Form 1042-S to an account holder of a nonqualified intermediary to which the QI pays a PTP distribution..05 Requirements under §1.6031(c)-1T. In general, under §1.6031(c)-1T(a), a nominee holding an interest in a partnership directly or indirectly on behalf of another person is required to provide to the partnership (or agent designated by the partnership or another nominee) certain information about the nominee and the person on whose behalf the nominee holds an interest (including the name, address, taxpayer identification number of the nominee and such other person, and a description of any interest in the partnership that the nominee holds, acquires, or transfers on behalf of such other person during the partnership taxable year). If a nominee does not provide the information described in the preceding sentence with respect to such other person, under §1.6031(c)-1T(h) the nominee is in general required to provide to the person a statement covering the person's distributive share of partnership income, gain, loss, deduction, or credit required to be shown on the partnership return, and any additional information as required under the Code with respect to items related to the person's interest in the partnership. The provisions of §1.6031(c)-1T are incorporated into the QI agreement in new section 8.07 to facilitate the U.S. tax filings of foreign partners required to report effectively connected income from their holdings and sales of PTP interests (which apply regardless of whether the tax due is withheld). The modifications require a QI acting as a disclosing QI to provide to the PTP or QI's nominee the statement described in §1.6031(c)-1T(a) with respect to an account holder holding a PTP interest (including an account holder that is an intermediary in certain cases). In other cases, a QI may provide the statement described in the preceding sentence to the PTP or may instead provide the statement to the account holder that is described in §1.6031(c)-1T(h) with respect to the account holder's PTP interest. The QI must also facilitate the account holder's receipt of deemed sale information for purposes of section 864(c)(8) when requested..06 Private arrangement intermediaries and agency and joint account options for partnerships and trusts. The modifications add to the procedures under section 4 of the QI agreement for QIs that maintain arrangements with private arrangement intermediaries (PAIs) that hold PTP interests for account holders and provide the cases for which a QI may use the agency and joint options when paying a PTP distribution or amount realized to a partnership or trust. A QI is permitted to withhold on payments of amounts realized and PTP distributions made to a PAI under requirements similar to those that apply in the case of a disclosing QI that is an account holder of a QI (rather than allow the PAI to assume primary withholding or provide withholding rate pools). As a result of this treatment, a QI may determine its withholding on an amount realized paid to a PAI by reference to the statuses of the PAI's account holders (rather than treat the PAI as a nonqualified intermediary as described in section 3.02 of this Notice) and must satisfy the requirements of §1.6031(c)-1T(a) with respect to each PAI account holder to which a QI pays an amount realized or PTP distribution during the year. A QI may apply the agency option with respect to a foreign partnership providing a certification for a modified amount realized or for an amount subject to withholding under section 1446(a) on a PTP distribution unless the partnership is a PTP (as an upper-tier PTP is not permitted to provide partner information to a lower-tier PTP for section 1446(a) withholding). With respect to a trust, a QI may apply the agency option only for a trust that is a grantor trust given that a simple trust is not permitted to provide beneficiary information for section 1446(a) or (f) withholding. In cases for which the agency option is not specifically permitted, a QI is not otherwise required to provide information to a withholding agent or report with respect to the interest holders in a partnership or trust under the regulations to sections 1446(a) and (f) (such that the agency option has no application). However, the modifications do not permit a QI to use the joint account option for payments of PTP distributions or amounts realized. As the use of this option is not otherwise permitted when a partnership or trust has a U.S. partner, owner or beneficiary, its use would be of limited application if applied to those payments..07 Refunds and underwithholding. Given the filing requirements of foreign partners for reporting their effectively connected income referenced in section 3.05 of this Notice, a QI is not permitted to file a collective refund with respect to withholding under section 1446(a) or (f). If a QI overwithholds under section 1446(a) or (f), the QI may apply the reimbursement and set-off procedures to the same extent permitted for chapters 3 and 4 purposes. If a QI does not withhold at the rate required under section 1446(a) or (f), the QI may apply the procedures for underwithholding that apply for purposes of chapters 3 and 4..08 Events of default and material failures. The modifications include material failures for cases in which a QI fails to withhold as required under sections 1446(a) and (f) or fails to comply with the reporting requirements of new section 8.07. The modifications include similar events of default for when a QI fails to comply materially with either of those requirements. SECTION 4. TEXT OF PROPOSED CHANGES TO THE QI AGREEMENT The text of the proposed changes to the QI agreement is set forth below and includes each section of the QI agreement that is proposed to be modified by this Notice (adding as applicable new sections and revising certain section headings). The Treasury Department and the IRS intend to incorporate the provisions of this Section 4 and additional requirements for QIs under sections 1446(a) and (f) (such as the periodic review requirements of QIs relevant to those sections) into the revised QI agreement that is to apply beginning with the 2023 calendar year. Comments relating to this Section 4 are requested, in particular with respect to the procedures of proposed section 8.07. Comments are further requested with respect to additional compliance procedures that should be added to section 10 of the QI agreement for purposes of sections 1446(a) and (f) and to Appendices I and II to the QI agreement for this purpose. See Section 5 of this Notice. SECTION 2. DEFINITIONS * * * Sec. 2.04. Amount Subject to Chapter 3 Withholding. An "amount subject to chapter 3 withholding" is an amount described in §1.1441-2(a) regardless of whether such amount is withheld upon. Unless indicated otherwise in this Agreement, an amount subject to chapter 3 withholding includes an amount subject to chapter 3 withholding on a PTP distribution. See section 2.92(C) of this Agreement. Sec. 2.05. Amount Subject to Chapter 4 Withholding. An "amount subject to chapter 4 withholding" is a withholdable payment (as defined in §1.1473-1(a)) for which withholding is required under chapter 4 or an amount for which withholding was otherwise applied under chapter 4. Unless indicated otherwise in this Agreement, an amount subject to chapter 4 withholding includes such an amount subject to chapter 4 withholding on a PTP distribution. See section 2.92(C) of this Agreement * * * Sec. 2.08. Beneficial Owner. A "beneficial owner" has the meaning given to that term in §1.1441-1(c)(6) with respect to a payment subject to withholding under chapter 3. * * * Sec. 2.31. Flow-Through Entity. * * * For an amount realized or amount subject to withholding under section 1446(a) on a PTP distribution, a flow-through entity includes a U.S. grantor trust. * * * Sec. 2.92. Terms applicable to section 1446(a) and (f) requirements. The following terms apply in connection with QI's requirements with respect to QI's account holders holding PTP interests: (A) Amount realized. For purposes of section 1446(f), an amount realized on a sale of a PTP interest is the amount of gross proceeds (as defined in §1.6045-1(d)(5)) paid or credited to the partner or broker that is the transferor of the interest. The amount realized on a PTP distribution is the amount of the distribution reduced by the portion of the distribution that is attributable to the cumulative net income of the partnership (as determined under §1.1446(f)-4(c)(2)(iii)). (B) Amount subject to reporting under section 1446(f). An amount subject to reporting under section 1446(f) is the amount realized on the transfer of a PTP interest paid to a foreign partner (including a partner presumed to be foreign) unless an exception to withholding applies under §1.1446(f)-4(b)(2) through (4). See §1.1461-1(c)(2)(i)(Q). (C) Amount subject to withholding on a PTP distribution. An amount subject to withholding on a PTP distribution is the amount of the distribution subject to withholding under chapter 3 or 4 and/or under section 1446(a) or (f). (D) Broker. The term broker has the meaning described in §1.1446(f)-1(b)(1), when referenced in connection with the transfer of a PTP interest. (E) Disclosing QI. For purposes of section 1446(a) or (f), a disclosing QI is a QI that does not assume the primary withholding obligation under section 1446(a) or (f) for a payment and that provides with its withholding statement the specific payee documentation referenced in §1.1446(f)-4(a)(7)(iii) (for an amount realized) or §1.1446-4(e)(4) (for withholding on a PTP distribution under section 1446(a)) instead of the chapter 3 withholding rate pool information otherwise permitted to be included on the withholding statement and, for an amount realized, a chapter 4 withholding rate pool of U.S. payees when permitted for chapter 4 purposes in lieu of specific payee documentation for those payees. A QI that acts as a disclosing QI for a payment must act as a disclosing QI for the entire payment. (F) Modified amount realized. In the case of an amount realized paid to a transferor of a PTP interest that is a foreign partnership, the modified amount realized is the amount determined under §1.1446(f)-4(c)(2)(ii), as modified by section 4.06 or 5 of this Agreement with respect to the partner information required for determining the amount. (G) Nominee. The term nominee means a person that, under §1.1446-4(b)(3), holds an interest in a PTP on behalf of a foreign person and that is either a U.S. person or QI that assumes primary withholding responsibility for a PTP distribution, or a U.S. branch of a foreign person (or territory financial institution) that agrees to be treated as a U.S. person with respect to the distribution. (H) Partner. When referenced in connection with sections 1446(a) and (f), a partner is a person holding a PTP interest, including a partnership or trust but excluding a grantor trust and including the trust's grantors or owners to the extent of their respective interests in the trust, and excluding an intermediary. When referenced in connection with §1.6031(c)-1T, a partner is a person to whom a partnership is required to issue a statement under section 6031(b). See section 8.07 of this Agreement. (I) PTP interest. A PTP interest is an interest in a publicly traded partnership if the interest is publicly traded on an established securities market or is readily tradable on a secondary market (or the substantial equivalent thereof). (J) PTP distribution. A PTP distribution is a distribution made by a publicly traded partnership. (K) Publicly traded partnership (PTP). The term publicly traded partnership (PTP) has the same meaning as in section 7704 and §§1.7704-1 through 1.7704-4 but does not include a publicly traded partnership treated as a corporation under that section. (L) Qualified notice. A qualified notice is a notice issued by a PTP for a PTP distribution as described in §1.1446-4(b)(4). (M) Transfer. A transfer is a sale, exchange, or other disposition of a PTP interest, and includes a distribution from a partnership to a partner, as well as a transfer treated as a sale or exchange under section 707(a)(2)(B). With respect to a PTP distribution, however, see sections 2.92(A) and 3.01(C)(2) of this Agreement for the extent of an amount realized on the distribution for purposes of QI's requirement to withhold under section 1446(f). (N) Transferor. A transferor is any person, foreign or domestic, that transfers a PTP interest. In the case of a trust, to the extent all or a portion of the income of the trust is treated as owned by the grantor or another person under sections 671 through 679, the term transferor means the grantor or other person. SECTION 3. WITHHOLDING RESPONSIBILITY AND QDD TAX LIABILITY Sec. 3.01. Withholding Responsibilities under Chapters 3 and 4 and Withholding with respect to PTP Interests. * * * (C) Withholding under section 1446(f) and on PTP Distributions. (1) Withholding on Amount Realized. If QI acts as a broker with respect to a payment of an amount realized from a transfer of a PTP interest, QI is required to withhold under section 1446(f) 10-percent of the amount realized paid to an account holder of QI that is the transferor and is (or is presumed to be) a foreign partner when QI assumes primary withholding responsibility for the payment under section 3.03(C)(1) of this Agreement. QI is further required to withhold on a payment of an amount realized made to a foreign broker to the extent provided in §1.1446(f)-4(a)(2). QI is not required to withhold on a payment of an amount realized when an exception to withholding under §1.1446(f)-4(b) applies. Thus, for example, QI is not required to withhold under section 1446(f) when it may rely on a qualified notice that states the applicability of the exception under §1.1446(f)-4(b)(3). See section 5 of this Agreement regarding documentation requirements for other exceptions to withhold under §1.1446(f)-4(b). (2) Withholding under chapter 3, chapter 4, section 1446(a), and section 1446(f) on PTP distribution. If QI acts as a nominee for a PTP distribution under section 3.03(C)(2) of this Agreement, QI is a withholding agent for purposes of the distribution and is required to withhold as described in this section 3.01(C)(2). For an amount subject to withholding under section 1446(a) identified on a qualified notice for a PTP distribution, QI is required to withhold on the amount paid to an account holder that is (or is presumed to be) a foreign partner except when an exception to withholding applies to an account holder that is a foreign entity described in section 501(c)(3) or that claims an exemption from withholding under an income tax treaty. See sections 5.03 and 5.06(A) of this Agreement for documentation requirements for these exceptions and section 1446(b) for the rate of withholding that applies under section 1446(a). For an amount subject to withholding under chapter 3 and 4 on a PTP distribution, QI is required to withhold under sections 3.01(A) and (B) of this Agreement to the extent such amounts are identified on a qualified notice for the distribution. For an amount realized on a PTP distribution, QI's requirement to withhold under section 1446(f) is limited to the amount identified on a qualified notice as in excess of the PTP's cumulative net income. If QI does not receive a qualified notice for a distribution or to the extent the qualified notice for the distribution does not specify an amount subject to withholding, QI is required to withhold only to the extent provided in the default rules in §1.1446-4(d)(1). Sec. 3.02. Primary Withholding Responsibility Not Assumed under Chapters 3 and 4 or with respect to PTP interests. Notwithstanding anything in sections 1.01 and 3.01 of this Agreement to the contrary, QI is not required to withhold to the extent provided in this section 3.02. (A) Withholding under Chapters 3 and 4. QI is not required to withhold with respect to a payment of U.S. source FDAP income if it: (a) does not assume primary withholding responsibility under section 3.03(A) of this Agreement by electing to be withheld upon under §1.1471-2(a)(2)(iii) for purposes of chapter 4, (b) provides the withholding agent from which QI receives the payment with a valid withholding certificate that indicates that QI does not assume primary withholding responsibility for chapters 3 and 4 purposes, and (c) provides correct withholding statements (including information regarding any account holders or interest holders of an intermediary or flow-through entity that holds an account with QI, other than a QI that assumes primary withholding responsibility, or a WP or WT) as described in section 6.02 of this Agreement. (B) Withholding with respect to PTP interest. QI is not required to withhold on a payment of a PTP distribution or an amount realized from the sale of a PTP interest except when QI assumes primary withholding responsibility for either of those payments under section 3.03(C)(1) or (2) of this Agreement. QI does not assume primary withholding responsibility for a payment of a PTP distribution or amount realized from the sale of a PTP interest by providing to its withholding agent or broker a valid withholding certificate indicating that it is a QI that does not assume primary withholding responsibility for the payment and provides correct withholding statements as described in section 6.02 of this Agreement. See section 3.05(C) of this Agreement for when QI is not responsible for primary Form 1099 reporting and backup withholding for broker proceeds that are an amount realized. (C) Residual Withholding Requirement. Notwithstanding its election not to assume primary withholding responsibility for a payment as described in section 3.02(A) or (B) of this Agreement, QI shall, however, withhold the difference between the amount of withholding required and the amount actually withheld by another withholding agent if QI-- (1) Actually knows that the appropriate amount has not been withheld by another withholding agent or broker; or (2) Made an error which results in the withholding agent or broker's failure to withhold the correct amount due ( e.g., QI fails to provide an accurate withholding statement with respect to the payment, including a failure to provide information regarding any account holders or interest holders of an intermediary or flow-through entity that holds an account with QI to the extent required in section 6 of this Agreement), and QI has not corrected the underwithholding under section 9.05 of this Agreement. Sec. 3.03. Assumption of Primary Withholding Responsibilities under chapters 3 and 4 (including by QDDs) or with respect to PTP interest. (A) Withholding Assumed under Chapters 3 and 4. QI may assume primary withholding responsibility for purposes of chapters 3 and 4 by providing a valid withholding certificate described in section 6 of this Agreement to a withholding agent that makes a payment of U.S. source FDAP income to QI and by designating on the withholding statement associated with such certificate the account(s) for which QI assumes primary withholding responsibility (if required). QI is not required to assume primary withholding responsibility for all accounts it holds with a withholding agent. If QI assumes primary withholding responsibility for any account, it must assume that responsibility under chapters 3 and 4 for all withholdable payments and amounts subject to chapter 3 withholding made by the withholding agent to that account. Notwithstanding the preceding sentence, QI assumes primary withholding responsibility on a PTP distribution (which includes an amount subject to withholding under chapter 3 or 4 on the distribution) only as provided in section 3.03(C)(2) of this Agreement. To the extent that QI assumes primary withholding responsibility under this section 3.03(A), QI shall withhold as described in section 3.01(A) and (B) of this Agreement. QI is not required to withhold on amounts it pays to another QI that has assumed primary withholding responsibility with respect to the payment under chapters 3 and 4 (including a QI acting as a QDD except for all payments with respect to underlying securities, other than dividend equivalents, paid to a QDD for which withholding is required) or to a WP or a WT. (C) Withholding Assumed with respect to PTP Interest. (1) Withholding Assumed on Amount Realized. QI may assume primary withholding responsibility for a payment of an amount realized from the sale of a PTP interest only when the QI provides to the broker making the payment to QI a valid withholding certificate described in section 6 of this Agreement stating that it assumes primary responsibility for the payment. In such a case, QI is required to withhold on the payment as described in section 3.01(C)(1) of this Agreement, excluding an amount realized paid to another QI that has assumed primary withholding responsibility with respect to the amount realized. (2) Withholding Assumed on PTP Distribution. QI may assume primary withholding responsibility for a payment of a PTP distribution only when the QI provides to the PTP or nominee paying the distribution to QI a valid withholding certificate described in section 6 of this Agreement stating that QI assumes primary responsibility by acting as a nominee for the distribution under §1.1446-4(b)(3). QI may act as a nominee for a PTP distribution only when QI assumes primary withholding responsibility for all of the amounts subject to withholding on the PTP distribution under sections 1446(a) and (f) and chapters 3 and 4. When acting as a nominee, QI is required to withhold on a PTP distribution as required under section 3.01(C)(2) of this Agreement, excluding a PTP distribution paid to another QI that has assumed primary withholding responsibility as a nominee with respect to the distribution or to a WP or WT with respect to an amount subject to withholding under chapter 3 or 4 on the distribution. * * * Sec. 3.05. Primary Form 1099 Reporting and Backup Withholding Responsibility for Reportable Payments Other Than Reportable Amounts. * * * (C) Special Procedure for Broker Proceeds. * * * Notwithstanding the preceding provisions, for a payment of broker proceeds that is an amount realized from the sale of a PTP interest, QI will not be excepted from responsibility for primary Form 1099 reporting and backup withholding (as otherwise permitted in this section 3.05(C)) if QI also provides a valid withholding certificate to the broker paying the proceeds to QI that indicates that QI assumes primary withholding responsibility for the amount realized. * * * Sec. 3.08. Deposit Requirements. * * * The deposit requirements of this section 3.08 that apply to amounts that QI withholds under chapter 3 and 4 also apply to the extent that QI assumes primary withholding responsibility for a payment of a PTP distribution or amount realized from the sale of a PTP interest. SECTION 4. PRIVATE ARRANGEMENT INTERMEDIARIES AND CERTAIN PARTNERSHIPS AND TRUSTS Sec. 4.01. Private Arrangement Intermediaries-In General. * * * (G) * * * The limitations on a PAI's disclosure of its direct account holders to QI described in this section 4.01(G) do not, however, apply with respect to the PAI's direct account holders' receipt of payments of PTP distributions or amounts realized from sales of PTP interests. For either such payment, a PAI is required to disclose to QI its direct account holders and provide any information requested by QI for QI to meet its withholding and reporting requirements specified in section 4.02(D) of this Agreement. Sec. 4.02. Modification of Obligations for PAI Agreements. (A) Payments Reportable under Chapters 3 and 4. * * * (2) A direct foreign account holder of the PAI for which no withholding is required under chapter 4 (other than an intermediary, custodian, nominee, agent, or flow-through entity described below), QI shall, except as otherwise provided in section 4.02(D) of this Agreement, report an amount subject to chapter 3 withholding using the chapter 3 reporting pools as described in section 8.03 of this Agreement with the PAI reported as the recipient. (D) Payments of Amounts Realized or PTP Distributions. The agreement between QI and a PAI must provide that QI will satisfy the requirements of §1.6031(c)-1T as set forth in section 8.07 of this Agreement with respect to each account holder of PAI that is a partner receiving from QI a PTP distribution or amount realized from the sale of a PTP interest for which a statement under section 6031(b) is required for the taxable year (and for which the PAI will provide QI the necessary partner information). The agreement between QI and a PAI must further provide that QI shall treat PAI as if PAI were a disclosing QI with respect to both of the following-- (1) QI's reporting on Forms 1042 and 1042-S of an amount realized from the sale of a PTP interest or an amount subject to withholding on a PTP distribution paid to a direct account holder of PAI (as further described in section 8 of this Agreement), and (2) QI's determination of the withholding required on any such amount. Sec. 4.03. Other Requirements of PAI Agreements * * * Finally, nothing in the agreement between QI and a PAI shall permit the PAI to assume primary withholding responsibility for a PTP distribution or an amount realized from the sale of a PTP interest. * * * Sec. 4.05. Joint Account Treatment for Certain Partnerships and Trusts * * * (B) Modification of Obligations for QI. (1) * * * QI may not, however, rely on a Form W-8IMY that is associated with a PTP distribution or amount realized from the sale of a PTP interest for purposes of this section 4.05. Sec. 4.06. Agency Option for Certain Partnerships and Trusts. (A) In General. * * * (6) For a partnership or trust to which QI pays an amount subject to withholding under section 1446(a) on a PTP distribution, the partnership is not a PTP, and the trust is a grantor trust (with the partnership or trust providing its U.S. TIN to QI). For a partnership or trust to which QI pays an amount realized, the partnership is a partnership providing a certification for a modified amount realized, and the trust is a grantor trust (with the partnership or trust providing its U.S. TIN to QI). * * * SECTION 5. DOCUMENTATION REQUIREMENTS Sec. 5.01. Documentation Requirements. (A) General Documentation Requirements. * * * If QI makes a payment of an amount realized on a sale of a PTP interest or a PTP distribution, QI also agrees to use its best efforts to obtain the documentation from a partner that is described in section 5.02 of this Agreement. QI further agrees to treat a partner as a foreign partner and a broker as a foreign broker when required under section 5.13(C)(5) of this Agreement for a payment of an amount realized or the amount of a PTP distribution subject to withholding under section 1446(a). * * * Sec. 5.02. Documentation for Foreign Account Holders. (A) Documentation for chapters 3 and 4. QI may treat an account holder as a foreign beneficial owner of an amount for purposes of chapter 3 or 4 if the account holder provides a valid Form W-8 (other than Form W-8IMY unless provided by a QI that is acting as a QDD or assuming primary withholding responsibility for a substitute interest payment) or valid documentary evidence that supports the account holder's status as a foreign person. (B) Documentation for Section 1446(a). QI must treat an account holder that is a partner receiving a payment of a PTP distribution subject to withholding under section 1446(a) as a foreign partner if the account holder provides a valid Form W-8 other than a Form W-8IMY provided by an intermediary, grantor trust, or partnership (excluding a PTP) that includes the account holder's U.S. TIN. Alternatively, QI must treat an account holder described in the preceding sentence as a foreign partner when QI has both valid documentary evidence that supports the account holder's status as a foreign person and the account holder's U.S. TIN. See, however, §1.1446-4(e)(4) for QI's requirement to provide withholding certificates for the amount of a PTP distribution subject to withholding under section 1446(a) when acting as a disclosing QI. (C) Documentation for Section 1446(f). QI must treat an account holder receiving a payment of an amount realized as a foreign partner if the account holder provides a valid Form W-8 (other than a Form W-8IMY provided by a grantor trust, broker, or a partnership providing the certification on Form W-8IMY for a modified amount realized) that includes the account holder's U.S. TIN. Alternatively, QI must treat an account holder described in the preceding sentence as a foreign partner when QI has both valid documentary evidence that supports the account holder's status as a foreign person and the account holder's U.S. TIN. See, however, §1.1446(f)-4(a)(7)(iii) for QI's requirement to provide withholding certificates when acting as a disclosing QI for an amount realized. With respect to an amount realized QI pays to a broker, QI may rely on documentation that is permitted under §1.1446(f)-4(a)(5) for treating the broker as a foreign person. * * * Sec. 5.03. Beneficial Owner's or Partner's Claim of Treaty Benefits. * * * If an account holder that is a foreign partner receives an amount subject to withholding under section 1446(a) on a PTP distribution or an amount realized, the documentation described in section 5.03(A)(1) of this Agreement shall be permitted for the partner's claim of treaty benefits and sections 5.03(A)(2) and (3) of this Agreement shall not apply. See, however, section 5.07 of this Agreement in the case of an amount realized paid to a nonqualified intermediary. * * * Sec. 5.04. Documentation for International Organizations. * * * For example, an international organization may not claim benefits under this section 5.04 with respect to QI's requirement to withhold under section 1446(a) or (f). Sec. 5.05. Documentation for Foreign Governments and Foreign Central Banks of Issue. (A) Documentation From a Foreign Government or Foreign Central Bank of Issue Claiming an Exemption from Withholding Under Section 892 or Section 895. To the extent an account holder receives a payment subject to withholding under chapter 3 that is not subject to withholding under chapter 4, * * * (C) * * * For example, a foreign government or foreign central bank of issue may not claim benefits under section 892 with respect to QI's requirement to withhold under section 1446(a) or (f). Sec. 5.06. Documentation for Foreign Tax-Exempt Organizations. To the extent an account holder receives a payment that is subject to withholding under chapter 3 or section 1446(a) on a PTP distribution but not under chapter 4, QI may not treat an account holder as a foreign tax-exempt organization and reduce the rate of or exempt the account holder from withholding unless it satisfies the requirements provided in section 5.06(A), (B), or (C) of this Agreement. * * * Sec. 5.07. Documentation from Intermediaries or Flow-Through Entities. * * * Notwithstanding the previous provisions of this section 5.07, for an amount realized paid to a nonqualified intermediary, QI is required to apply the presumption rule provided in section 5.13(C)(5) of this Agreement regardless of whether the nonqualified intermediary provides a valid Form W-8IMY and documentation with respect to the account holders receiving the amount realized. * * * (B) Reportable Payments Other than Withholdable Payments or Payments with respect to PTP interests Made to Nonqualified Intermediaries and Flow-Through Entities. With respect to a reportable payment that is not a withholdable payment or an amount realized made to a nonqualified intermediary or flow-through entity-- * * *. (C) Payments with respect to PTP Interests Made to Nonqualified Intermediaries and Flow-Through Entities. (1) Amount Realized. With respect to a payment by QI of an amount realized from the sale of a PTP interest made to a flow-through entity or nonqualified intermediary, the documentation that QI receives is a valid Form W-8IMY from the entity except for a foreign simple trust (for which a Form W-8BEN-E may instead be received) and a U.S. grantor trust (for which a document similar to Form W-8IMY may be received). In the case of a foreign partnership providing the certification on Form W-8IMY for a modified amount realized, QI is required to obtain from the partnership the documentation described in this section 5 with respect to the partners that QI can reliably associate with the payment. For a grantor trust to which QI pays an amount realized, QI is further required to obtain valid documentation described in this section 5 that QI can reliably associate with each grantor or owner of the trust. (2) PTP distribution. With respect to a payment by QI of a PTP distribution to a nonqualified intermediary, the documentation that QI receives from the intermediary is a valid Form W-8IMY (including its chapter 4 status for an amount of a distribution attributable to a withholdable payment) and documentation for each of the account holders of the nonqualified intermediary that are partners in the PTP that QI can reliably associate with each amount subject to withholding on the distribution (including by applying section 5.13(B)(1) of this Agreement for any amount realized on the distribution). With respect to a payment by QI of a PTP distribution to a flow-through entity, the documentation that QI receives from the flow-through entity is as follows-- (i) For the amount of the distribution subject to withholding under section 1446(a) made to a foreign partnership, QI receives a valid Form W-8IMY from the partnership and, for a foreign partnership other than a PTP, valid documentation described in this section 5 on each of the partners in the partnership that QI can reliably associate with the distribution. See §§1.1446-4 and 1.1446-5(c). For the portion of the distribution subject to withholding under section 1446(a) made to a trust, QI receives a valid Form W-8BEN-E or W-8IMY from a simple trust or, in the case of a foreign grantor trust, a valid Form W-8IMY from the trust (or similar document from a U.S. grantor trust) and valid documentation on each grantor or owner of the trust permitted under this section 5 for a payment subject to section 1446(a) withholding that QI can reliably associate with the distribution. (ii) For the amount of the distribution subject to withholding under chapter 3 or 4, QI receives a valid Form W-8IMY from the flow-through entity (which includes the entity's chapter 4 status with respect to any amount of a distribution attributable to a withholdable payment) and valid documentation on the interest holders in the entity (other than nonqualified intermediaries or flow-through entities) permitted under this section 5 for a payment subject to chapter 3 or 4 withholding that QI can reliably associate with the distribution. (iii) For the amount realized on the distribution, QI receives from the flow-through entity valid documentation specified in section 5.07(C)(1) of this Agreement applicable to a flow-through entity that QI can reliably associate with the distribution. (D) Reportable Payments and Payments with respect to PTP Interests Made to QIs, WPs, and WTs. * * * With respect to a payment of an amount realized on the sale of a PTP interest made by QI to a QI, QI receives a valid Form W-8IMY provided by the other QI that includes the QI's chapter 4 status if the QI provides a withholding statement allocating a payment to a chapter 4 withholding rate pool of U.S. payees. Additionally, for an amount realized for which the other QI does not assume primary withholding responsibility nor act as a disclosing QI, QI can reliably associate the payment with withholding rate pools, as described in section 6.03 of this Agreement, or a valid Form W-9 for a U.S. partner not includible in a chapter 4 withholding rate pool of U.S. payees under chapter 4. See §1.1446(f)-4(a)(7)(iv). For an amount realized described in the preceding sentence that QI pays to a QI acting as a disclosing QI, QI receives valid documentation permitted under section 5.02(C) of this Agreement with respect to the account holders of the other QI, including a valid Form W-9 for a U.S. partner not includible in a chapter 4 withholding rate pool of U.S. payees permitted under chapter 4. With respect to a PTP distribution paid by QI to a QI, QI receives a valid Form W-8IMY provided by the other QI that includes the QI's chapter 4 status for any portion of the PTP distribution attributable to a withholdable payment. Additionally, for a PTP distribution for which the other QI does not assume primary withholding responsibility nor act as a disclosing QI, QI can reliably associate the payment with withholding rate pools, as described in section 6.03 of this Agreement, or a valid Form W-9 for each partner that is a U.S. person. For a PTP distribution that QI pays to a QI acting as a disclosing QI, QI receives with respect to the account holders of the other QI valid documentation required of a disclosing QI under section 5.02(B) of this Agreement for an amount subject to withholding under section 1446(a) on the distribution, valid documentation permitted under the preceding paragraph of this section 5.07(D) for an amount realized on the distribution and, for an amount subject to withholding under chapter 3 or 4 on the distribution, valid documentation described in section 5.07(A) or (B) of this Agreement. With respect to a PTP distribution paid to a WP or WT, QI receives a valid Form W-8IMY provided by the WP or WT that QI can reliably associate with an amount subject to withholding under chapter 3 or 4 on the distribution. (E) Payments Made to QIs Acting as QDDs. * * * (F) Private Arrangement Intermediaries. * * * QI must also reliably associate a payment made to a PAI with valid documentation with respect to the account holders of the PAI for a payment of a PTP distribution or amount realized from the sale of a PTP interest as described in section 5.07(D) of this Agreement. * * * (G) Partnerships or Trusts to which QI Applies the Agency Option. * * * Sec. 5.10. Documentation Validity. (A) In General. QI may not rely on documentation if QI has actual knowledge or, for a payment other than an amount realized, reason to know that the information or certifications contained in the documentation are unreliable or incorrect, or that there is a change in circumstances with respect to the information or statements contained in the documentation or account information that affects the reliability of the account holder's claim. See §1.1441-1(e)(4)(ii)(D) for the definition of change in circumstances and a withholding agent's obligation with respect to a change in circumstances for purposes of withholding under chapters 3 and 4 and section 1446(a). * * * * * * Sec. 5.13. Application of Presumption Rules. (A) * * * (B) Reliably Associating a Payment with Documentation. * * * See also §1.1471-3(e)(4)(vi)(B) for when a QI that is an FFI may rely on documentation and information permitted in an applicable IGA to document an account holder's chapter 4 status. For documentation reliance rules for purposes of sections 1446(a) and (f), see §§1.1446-1(c)(2)(iii) and 1.1446(f)-4(b). * * * (1) Reliably Associating a Payment with Documentation Provided by a Nonqualified Intermediary or Flow-Through Entity. * * * With respect to a payment of an amount realized from the sale of a PTP interest, QI can reliably associate the payment with documentation when QI can associate the payment with a valid Form W-8IMY provided by a flow-through entity except for a trust that is a simple trust (for which a valid Form W-8BEN-E may instead be provided). Additionally, QI can reliably associate the payment with documentation to permit a modified amount realized paid to a foreign partnership to the extent that QI can reliably associate the payment with a valid Form W-8IMY provided by the partnership that includes the certification for a modified amount realized and the partnership provides valid documentation for each partner allocated an amount of gain (if any) arising from the sale. For a payment of an amount realized made to a grantor trust, QI can reliably associate the payment with documentation when it can reliably associate the payment with a valid Form W-8IMY from the trust indicating its status as a foreign grantor trust (or similar document from a U.S. trust) and can determine the percentage of the amount realized that is associated with valid documentation provided by each grantor or owner of the trust. With respect to QI's payment of an amount realized from the sale of a PTP interest made to a nonqualified intermediary, QI cannot reliably associate the payment with documentation regardless of whether a valid Form W-8IMY is provided by the nonqualified intermediary together with valid documentation for its account holders that QI can associate with the payment. See section 8.02(N) of this Agreement, however, for when a QI may rely on account holder documentation provided by a nonqualified intermediary for purposes of reporting under this Agreement. With respect to a PTP distribution QI pays to a nonqualified intermediary, QI can reliably associate the distribution with documentation when QI can reliably associate the payment with a valid Form W-8IMY provided by the nonqualified intermediary (including its chapter 4 status for an amount of a distribution attributable to a withholdable payment) and can determine the portion of each amount subject to withholding on the distribution (as determined under section 3.01(C)(2) of this Agreement) that is associated with valid documentation for each partner or beneficial owner with respect to the distribution that is an account holder of the nonqualified intermediary (as applicable, depending on the amount subject to withholding on the distribution and taking into account the preceding paragraph of this section 5.13(B)(1) for an amount realized on the distribution). With respect to a PTP distribution QI pays to a flow-through entity, QI can reliably associate the distribution with documentation to the extent it reliably associates with documentation each amount subject to withholding on the distribution as follows-- (i) For an amount subject to withholding under section 1446(a), QI can determine the portion of the amount associated with-- (a) A valid Form W-8IMY from a partnership and, for a partnership other than a PTP, when QI can determine the amount associated with valid documentation provided by each of the partners of the partnership; (b) A valid Form W-8BEN-E or Form W-8IMY from a simple trust; or (c) A valid Form W-8IMY from a trust that identifies itself as a foreign grantor trust (or similar document from a U.S. grantor trust), when QI can associate the portion of the amount with valid documentation provided by each grantor or owner of the trust. (ii) For an amount subject to withholding under chapter 3 or 4 that QI can determine is reliably associated with a valid Form W-8IMY provided by the flow-through entity (which includes the entity's chapter 4 status with respect to an amount of a distribution attributable to a withholdable payment) and the portion of the amount associated with valid documentation provided by each interest holder in the flow-through entity other than an intermediary or flow-through entity. (iii) For an amount realized that QI can determine is reliably associated with valid documentation provided by the flow-through entity and the portion of the amount associated with an interest holder in the entity to the extent specified in this section 5.13(B)(1) for an amount realized paid to a flow-through entity. * * * (7) Reliably Associating a Payment with Documentation Provided by a QI that Assumes Primary Withholding Responsibility for a PTP Distribution or Amount Realized from the Sale of a PTP Interest. QI can reliably associate with documentation a payment of a PTP distribution or amount realized from the sale of a PTP interest made to another QI that assumes withholding responsibility for the payment when QI can reliably associate the payment with a valid Form W-8IMY provided by the QI that indicates that the QI assumes primary responsibility for the amount realized or PTP distribution. (8) Reliably Associating a Payment with Documentation Provided by a QI that Does not Assume Primary Withholding Responsibility for a PTP Distribution or Amount Realized from the Sale of a PTP Interest. QI can reliably associate with documentation a payment of an amount realized from the sale of a PTP interest made to a QI that does not assume primary withholding responsibility for the payment when QI reliably associates the payment with a valid Form W-8IMY provided by the other QI and can determine the portion of the payment associated with a valid Form W-9 for the U.S. partner (or a chapter 4 withholding rate pool of U.S. payees when permitted under chapter 4) and, with respect to other partners, either withholding rate pools, as described in section 6.03(C) of this Agreement or, for a disclosing QI, when QI can determine the portion of the payment that is associated with valid documentation for each of the account holders of the other QI not includible in a chapter 4 withholding rate pool of U.S. payees under chapter 4. QI can reliably associate with documentation a payment of a PTP distribution made to another QI that does not assume primary withholding responsibility for the payment when QI can reliably associate the payment with a valid Form W-8IMY provided by the QI and can determine the portion of the distribution associated with withholding rate pools, as described in section 6.03(C) of this Agreement, or a valid Form W-9 for a U.S. partner, or, for a disclosing QI, when QI can determine the portion of each amount subject to withholding on the distribution that is associated with valid documentation for each of the account holders of the other QI as described in section 5.07(D) of this Agreement. (C) Presumption Rules. * * * (5) Other Payments. * * * In the case of a payment of an amount realized, an account holder that is the partner or a broker receiving the payment shall be presumed a foreign person for which a reduced rate of withholding under section 1446(f) shall not apply. See, however, §1.1446(f)-4(b)(4) in the case of an amount realized for which withholding under section 3406 is required. In the case of an amount subject to withholding under section 1446(a) on a PTP distribution, an account holder that is a partner in the PTP receiving the distribution shall be presumed a foreign person, with the rate of withholding determined under §1.1446-4(d)(1)(iii). SECTION 6. QUALIFIED INTERMEDIARY WITHHOLDING CERTIFICATE AND DISCLOSURE OF ACCOUNT HOLDERS TO WITHHOLDING AGENT Sec. 6.01. Qualified Intermediary Withholding Certificate. QI agrees to furnish a qualified intermediary withholding certificate to each withholding agent from which it receives a reportable amount as a QI or to each withholding agent or broker from which QI receives a PTP distribution or amount realized from the sale of a PTP interest (including when QI acts as a disclosing QI for the distribution or amount realized). The qualified intermediary withholding certificate is a Form W-8IMY (or acceptable substitute form) that certifies that QI is acting as a QI, contains QI's QI-EIN, and provides all other information required by the form. If QI receives a withholdable payment (including on a PTP distribution), QI must certify to its chapter 4 status and provide its GIIN (if applicable). QI must also certify its chapter 4 status as a participating FFI or registered deemed-compliant FFI when QI provides a Form W-8IMY that certifies that it meets the requirements of §1.6049-4(c)(4)(iii) with respect to any account holder of an account it maintains that is included in a chapter 4 withholding rate pool of U.S. payees on QI's withholding statement for a payment subject to withholding under chapter 3 or 4 or an amount realized from the sale of a PTP interest. * * * Sec. 6.02. Withholding Statement. (A) In General. * * * Notwithstanding the preceding provisions of this section 6.02(A) for a payment received by QI of a PTP distribution or an amount realized from the sale of a PTP interest, QI agrees to provide a withholding statement described in this section 6.02 when QI does not assume primary withholding responsibility for the payment. (B) Content of Withholding Statement. * * * (5) Designate an account for which QI assumes primary withholding responsibility for a PTP distribution or an amount realized from the sale of a PTP interest, and (6) Provide information regarding withholding rate pools, as described in section 6.03 of this Agreement, when necessary, except that section 6.03(C) of this Agreement shall not apply when QI acts as a disclosing QI for a payment, and references to a chapter 4 withholding rate pool of U.S. payees in section 6.03(B) of this Agreement shall not apply to an amount subject to withholding under section 1446(a) on a PTP distribution. See also section 2.92(E) of this Agreement for the extent of a disclosing QI's requirement to provide specific payee information on a withholding statement. Sec. 6.03. Chapters 3 and 4 Withholding Rate Pools and Specific Payee Information. (A) In General. QI shall provide as part of its withholding statement withholding rate pool information in a manner sufficient for the withholding agent to meet its chapters 3 and 4 and backup withholding responsibilities and its Form 1042-S and Form 1099 reporting responsibilities. QI's requirement for its withholding statement described in the preceding sentence also applies to a withholding statement QI provides to the withholding agent or broker for a payment of a PTP distribution or amount realized from the sale of a PTP interest. Additionally, for a PTP distribution, the withholding rate pool information provided by QI on its withholding statement must take into account each amount subject to withholding on the distribution as determined by the withholding agent that pays the distribution to QI. * * * (C) Chapter 3 Withholding Rate Pools. * * * For a payment of an amount realized, however, QI may combine its account holder information with the account holder information provided by an intermediary only if the intermediary is a QI other than a disclosing QI. * * * SECTION 8. INFORMATION REPORTING OBLIGATIONS Sec. 8.01. Form 1042-S Reporting. * * * Sec. 8.02. Recipient Specific Reporting. * * * (J) If QI acts as a disclosing QI with respect to a payment of a PTP distribution or an amount subject to reporting under section 1446(f) made to an account holder that is a foreign partner, QI must file a Form 1042-S to report the payment when QI knows or has reason to know that the Form 1042-S has not been filed with respect to the partner. In the case of a PTP distribution for which a QI must report in accordance with the preceding sentence, QI must file a separate Form 1042-S for each amount paid to the foreign partner that is subject to withholding on the distribution to the extent required in the instructions to Form 1042-S. Notwithstanding the preceding provisions of this section 8.02(J), see section 8.02(M) of this Agreement for the reporting of an amount subject to reporting under section 1446(f) paid to a nonqualified intermediary. (K) If a QI makes a payment of a PTP distribution or an amount subject to reporting under section 1446(f) to an account holder that is a QI not acting as a disclosing QI for the payment, QI must file a Form 1042-S for the other QI. If QI instead receives information on a foreign partner from a QI that is an account holder and that acts as a disclosing QI for either such payment, QI must file a separate Form 1042-S to report the payment when QI assumes primary withholding responsibility for the payment or knows or has reason to know that the Form 1042-S has not been issued with respect to the foreign partner. In such a case, QI must file the Form 1042-S reporting the disclosing QI as an intermediary, with the foreign partner reported as the recipient. In the case of a payment of a PTP distribution made to a QI that acts as a disclosing QI for the distribution and that QI is required to report in accordance with this Section 8.02(K), QI must file a separate Form 1042-S to the extent required in the instructions to Form 1042-S. (L) If QI receives specific information on a foreign partner that is a direct account holder of a PAI that receives from QI a payment of an amount subject to withholding on a PTP distribution or an amount subject to reporting under section 1446(f), QI must file a separate Form 1042-S to report each amount paid to the partner to the extent required in accordance with section 8.02(K) of this Agreement for a QI that is a disclosing QI (but as applied to a PAI instead of a disclosing QI). (M) If QI acts as a nominee for a payment of a PTP distribution made to a nonqualified intermediary, QI must file a separate Form 1042-S for each foreign partner or beneficial owner of the distribution that is an account holder in the nonqualified intermediary. If QI makes a payment of an amount subject to reporting under section 1446(f) to a nonqualified intermediary for which QI must file Form 1042-S in accordance with section 8.02(J) of this Agreement, QI shall file the Form 1042-S for an unknown recipient except that QI may instead file the Form 1042-S for an account holder of the nonqualified intermediary receiving the payment when-- (1) QI acknowledges to the nonqualified intermediary that it will report under section 1461 with respect to the amount allocated to each of the transferors of the PTP interest (and, if required, under section 6045) and that it will provide the nonqualified intermediary a copy of each Form 1042-S issued as a result of this reporting; (2) QI can reliably associate the payment with documentation for each transferor under section 5.13 of this Agreement; (3) QI receives from the nonqualified intermediary the statement described in §1.6031(c)-1T(a)(1) with respect to each partner that is an account holder of the nonqualified intermediary for which a statement under section 6031(b) is required to be issued with respect to the partner's PTP interest for the year in which the payment was made; and (4) The nonqualified intermediary appoints the QI as its agent for providing the statement to the PTP (or PTP's agent). See §1.6031(c)-1T(f). (N) QI must file a separate Form 1042-S for a grantor or owner of a grantor trust for purposes of section 1446(a) or (f), except when QI applies the provisions of section 4.06 of this Agreement with respect to the trust. (O) QI must file a separate Form 1042-S for a partnership holding a PTP interest to the extent that QI determines a modified amount realized with respect to the partnership for purposes of section 1446(f) or, for purposes of section 1446(a), when the partnership is not a PTP, but excluding either case when QI applies the provisions of section 4.06 of this Agreement with respect to the partnership. (P) QI must file a separate Form 1042-S with respect to a foreign partner that requests such form from QI to report a payment of an amount subject to withholding on a PTP distribution or amount subject to reporting under section 1446(f) when the partner provides its U.S. TIN to QI (or indicates in writing that it has applied for a U.S. TIN) and makes the request to QI within three full calendar years following the year in which QI made the payment for which the Form 1042-S is requested. If QI files a separate Form 1042-S with respect to an amount paid to a foreign partner as described in the preceding sentence, QI must also file a separate Form 1042-S for each other amount paid to the foreign partner for the calendar year with respect to all accounts held by foreign partner with QI. Sec. 8.03. Reporting Pools for Form 1042-S Reporting. (A) Chapter 4 Reporting Pools. * * * If QI is an FFI, it may report in a chapter 4 withholding rate pool of U.S. payees an account holder that is (or is presumed) a U.S. person and that QI reports as a U.S. account under its applicable FATCA requirements as a participating FFI or registered deemed-compliant FFI provided that QI is excepted from Form 1099 reporting with respect to the payment under section 8.06(A)(1) of this Agreement or section 8.06(A)(2) and (A)(3) of this Agreement if the payment is excepted from Form 1099 reporting, is not subject to withholding under chapter 4, and is not a PTP distribution. * * * (B) Chapter 3 Reporting Pools. Except for amounts required to be reported under section 8.02 of this Agreement or when QI acts as a disclosing QI for a payment, QI shall report an amount subject to chapter 3 withholding or withholding under section 1446(a) or (f) for which no chapter 4 withholding is required and that is paid to a foreign account holder by reporting pools on a Form 1042-S if paid to a direct account holder of QI or to a direct account holder of a PAI of QI, or to a partnership or trust described in section 4 of this Agreement. * * * Sec. 8.07. Section 6031 Reporting Responsibility with respect to Partner Holding PTP Interest. (A) In General. A QI must comply with the requirements of this section 8.07 for each calendar year for purposes of QI's requirement to report under §1.6031(c)-1T with respect to its account holders. An account holder for purposes of this section 8.07 is a partner or intermediary that during a calendar year receives from QI a PTP distribution or sells a PTP interest for which QI pays to it an amount realized and is-- (1) A direct account holder of QI excluding an account holder that is a QI or nonqualified intermediary referenced in section 8.07(A)(2) or (3) of this Agreement; (2) An account holder of another QI acting as a disclosing QI for the distribution or amount realized (including an account holder of the other QI that is itself a QI but not acting as a disclosing QI); or (3) An account holder of a nonqualified intermediary when QI either receives the information required for reporting under this section 8.07 with respect to an account holder receiving the distribution or, for the amount realized paid to the account holder, satisfies the conditions of section 8.02(M) of this Agreement (or is otherwise a PAI). (B) QI not Acting as Disclosing QI. A QI that does not act as a disclosing QI for a PTP distribution or amount realized paid to an account holder for a calendar year with respect to the account holder's PTP interest may provide the statement with respect to the account holder specified in §1.6031(c)-1T(a) to the PTP in which the interest is held (or PTP's agent). If QI does not provide the statement specified in §1.6031(c)-1T(a) as described in the preceding sentence, QI must issue to each account holder receiving the distribution or amount realized the statement that is described in §1.6031(c)-1T(h) for the calendar year with respect to the PTP interest for which the distribution or amount realized was paid. In such a case, QI is also required to request from the PTP the PTP's deemed sale information for purposes of §1.864(c)(8)-2(b)(2) with respect to an account holder requesting (directly or through another intermediary) this information from QI (which, in turn, QI must provide to the account holder). (C) QI Acting as Disclosing QI. A QI that acts as a disclosing QI for a PTP distribution or amount realized paid to an account holder for a calendar year with respect to the account holder's PTP interest is required to provide the statement with respect to the account holder specified in §1.6031(c)-1T(a) to the PTP in which the interest is held (or PTP's agent) or QI's nominee for the payment. Additionally, in a case in which QI provides the statement to QI's nominee, QI must obtain from the nominee a written representation that the nominee is acting as an agent of the PTP for purposes of the statement unless QI otherwise appoints the nominee as its agent for providing the statement to the PTP (or the PTP's agent). See §1.6031(c)-1T(f). SECTION 9. ADJUSTMENTS FOR OVER- AND UNDER- WITHHOLDING; REFUNDS Sec. 9.01. Adjustments for Overwithholding by Withholding Agent When QI Does not Assume Primary Withholding Responsibility. * * * The reimbursement and set-off procedures that apply to an amount overwithheld by QI's withholding agent under chapter 3 and 4 also apply to an amount overwithheld on an amount realized or on an amount subject to withholding under section 1446(a) on a PTP distribution by QI's broker (for an amount realized), or a nominee or PTP (for a PTP distribution). Sec. 9.02. Adjustments for Overwithholding by QI Assuming Primary Withholding Responsibility. * * * The reimbursement and set-off procedures that apply to an amount QI overwithheld under chapter 3 and 4 also apply to an amount QI overwithheld on an amount realized or an amount subject to withholding under section 1446(a) on a PTP distribution. Sec. 9.05. Adjustments for Underwithholding. * * * QI may withhold from future payments in a case in which QI underwithheld on an amount realized or PTP distribution to the same extent applicable to an amount QI underwithheld on under chapter 3 or 4. Sec. 9.04. Collective Credit or Refund Procedures for Overwithholding. * * * (A) Payments for which a Collective Refund is Permitted. * * * QI is not permitted to use the collective refund procedures with respect to an amount withheld on an amount realized on a sale of a PTP interest or on a PTP distribution. * * * * * * SECTION 10. COMPLIANCE PROCEDURES * * * 10.03. Certification of Internal Controls by Responsible Officer. * * * (B) Material Failures. (1) Material Failures Defined. * * * (iv) * * * (i) Withhold an amount that QI was required to withhold on a payment of an amount realized from the sale of a PTP interest or on a PTP distribution as required under section 3 of this Agreement or provide correct information to a withholding agent or broker when QI does not assume primary withholding responsibility for either payment under section 3.02 of this Agreement; or (j) Comply with the requirements of section 8.07 of this Agreement with respect to one or more account holders that are partners holding PTP interests (including account holders of another intermediary when QI acts as an agent for meeting these requirements). * * * SECTION 11. EXPIRATION, TERMINATION, MERGER AND DEFAULT * * * Sec. 11.06. Event of Default. * * * (B) QI underwithholds a material amount of tax that QI is required to withhold under chapter 3, section 1446(a), section 1446(f), or chapter 4, or backup withhold under section 3406 and fails to correct the underwithholding or to file an amended Form 1042 or 945 reporting, and paying, the appropriate tax; * * * (E) QI files Forms 945, 1042, 1042-S, 1099, or 8966 that are materially incorrect or fraudulent, or fails to comply materially with the requirements of section 8.07 of this Agreement with respect to account holders that are partners holding PTP interests (including account holders of another intermediary when QI acts as an agent for meeting these requirements). SECTION 5. SUBMISSION OF PUBLIC COMMENTS Written comments may be submitted by May 31, 2022. Comments should include a reference to Notice 2022-23. Comments may be submitted in one of two ways: (1) Electronically via the Federal eRulemaking Portal at www.regulations.gov (type IRS-2022-0010 in the search field on the regulations.gov homepage to find this notice and submit comments). (2) Alternatively, by mail to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2022-23), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. All commenters are strongly encouraged to submit comments electronically, as access to mail may be limited. The IRS expects to have limited personnel available to process public comments that are submitted on paper through mail. Until further notice, any comments submitted on paper will be considered to the extent practicable. The Treasury Department and the IRS will publish for public availability any comment submitted electronically, and to the extent practicable on paper, to its public docket. SECTION 6. DRAFTING INFORMATION The principal author of this Notice is W. Shawver Adams of the Office of Associate Chief Counsel (International). For further information regarding this Notice, contact John Sweeney at (202) 317-3800 (not a toll-free number).

Private Letter Ruling Number: 202307006 Internal Revenue Service November 15, 2022 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202307006 Release Date: 2/17/2023 Index Number: 2010.04-00, 9100.35-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:B04 PLR-116710-22 Date: November 15, 2022 Dear ******: This letter responds to a letter dated August 29, 2022, and subsequent correspondence, submitted on behalf of Decedent's estate, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make an election. Decedent's estate is requesting to make an election under § 2010(c)(5)(A) of the Internal Revenue Code (a "portability" election) to allow a decedent's surviving spouse to take into account decedent's deceased spousal unused exclusion (DSUE) amount. The information submitted for consideration is summarized below. Decedent died on Date, survived by Spouse. It is represented that based on the value of Decedent's gross estate and taking into account any taxable gifts, Decedent's estate is not required under § 6018(a) to file an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return). It is further represented that there is an unused portion of Decedent's applicable exclusion amount and that a portability election is required to allow Spouse to take into account that amount (the "DSUE" amount). A portability election is made upon the timely filing of a complete and properly prepared estate tax return, unless the requirements for opting out are satisfied. See § 20.2010-2(a)(2) of the Estate Tax Regulations. For various reasons, an estate tax return was not timely filed and a portability election was not made. After discovery of this, Decedent's estate submitted this request for an extension of time under § 301.9100-3 to make a portability election. LAW AND ANALYSIS Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. Section 2010(a) provides that a credit of the applicable credit amount shall be allowed to the estate of every decedent against the tax imposed by § 2001. Section 2010(c)(1) provides that the applicable credit amount is the amount of the tentative tax that would be determined under § 2001(c) if the amount with respect to which such tentative tax is to be computed were equal to the applicable exclusion amount. On December 17, 2010, Congress amended § 2010(c), effective for estates of decedents dying and gifts made after December 31, 2010, to allow portability of a decedent's unused applicable exclusion amount between spouses. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111-312, § 303, 124 Stat. 3296, 3302 (2010). Section 2010(c)(2) provides that the applicable exclusion amount is the sum of the basic exclusion amount, and, in the case of a surviving spouse, the DSUE amount. Section 2010(c)(3) provides the basic exclusion amount available to the estate of every decedent, an amount to be adjusted for inflation annually after calendar year 2011. Section 2010(c)(4) defines the DSUE amount to mean the lesser of (A) the basic exclusion amount, or (B) the excess of -- (i) the applicable exclusion amount of the last deceased spouse of the surviving spouse, over (ii) the amount with respect to which the tentative tax is determined under § 2001(b)(1) on the estate of such deceased spouse. Section 2010(c)(5)(A) provides that a DSUE amount may not be taken into account by a surviving spouse under § 2010(c)(2) unless the executor of the estate of the deceased spouse files an estate tax return on which such amount is computed and makes an election on such return that such amount may be so taken into account. The election, once made, shall be irrevocable. No election may be made if such return is filed after the time prescribed by law (including extensions) for filing such return. Section 20.2010-2(a)(1) provides that the due date of an estate tax return required to elect portability is nine months after the decedent's date of death or the last day of the period covered by an extension (if an extension of time for filing has been obtained). Under § 20.2010-2(a)(1), an extension of time under § 301.9100-3 to make a portability election may be granted in the case of an estate that is not required to file an estate tax return under § 6018(a), as determined solely based on the value of the gross estate and any adjusted taxable gifts (and without regard to § 20.2010-2(a)). Under § 301.9100-1(c), the Commissioner has discretion to grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time to make an election whose due date is prescribed by a regulation (and not expressly provided by statute). Requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. In this case, based on the representation as to the value of the gross estate and any adjusted taxable gifts, the time for filing the portability election is fixed by the regulations. Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Decedent's estate to elect portability, provided Decedent's estate establishes it acted reasonably and in good faith, the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government. Information, affidavits, and representations submitted on behalf of Decedent's estate explain the circumstances that resulted in the failure to timely file a valid election. Based solely on the information submitted and the representations made, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Therefore, we grant an extension of time of 120 days from the date of this letter in which to make the portability election. The election should be made by filing a complete and properly prepared Form 706 and a copy of this letter, within 120 days from the date of this letter, with the Kansas City Service Center, at the following address: Department of the Treasury, Internal Revenue Service Center, Kansas City, MO 64999. For purposes of electing portability, a Form 706 filed by Decedent's estate within 120 days from the date of this letter will be considered to be timely filed. If it is later determined that, based on the value of the gross estate and taking into account any taxable gifts, Decedent's estate is required to file an estate tax return pursuant to § 6018(a), the Commissioner is without authority under § 301.9100-3 to grant an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void. See § 20.2010-2(a)(1). We neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In particular, we express no opinion as to the DSUE amount to be potentially taken into account by Spouse. Any claimed DSUE amount will be included in the applicable exclusion amount of Spouse only to the extent that Spouse can substantiate such amount and will be subject to determination by the Director's office upon audit of relevant Federal gift or estate tax returns. See § 20.2010-3(c)(1) and (d). The rulings contained in this letter are based upon information and representations submitted by the Taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. This ruling is directed only to the Taxpayer requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, we have sent a copy of this letter to your authorized representatives. Sincerely, Associate Chief Counsel Passthroughs and Special Industries _________________________ By: Melissa C. Liquerman Senior Counsel, Branch 4 Office of the Associate Chief Counsel (Passthroughs and Special Industries) Enclosure Copy for §6110 purposes cc:

Private Letter Ruling Number: 202403003 Internal Revenue Service October 18, 2023 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202403003 Release Date: 1/19/2024 Index Numbers: 9100.00-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:ITA:B03 PLR-108519-23 Date: October 18, 2023 Dear ******: This letter responds to a letter ruling request dated Date 1, submitted by Accounting Firm on behalf of Taxpayer, requesting an extension of time under §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations (P&A Regulations) to make six elections, which are listed below, for Year 1 Taxable Year ended Date 2. FACTS Taxpayer was formed under State law and commenced operations on Date 3. Taxpayer was a publicly traded company and the common parent of an affiliated group of corporations filing a consolidated U.S. federal income tax return (Consolidated Group). The Consolidated Group, along with its foreign affiliates, was a Business Entity. Taxpayer directly owned and owns 100 percent of Subsidiary 1, a State corporation and a member of the Consolidated Group. Subsidiary 1 directly owned and owns 100 percent of the outstanding equity interests in Subsidiary 2, which was a State corporation and a member of the Consolidated Group. Subsidiary 2 converted into a limited liability corporation as an entity disregarded from Subsidiary 1 as part of an internal restructuring. Taxpayer desired to make certain regulatory elections on its Form 1120, U.S. Corporation Income Tax Return, for Year 1 Taxable Year. These elections include the following: - An election under § 1.382-9(i) of the Income Tax Regulations (Regulations) to opt out of the application of the provisions of the § 382(l)(5) of the Internal Revenue Code (Code); - An election under § 1.1502-36(d)(6)(i)(A) of the Regulations to reduce stock basis in Subsidiary 2; - An election under § 1.263(a)-1(f) of the Regulations to apply the de minimis safe harbor for capital expenditures for the taxable year ended Date 2; - An election under § 1.263(a)-3(n) of the Regulations to capitalize any amounts paid to repair and maintain tangible property that is capitalized for book purposes; - An election under § 168(g)(7) of the Code to use the alternative depreciation system (ADS) to depreciate property placed in service during the Year 1 Taxable Year ended Date 2; and - An election under § 168(k)(7) of the Code to not deduct the additional first year depreciation for all classes of qualified property placed in service during the Year 1 Taxable Year, including 3-year property, 5-year property, 7-year property, 10-year property, 15-year property, and 20-year property. Taxpayer represents that it always intended to make these elections on its Year 1 Taxable Year Form 1120, and the tax return was prepared as if the elections had been made. On Date 4, Taxpayer engaged Accounting Firm to prepare and electronically file its federal and state income tax returns for Year 1 Taxable Year, including all related statements and elections. Taxpayer also engaged Accounting Firm to file Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, to extend the due date of Taxpayer's Year 1 Taxable Year Form 1120 from Date 5 to Date 6. Accounting Firm timely prepared the Form 7004, and it was approved by the engagement teams' Managing Director for release to Taxpayer for review and approval on Date 7. Taxpayer provided approval to the engagement team via telephone to e-file Form 7004. On Date 8, Taxpayer was provided a copy of the Form 7004 via email from a member of the engagement team. The email indicated that the Form 7004 had already been e-filed on Taxpayer's behalf. Accordingly, it was the understanding of both Taxpayer and Accounting Firm's engagement team that Form 7004 had been timely filed extending the due date to Date 6. On Date 6, Accounting Firm e-filed Taxpayer's Year 1 Taxable Year Form 1120. All required elections and associated statements were included with Taxpayer's return. On Date 9, Taxpayer received two notices from the IRS assessing penalties related to the late filing of the Year 1 Taxable Year Form 1120. Taxpayer provided these notices to Accounting Firm's engagement team for review. After viewing its records, Accounting Firm's engagement team determined that the proper internal approvals had inadvertently not been communicated to instruct the tax processing team to electronically file Taxpayer's Form 7004 before Date 5. Once Accounting Firm identified that Form 7004 had not been timely filed, Accounting Firm informed Taxpayer that the above-listed elections would be considered late because such elections needed to be made on a timely filed return (i.e., by the original due date or by the extended due date with a timely filed extension). LAW Section 382(a) of the Code provides that the amount of taxable income of any new loss corporation for any post-change year which may be offset by pre-change losses shall not exceed the § 382 of the Code limit for each year. Section 382(l)(5) of the Code provides that subsection (a) shall not apply to an ownership change if the old loss corporation is under the jurisdiction of a court in a title 11 [United States Bankruptcy Code] or similar case, and the shareholders and qualified creditors of the old loss corporation own a requisite amount of stock of the new loss corporation by reason of being shareholders or creditors of the old loss corporation. A taxpayer may make the election to opt out of § 382(l)(5) of the Code by making t he election by the due date of the corporation's tax return of the taxable year that includes the ownership change date. Section 1.382-9(i) of the Regulations provides that a new loss corporation may elect out of § 382(l)(5) of the Code. Section 1.1502-36(d)(i)(A) of the Regulations provides rules to reduce attributes of subsidiaries and lower-tier subsidiaries to the extent they duplicate a net loss on shares of subsidiary stock transferred by members in one transaction. Section 1.1502(d)(6)(i) of the Regulations provides that notwithstanding the general operation of § 1.1502-36(d) of the Regulations, the parent of a consolidated group may elect to reduce the potential for loss duplication, and thereby reduce or avoid attribute reduction. An election to reduce loss duplication under § 1.1502-36(d)(6)(i)(A) of the Regulations must be made in a statement included with the taxpayer's timely filed return for the taxable year of the transfer. Section 1.263(a)-1(f) of the Regulations provides that if a taxpayer elects to apply the de minims safe harbor, then the taxpayer may not capitalize any amount paid in the taxable year for the acquisition or production of a unit of tangible property nor treat as materials or supply any amount paid in the taxable year for tangible property if the amount meets certain requirements specified in the regulations. An annual election to apply the de minimis safe harbor for capital expenditures for the taxable year is due on the last day prescribed by law for the filing of a taxpayer's return (including extensions). Section 1.263(a)-3(n) of the Regulations provides that a taxpayer may elect to treat amounts paid during the taxable year for repair and maintenance to tangible property and as an asset subject to the allowance for depreciation if the taxpayer incurs these amounts in carrying on the taxpayer's trade or business and if the taxpayer treats these amounts as a capital expenditure on its books and records regularly used in computing income. A taxpayer makes this election by attaching a statement to the taxpayer's timely filed tax return for the taxable year in which the taxpayer pays amounts described under this section. Section 168(g)(7) of the Code generally allows a taxpayer to elect for any class of property for any taxable year to use the ADS for determining deprecation for all property in that class placed in service during that taxable year. For nonresidential real property, the election is made separately with respect to each property. The election must be made by attaching a statement to the tax return for the taxable year for which the election is to be effective by the due date of such return (including extensions). Section 301.9100-7T(a)(1) and (2) of the P&A Regulations provide the due date for this election. Section 168(k)(1) and (k)(6) of the Code allows, in the taxable year that qualified property is placed in service, a 100-percent additional first year deprecation deduction for qualified property acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer after September 27, 2017, and before January 1, 2023 (or before January 1, 2024 for qualified property described in § 168(k)(2)(B) or (C)). Section 168(k)(7) of the Code allows a taxpayer to elect not to deduct the additional first year depreciation for any class of property placed in service by the taxpayer during the taxable year. Section 1.168(k)- 2(f)(1)(i) of the Regulations provides that the § 168(k)(7) election applies to all qualified property that is in the same class of property and placed in service in the same taxable year. Section 1.168(k)-2(f)(1)(ii) defines "class of property" for purposes of the § 168(k)(7) election as meaning each class of property described in § 1.168(k)- 2(f)(1)(ii)(A)-(G). Section 1.168(k)-2(f)(1)(iii)(A) of the Regulations provides that the § 168(k)(7) election not to deduct additional first year depreciation must be made by the due date (including extensions) of the federal tax return for the taxable year in which the property is placed in service by the taxpayer. Section 1.168(k)-2(f)(1)(iii)(B) provides that the § 168(k)(7) election not to deduct additional first year depreciation must be made in the manner prescribed on Form 4562, "Depreciation and Amortization," and its instructions. The instructions to Form 4562 for the Year 1 Taxable Year, provided that the election not to deduct the additional first year depreciation is made by attaching a statement to the taxpayer's timely filed tax return indicating that the taxpayer is electing not to deduct the additional first year depreciation and the class of property for which the taxpayer is making the election. Sections 301.9100-1 through 301.9100-3 of the P&A Regulations provide the standards that the Commissioner will use to determine whether to grant an extension of time to make an election. Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions of time for making elections that do not meet the requirements of § 301.9100-2. Section 301.9100-1(c) of the P&A Regulations provides that the Commissioner has discretion to grant a reasonable extension of time under the rules set forth in §§ 301.9100-1(c), 301.9100-2 and 301.9100-3 to make certain regulatory elections. Section 301.9100-1(b) defines a "regulatory election" as an election whose due date is prescribed by a regulation published in the Federal Register, or a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin. Section 301.9100-3(a) of the P&A Regulations provides that requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the Government. Section 301.9100-3(b)(1) of the P&A Regulations provides that a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer: (i) Requests relief before the failure to make the regulatory election is discovered by the Service; (ii) Failed to make the election because of intervening events beyond the taxpayer's control; (iii) Failed to make the election because, after exercising reasonable diligence (taking into account the taxpayer's experience and the complexity of the return or issue), the taxpayer was unaware of the necessity for the election; (iv) Reasonably relied on the written advice of the Service; or (v) Reasonably relied on a qualified tax professional, including a tax professional employed by the taxpayer, and the tax professional failed to make, or advise the taxpayer to make, the election. Section 301.9100-3(b)(2) provides that a taxpayer will not be considered to have reasonably relied on a qualified tax professional if the taxpayer knew or should have known that the professional was not: (i) Competent to render advice on the regulatory election; or (ii) Aware of all relevant facts. Section 301.9100-3(b)(3) provides that a taxpayer will be deemed to have not acted reasonably and in good faith if the taxpayer: (i) Seeks to alter a return position for which an accuracy-related penalty has been or could be imposed under § 6662 at the time the taxpayer requests relief, and the new position requires or permits a regulatory election for which relief is requested; (ii) Was informed in all material respects of the required election and related tax consequences, but chose not to file the election; or (iii) Uses hindsight in requesting relief. Section 301.9100-3(c)(1) of the P&A Regulations provides that the Commissioner will grant a reasonable extension of time only when the interests of the Government will not be prejudiced by the granting of relief. Th e interests of the Government are prejudiced if granting relief would result in the taxpayer having a lower tax liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made. The interests of the Government are ordinarily prejudiced if the taxable year in which the regulatory election should have been made, or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under § 6501(a) of the Code before the taxpayer's receipt of a ruling granting relief under this section. ANALYSIS To receive an extension of time to file a regulatory election, a taxpayer must provide evidence sufficient to establish that it acted reasonably and in good faith in accordance with the factors set forth in § 301.9100-3(b)(1)(i)-(v). Taxpayer acted reasonably and in good faith with respect to its inadvertent failure to make the elections. The IRS did not discover Taxpayer's failure to timely make the elections for Taxpayer's Year 1 Taxable Year Form 1120, but rather Taxpayer identified the issue. Taxpayer included affidavits which represent that it instructed Accounting Firm to make the elections in the Year 1 Taxable Year Form 1120. Taxpayer's Year 1 Taxable Year Form 1120 was prepared and filed consistently with the elections having been timely made. Taxpayer relied on qualified tax professionals (i.e., Accounting Firm) to prepare and e-file Taxpayer's Form 7004 extension request and Taxpayer's Year 1 Taxable Year Form 1120, including all required forms and statements. Accounting Firm is a reputable firm fully qualified to provide advice and was aware of all the facts. Further, none of the § 301-9100-3(b)(3) factors indicative of Taxpayer not acting in good faith are present. Taxpayer is not seeking to alter a return position for which an accuracy-related penalty has been or could be imposed. This is not a situation where Taxpayer was fully informed of the required elections and related tax consequences and chose not to file the elections, nor is it a situation where Taxpayer is using hindsight in its request for relief. The interests of the government are not prejudiced as granting relief will not result in Taxpayer's tax liability being lower than it would have been if the elections had been made on a timely basis. As noted above, Taxpayer's filed its Year 1 Taxable Year Form 1120 as if the above elections were timely made. Therefore, the ultimate tax liability, in the aggregate, will be the same as if the extension were timely filed (and the elections timely made). The statute of limitations on assessment under § 6501(a) of the Code has not expired for Taxpayer's Year 1 Taxable Year ended Date 2. CONCLUSION Based solely on the facts submitted and the representations made, we conclude that Taxpayer acted reasonably and in good faith and that granting the request for an extension to file the elections under § 1.382-9(i) of the Regulations, § 1.1502-36(d)(6)(i)(A), § 1.263(a)-1(f) of the Regulations, § 1.263(a)-3(n) of the Regulations, § 168(g)(7) of the Code, and § 168(k)(7) of the Code will not prejudic e the interests of the government. The ruling contained in this letter is based on information and representations submitted by Taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. If any of the information or representations provided are subsequently determined to be inaccurate and/or incomplete this ruling and its conclusions are void. Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences arising from the facts described above under any other provision of the Code or regulations. A copy of this letter must be attached to any income tax return to which it is relevant. Alternatively, a taxpayer filing its return electronically may satisfy this requirement by attaching a statement to its return that provides the date and control number of the letter ruling. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent. In accordance with the provisions of the power of attorney currently on file with this office, copies of this letter are being sent to your authorized representative. We are also sending a copy of this letter to the appropriate operating division director. Sincerely, JAMIE KIM Branch Chief, Branch 3 Office of the Associate Chief Counsel (Income Tax & Accounting) Enclosure: Copy for § 6110 purposes cc:

Revenue Procedure 2020-50 Internal Revenue Service 2020-48 I.R.B. 1122 26 CFR 1.168(k)-2: Additional first year depreciation deduction for property acquired and placed in service after September 27, 2017. (Also Part I, §§ 168, 446; 1.446-1, 1.1502-68) Rev. Proc. 2020-50 SECTION 1. PURPOSE This revenue procedure provides guidance for taxpayers wishing to apply §§ 1.168(k)-2 and 1.1502-68 of the Income Tax Regulations, or to rely on the proposed regulations under § 168(k) of the Internal Revenue Code (Code) (REG-106808-19) that were published in the Federal Register on September 24, 2019 (84 FR 50152; 2019-41 I.R.B. 912) (2019 proposed regulations), for: (1) certain depreciable property acquired and placed in service after September 27, 2017, by the taxpayer during its taxable years ending on or after September 28, 2017, and before the taxpayer's first taxable year that begins on or after January 1, 2021; (2) certain plants planted or grafted, as applicable, after September 27, 2017, by the taxpayer during its taxable years ending on or after September 28, 2017, and before the taxpayer's first taxable year that begins on or after January 1, 2021; and (3) components acquired or self-constructed after September 27, 2017, of certain larger self-constructed property and placed in service by the taxpayer during its taxable years ending on or after September 28, 2017, and before the taxpayer's first taxable year that begins on or after January 1, 2021. If the taxpayer retroactively applies §§ 1.168(k)-2 and 1.1502-68, or relies on the 2019 proposed regulations, this revenue procedure also allows the taxpayer to make a late election under § 168(k)(5), (k)(7), or (k)(10), § 1.168(k)-2(c) of the 2020 final regulations (as defined in section 2.02(4) of this revenue procedure) or the 2019 proposed regulations, or § 1.1502-68(c)(4) of the 2020 final regulations, or to revoke an election under § 168(k)(5), (k)(7), or (k)(10), or § 1.168(k)-2(c) of the 2019 proposed regulations, for the taxpayer's taxable years ending on or after September 28, 2017, and before the taxpayer's first taxable year that begins on or after January 1, 2021. SECTION 2. BACKGROUND.01 Amendments to § 168(k). (1) Prior to amendment by § 13201 of Public Law 115-97 (131 Stat. 2054), commonly referred to as the Tax Cuts and Jobs Act (TCJA), § 168(k)(1) allowed a 50-percent additional first year depreciation deduction for qualified property for the taxable year in which the qualified property is placed in service by the taxpayer. Qualified property was defined in part as property the original use of which begins with the taxpayer. (2) Section 13201 of the TCJA made several amendments to § 168(k). For example, the additional first year depreciation deduction percentage was increased from 50 to 100 percent; the property eligible for the additional first year depreciation deduction was expanded to include certain used depreciable property and certain film, television, or live theatrical productions; the placed-in-service date was extended from before January 1, 2020, to before January 1, 2027 (from before January 1, 2021, to before January 1, 2028, for property described in § 168(k)(2)(B) or (C)); and the date on which a specified plant is planted or grafted by the taxpayer was extended from before January 1, 2020, to before January 1, 2027. (3) Section 13201(d) of the TCJA also amended § 168(k) by adding § 168(k)(9) to the Code. It excludes from the definition of qualified property the following property: any property that is primarily used in a trade or business described in § 163(j)(7)(A)(iv), or any property used in a trade or business that has had floor plan financing indebtedness, as defined in § 163(j)(9), if the floor plan financing interest related to such indebtedness was taken into account under § 163(j)(1)(C). (4) Section 13201(h) of the TCJA provides the effective dates of the amendments to § 168(k) made by § 13201 of the TCJA. Except as provided in § 13201(h)(2) of the TCJA, these amendments apply to property acquired and placed in service after September 27, 2017. However, property is not treated as acquired after the date on which a written binding contract is entered into for such acquisition. Section 13201(h)(2) of the TCJA provides that these amendments apply to specified plants planted or grafted after September 27, 2017. (5) Unless otherwise provided, all references hereinafter in this revenue procedure to § 168(k) are references to § 168(k) as amended by the TCJA..02 Regulations under § 168(k). (1) On August 8, 2018, the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) published a notice of proposed rulemaking (REG-104397-18) in the Federal Register (83 FR 39292; 2018-41 I.R.B. 558) containing proposed regulations under § 168(k) (2018 proposed regulations). Because of the amendments to § 168(k) by the TCJA, the 2018 proposed regulations updated existing regulations in § 1.168(k)-1 by providing a new section at § 1.168(k)-2 for property acquired and placed in service after September 27, 2017. The 2018 proposed regulations clarified statutory requirements that must be met for depreciable property to qualify for the additional first year depreciation deduction under § 168(k). (2) On September 24, 2019, the Treasury Department and the IRS published final regulations adopting the 2018 proposed regulations with modifications in response to comments and testimony as T.D. 9874 (84 FR 50108; 2019-41 I.R.B. 809) (the 2019 final regulations). The 2019 final regulations made several modifications to the 2018 proposed regulations. For example, the 2019 final regulations provide: (a) a 5-year safe harbor for determining if the taxpayer or a predecessor previously had a depreciable interest in used property; (b) a rule for determining whether substantially renovated property was used by the taxpayer or a predecessor before its acquisition; (c) that the acquisition date of property that the taxpayer acquired pursuant to a written binding contract is the later of (i) the date on which the contract was entered into, (ii) the date on which the contract is enforceable under State law, (iii) if the contract has one or more cancellation periods, the date on which all cancellation periods end, or (iv) if the contract has one or more contingency clauses, the date on which all conditions subject to such clauses are satisfied; and (d) that property manufactured, constructed, or produced for a taxpayer by another person under a written binding contract entered into prior to the manufacture, construction, or production of the property for use by the taxpayer in its trade or business or production of income, is self-constructed property for purposes of determining the acquisition date of such property. (3) Along with the publication of the 2019 final regulations, the Treasury Department and the IRS published the 2019 proposed regulations, which propose amendments to the 2019 final regulations to provide additional guidance beyond that provided in the 2019 final regulations. For example, the 2019 proposed regulations provide rules regarding: (a) property described in § 168(k)(9), as described in section 2.01(3) of this revenue procedure; (b) whether the taxpayer or a predecessor previously had a depreciable interest in (i) used property where the prior use was de minimis, (ii) property acquired in a series of related transactions, and (iii) property acquired by a consolidated group; (c) a partner's prior depreciable interest in property held by a partnership; (d) when a contract to acquire a trade or business or an entity is binding; (e) the acquisition date for property not acquired pursuant to a written binding contract; and (f) components acquired or self-constructed after September 27, 2017, for larger self-constructed property for which manufacture, construction, or production began before September 28, 2017. (4) On November 10, 2020, the Treasury Department and the IRS published final regulations adopting the 2019 proposed regulations with modifications in response to comments and testimony as T.D. 9916 85 FR 71734 (2020 final regulations). The 2020 final regulations made several modifications to the 2019 proposed regulations. For example, the 2020 final regulations modified the rules regarding: (a) whether the taxpayer or a predecessor previously had a depreciable interest in (i) used property where the prior use was de minimis, (ii) property acquired in a series of related transactions, and (iii) property acquired by a consolidated group; and (b) components acquired or self-constructed after September 27, 2017, for larger self-constructed property for which manufacture, construction, or production began before September 28, 2017. The 2020 final regulations also did not retain the rules regarding a partner's prior depreciable interest in property held by a partnership. These rules will be withdrawn effective January 11, 2021 (85 FR 71587). The rules regarding whether the taxpayer or a predecessor previously had a depreciable interest in property acquired by a consolidated group were moved from § 1.168(k)-2 to § 1.1502-68. (5) The 2020 final regulations also made a few modifications to the 2019 final regulations. For example, the 2020 final regulations: (a) clarified the application of the 5-year safe harbor for determining if the taxpayer or a predecessor previously had a depreciable interest in used property; (b) clarified the definitions of predecessor and class of property for basis adjustments under § 743; and (c) modified the definition of qualified improvement property to reflect the amendments made to § 168(e)(6) by § 2307 of the Coronavirus Aid, Relief, and Economic Security Act, Pub. L. 116-136, 134 Stat. 281 (March 27, 2020) (CARES Act). (6) Hereinafter, the 2019 final regulations and the 2020 final regulations together are referred in this revenue procedure as the Final Regulations. (7) Section 1.168(k)-2(h) provides the applicability dates of § 1.168(k)-2 in the Final Regulations. Section 1.1502-68(e) provides the applicability dates of § 1.1502-68 in the Final Regulations. (8) In general, § 1.168(k)-2(h)(1) and § 1.1502-68(e)(1) of the 2020 final regulations provide that § 1.168(k)-2 and § 1.1502-68 in the Final Regulations, respectively, apply to: (a) depreciable property acquired after September 27, 2017, by the taxpayer and placed in service by the taxpayer during or after the taxpayer's taxable year that begins on or after January 1, 2021; (b) a specified plant for which the taxpayer properly made an election to apply § 168(k)(5) and that is planted, or grafted to a plant that was previously planted, by the taxpayer during or after the taxpayer's taxable year that begins on or after January 1, 2021; and (c) components acquired or self-constructed after September 27, 2017, of larger self-constructed property described in § 1.168(k)-2(c)(2) of the 2020 final regulations and placed in service by the taxpayer during or after the taxpayer's taxable year that begins on or after January 1, 2021. (9) Section 1.168(k)-2(h)(2) of the 2020 final regulations directs taxpayers to § 1.168(k)-2 of the 2019 final regulations for the applicability of those regulations to taxable years beginning before January 1, 2021. (10) Sections 1.168(k)-2(h)(3) and 1.1502-68(e)(2) of the 2020 final regulations allow a taxpayer to choose to apply the Final Regulations to periods before their specified applicability dates. In general, § 1.168(k)-2(h)(3)(i) and § 1.1502-68(e)(2)(i) allow a taxpayer to apply both the rules in § 1.168(k)-2 and, to the extent relevant, in § 1.1502-68, of the Final Regulations, in their entirety and in a consistent manner, to: (a) depreciable property acquired and placed in service after September 27, 2017, by the taxpayer during the taxpayer's taxable years ending on or after September 28, 2017; (b) a specified plant for which the taxpayer properly made an election to apply § 168(k)(5) and that is planted, or grafted to a plant that was previously planted, after September 27, 2017, by the taxpayer during the taxpayer's taxable years ending on or after September 28, 2017; and (c) components acquired or self-constructed after September 27, 2017, of larger self-constructed property described in § 1.168(k)-2(c)(2) of the 2020 final regulations and placed in service by the taxpayer during the taxpayer's taxable years ending on or after September 28, 2017. In the case of property described in § 1.1502-68(e)(2)(i) of the Final Regulations that is acquired in a transaction that satisfies the requirements of § 1.1502-68(c)(1)(ii) or (c)(2)(ii) of the Final Regulations, §§ 1.168(k)-2(h)(3)(ii) and 1.1502-68(e)(2)(ii) of the Final Regulations provide that the taxpayer may apply §§ 1.168(k)-2 and 1.1502-68 of the Final Regulations, in their entirety and in a consistent manner, to such property only if those rules are applied, in their entirety and in a consistent manner, by all parties to the transaction, including the transferor member, the transferee member, and the target, as applicable, and the consolidated groups of which they are members, for the taxable year(s) in which the transaction occurs and the taxable year(s) that includes the day after the deconsolidation date, as defined in § 1.1502-68(a)(2)(iii) of the Final Regulations. Finally, § 1.168(k)-2(h)(3)(iii) and § 1.1502-68(e)(2)(iii) of the Final Regulations provide that, once a taxpayer applies the rules of § 1.168(k)-2 and, to the extent relevant, the rules of § 1.1502-68, in their entirety, for a taxable year, the taxpayer must continue to apply the rules of § 1.168(k)-2 and, to the extent relevant, the rules of § 1.1502-68, in their entirety, for the taxpayer's subsequent taxable years. (11) The preamble to the 2020 final regulations provides that a taxpayer also may rely on § 1.168(k)-2 in the 2019 proposed regulations with respect to depreciable property, including certain components, acquired and placed in service after September 27, 2017, or certain plants planted or grafted after September 27, 2017, as applicable, by the taxpayer during taxable years ending on or after September 28, 2017, and ending before the taxpayer's first taxable year that begins on or after January 1, 2021, if (a) the taxpayer follows these proposed regulations in their entirety, except for § 1.168(k)-2(b)(3)(iii)(B)( 5 ) in the 2019 proposed regulations, and in a consistent manner, and (b) all members of a consolidated group consistently rely on the same set of rules. Further, in the case of such property that is acquired in a transaction described in § 1.168(k)-2(b)(3)(v)(C) or (D) in the 2019 proposed regulations, the taxpayer may rely on § 1.168(k)-2 in the 2019 proposed regulations for such property only if the rules are followed, in their entirety and in a consistent manner, by all parties to the transaction, including the transferor member, the transferee member, and the target, as applicable, and the consolidated groups of which they are members, for the taxable year(s) in which the transaction occurs and the taxable year(s) that includes the day after the Deconsolidation Date. For this purpose, the terms transferor member, transferee member, and target have the meanings provided in § 1.168(k)-2(b)(3)(v)(C) and (D) in the 2019 proposed regulations, and the term Deconsolidation Date has the meaning provided in § 1.168(k)-2(b)(3)(v)(C)( 1 ) in the 2019 proposed regulations..03 Elections. (1) Section 168(k)(5)(A) allows a taxpayer to make an election to apply the special rules of § 168(k)(5) to one or more specified plants that are planted, or grafted to a plant that has already been planted, by the taxpayer in the ordinary course of its farming business, as defined in § 263A(e)(4) (§ 168(k)(5) election). The rules and procedures for making the § 168(k)(5) election are set forth in § 1.168(k)-2(f)(2) of the Final Regulations. Pursuant to § 1.168(k)-2(f)(2)(ii) of the Final Regulations, the § 168(k)(5) election must be made by the due date, including extensions, of the Federal income tax return or Form 1065, U.S. Return of Partnership Income, for the taxable year in which the taxpayer planted or grafted the specified plant to which the § 168(k)(5) election applies, and is made in the manner prescribed on Form 4562, Depreciation and Amortization, and its instructions. For specified plants planted, or grafted to a plant that was previously planted, by the taxpayer before the applicability date set forth in § 1.168(k)-2(h)(1) of the 2019 final regulations, section 4.05 of Rev.Proc. 2017-33, 2017-19 I.R.B. 1236, provides the time and manner for making the § 168(k)(5) election, and such procedures are the same as in § 1.168(k)-2(f)(2)(ii) of the Final Regulations. Further, if a taxpayer timely filed its Federal income tax return or Form 1065 for the taxpayer's taxable year beginning in 2017 and ending on or after September 28, 2017, sections 4.01(2) and 4.02 of Rev.Proc. 2019-33, 2019-34 I.R.B. 662, provide special procedures to allow the taxpayer to make a deemed § 168(k)(5) election or a late § 168(k)(5) election for a specified plant planted, or grafted to a plant that was previously planted, by the taxpayer after September 27, 2017. Also, if a taxpayer timely filed its Federal income tax return or Form 1065 for the taxpayer's taxable year ending in 2018, 2019, or 2020, and such return was filed on or before April 17, 2020, section 4 of Rev.Proc. 2020-25, 2020-19 I.R.B. 785, as modified by section 8 of this revenue procedure, provides special procedures to allow the taxpayer to make a late § 168(k)(5) election for a specified plant planted, or grafted to a plant that was previously planted, by the taxpayer after September 27, 2017, during such taxable year. Finally, pursuant to § 1.168(k)-2(f)(7) of the 2020 final regulations, the IRS may issue guidance published in the Internal Revenue Bulletin (IRB) that provides alternative procedures for making the § 168(k)(5) election. (2) Section 168(k)(7) allows a taxpayer to make an election not to deduct the additional first year depreciation for any class of property that is qualified property placed in service during the taxable year (§ 168(k)(7) election). The rules and procedures for making the § 168(k)(7) election are set forth in § 1.168(k)-2(f)(1) of the Final Regulations. Section 1.168(k)-2(f)(1)(ii) of the Final Regulations defines "class of property" for purposes of the § 168(k)(7) election. Pursuant to § 1.168(k)-2(f)(1)(iii) of the Final Regulations, the § 168(k)(7) election must be made by the due date, including extensions, of the Federal income tax return or Form 1065 for the taxable year in which the qualified property is placed in service by the taxpayer, and is made in the manner prescribed on Form 4562, Depreciation and Amortization, and its instructions. For qualified property placed in service by the taxpayer before the applicability date set forth in § 1.168(k)-2(h)(1) of the 2019 final regulations, section 4.04 of Rev.Proc. 2017-33 provides the time and manner for making the § 168(k)(7) election, and such procedures are the same as in § 1.168(k)-2(f)(1)(iii) of the Final Regulations. Further, if a taxpayer timely filed its Federal income tax return or Form 1065 for the taxpayer's taxable year beginning in 2017 and ending on or after September 28, 2017, sections 5.02(2) and 5.03 of Rev.Proc. 2019-33 provide special procedures to allow the taxpayer to make a deemed § 168(k)(7) election or a late § 168(k)(7) election for a class of property that is qualified property acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during such taxable year. Also, if a taxpayer timely filed its Federal income tax return or Form 1065 for the taxpayer's taxable year ending in 2018, 2019, or 2020, and such return was filed on or before April 17, 2020, section 4 of Rev.Proc. 2020-25, as modified by section 8 of this revenue procedure, provides special procedures to allow a taxpayer to make a late § 168(k)(7) election for a class of property that is qualified property acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during such taxable year. Finally, pursuant to § 1.168(k)-2(f)(7) of the 2020 final regulations, the IRS may issue guidance published in the IRB that provides alternative procedures for making the § 168(k)(7) election. (3) Section 168(k)(10) allows a taxpayer to make an election to deduct 50 percent, instead of 100 percent, additional first year depreciation for: (a) all qualified property acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during its taxable year that includes September 28, 2017; and (b) all specified plants that are planted, or grafted to a plant that has already been planted, after September 27, 2017, by the taxpayer in the ordinary course of the taxpayer's farming business during its taxable year that includes September 28, 2017, if the taxpayer makes the § 168(k)(5) election for that taxable year (§ 168(k)(10) election). The rules and procedures for making the § 168(k)(10) election are set forth in § 1.168(k)-2(f)(3) of the Final Regulations. Pursuant to § 1.168(k)-2(f)(3)(ii) of the Final Regulations, the § 168(k)(10) election must be made by the due date, including extensions, of the Federal income tax return or Form 1065 for the taxpayer's taxable year that includes September 28, 2017, and is made in the manner prescribed on the 2017 Form 4562, Depreciation and Amortization, and its instructions. For qualified property placed in service, and specified plants planted, or grafted to a plant that was previously planted, by the taxpayer before the applicability date set forth in § 1.168(k)-2(h)(1) of the 2019 final regulations, section 6.02 of Rev.Proc. 2019-33 provides the time and manner for making the § 168(k)(10) election, and such procedures are the same as in § 1.168(k)-2(f)(3)(ii) of the Final Regulations. Further, if a taxpayer timely filed its Federal income tax return or Form 1065 for the taxpayer's taxable year beginning in 2017 and ending on or after September 28, 2017, sections 6.03(2) and 6.04 of Rev.Proc. 2019-33 provide special procedures to allow the taxpayer to make a deemed § 168(k)(10) election or a late § 168(k)(10) election for all qualified property acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during such taxable year, or for all specified plants planted, or grafted to a plant that was previously planted, by the taxpayer after September 27, 2017. Also, if a taxpayer timely filed its Federal income tax return or Form 1065 for the taxpayer's taxable year that includes September 27, 2017, section 4 of Rev.Proc. 2020-25, as modified by section 8 of this revenue procedure, provides special procedures to allow a taxpayer to make a late § 168(k)(10) election for all qualified property acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during such taxable year, or for all specified plants planted, or grafted to a plant that was previously planted, by the taxpayer after September 27, 2017, during such taxable year. Finally, pursuant to § 1.168(k)-2(f)(7) of the 2020 final regulations, the IRS may issue guidance published in the IRB that provides alternative procedures for making the § 168(k)(10) election. (4) Section 1.168(k)-2(f)(5) of the Final Regulations provides that, in general, the § 168(k)(5) election, § 168(k)(7) election, and § 168(k)(10) election, once made, may be revoked only by filing a request for a private letter ruling and obtaining the written consent of the Commissioner of Internal Revenue (Commissioner) to revoke the election. Further, if a taxpayer timely filed its Federal income tax return or Form 1065 for the taxpayer's taxable year beginning in 2017 and ending on or after September 28, 2017, sections 4.03, 5.04, and 6.05 of Rev.Proc. 2019-33 provide special procedures to allow the taxpayer to revoke its § 168(k)(5) election, § 168(k)(7) election, and § 168(k)(10) election, respectively, made for such taxable year. Also, if a taxpayer timely filed its Federal income tax return or Form 1065 for the taxpayer's taxable year ending in 2018, 2019, or 2020, and such return was filed on or before April 17, 2020, section 5 of Rev.Proc. 2020-25 provides special procedures to allow a taxpayer to revoke its § 168(k)(5) election or § 168(k)(7) election made for such taxable year. And, if a taxpayer timely filed its Federal income tax return or Form 1065 for the taxpayer's taxable year that includes September 28, 2017, and such return was filed on or before April 17, 2020, section 5 of Rev.Proc. 2020-25 provides special procedures to allow a taxpayer to revoke its § 168(k)(10) election made for such taxable year. Finally, pursuant to § 1.168(k)-2(f)(7) of the 2020 final regulations, the IRS may issue guidance published in the IRB that provides alternative procedures for revoking the § 168(k)(5) election, § 168(k)(7) election, or § 168(k)(10) election. (5) Section 1.168(k)-2(c)(1) of the 2020 final regulations allows a taxpayer to make an election to treat any acquired or self-constructed component, as described in § 1.168(k)-2(c)(3) of the 2020 final regulations, of the larger self-constructed property, as described in § 1.168(k)-2(c)(2) of the 2020 final regulations, as being eligible for the additional first year depreciation deduction under § 1.168(k)-2, assuming all requirements of § 168(k) and § 1.168(k)-2 are met (component election). The rules and procedures for making the component election are set forth in § 1.168(k)-2(c) of the 2020 final regulations. Pursuant to § 1.168(k)-2(c)(6) of the 2020 final regulations, the component election must be made by the due date, including extensions, of the Federal income tax return or Form 1065 for the taxable year in which the taxpayer placed in service the larger self-constructed property, and is made by attaching a statement to such return or Form 1065 indicating that the taxpayer is making the component election and whether the taxpayer is making the component election for all or some of the components described in § 1.168(k)-2(c)(3) of the 2020 final regulations. Section 1.168(k)-2(c)(7) of the 2020 final regulations provides that, in general, the component election, once made, may be revoked only by filing a request for a private letter ruling and obtaining the written consent of the Commissioner to revoke the component election. Pursuant to § 1.168(k)-2(c)(8) of the 2020 final regulations, the IRS may issue guidance published in the IRB that provides alternative procedures for making, or revoking, the component election. (6) Pursuant to § 1.168(k)-2(c)(1) of the 2019 proposed regulations, a taxpayer may elect to treat any component acquired or self-constructed after September 27, 2017, of certain larger self-constructed property, as being eligible for the additional first year depreciation deduction under § 1.168(k)-2, assuming all requirements of § 168(k) and § 1.168(k)-2 are met (proposed component election). Specifically, the larger self-constructed property must be manufactured, constructed, or produced beginning before September 28, 2017, qualified property under § 168(k)(2) as in effect before the enactment of the TCJA, and placed in service by the taxpayer after September 27, 2017, during its taxable years ending on or after September 28, 2017, and ending before the taxpayer's first taxable year that begins on or after January 1, 2021. The time and manner for making the proposed component election are set forth in § 1.168(k)-2(c)(6) of the 2019 proposed regulations, and such procedures are the same as in § 1.168(k)-2(c)(6) of the 2020 final regulations. (7) Section 1.1502-68(c)(4) of the 2020 final regulations allows a transferee member, as defined in § 1.1502-68(a)(2)(xii), or the target, as defined in § 1.1502-68(a)(2)(xi), to make an election not to apply the Consolidated Asset Acquisition Rule in § 1.1502-68(c)(1)(i) or the Consolidated Deemed Acquisition Rule in § 1.1502-68(c)(2)(i), respectively, to all eligible property, as defined in § 1.1502-68(a)(2)(vii), that is acquired or deemed acquired in a transaction that otherwise satisfies the requirements of the Consolidated Asset Acquisition Rule or the Consolidated Deemed Acquisition Rule (designated transaction election). The rules and procedures for making the designated transaction election are set forth in § 1.1502-68(c)(4) of the 2020 final regulations. Pursuant to § 1.1502-68(c)(4)(ii)(A) and (B) of the 2020 final regulations, the designated transaction election must be made by the due date, including extensions, of the Federal income tax return for the taxable year of the transferee member or target that begins on the day after the deconsolidation date, as defined in § 1.1502-68(a)(2)(iii), and is made by attaching a statement to such return describing the transaction(s) to which the Consolidated Asset Acquisition Rule or the Consolidated Deemed Acquisition Rule otherwise would apply and stating that the transferee member or the target, as applicable, is not claiming the additional first year depreciation deduction for any eligible property transferred in such transaction(s). Pursuant to § 1.1502-68(c)(4)(ii)(C) of the 2020 final regulations, the IRS may issue guidance published in the IRB that provides alternative procedures for making the designated transaction election. Section 1.1502-68(c)(4)(iii) provides that the designated transaction election, once made, may be revoked only by filing a request for a private letter ruling and obtaining the written consent of the Commissioner to revoke the election..04 Method of accounting. (1) Section 446(e) and § 1.446-1(e)(2) require a taxpayer to secure the consent of the Commissioner before changing a method of accounting for Federal income tax purposes. Section 1.446-1(e)(3)(ii) authorizes the Commissioner to prescribe administrative procedures setting forth the limitations, terms, and conditions necessary to permit a taxpayer to obtain consent to change a method of accounting. (2) Section 2.05 of Rev.Proc. 2015-13, 2015-5 I.R.B 419, 425, provides that a taxpayer may not request, or otherwise make, a retroactive change in method of accounting, unless specifically authorized by the Commissioner or by statute. (3) Section 1.446-1(e)(2)(ii)( d )( 3 )( iii ) provides that the making of a late depreciation election or the revocation of a timely valid depreciation election is not a change in method of accounting, except as otherwise expressly provided by the Code, the regulations under the Code, or other guidance published in the Internal Revenue Bulletin. (4) Section 1.446-1(e)(2)(ii)( d )( 5 )( iii ) provides that, except as otherwise expressly provided by the Code, the regulations under the Code, or other guidance published in the Internal Revenue Bulletin, no § 481 adjustment is required or permitted for a change from one permissible method of computing depreciation to another permissible method of computing depreciation for an asset because this change is implemented by either a cut-off method, as described in section 2.07 of Rev.Proc. 2015-13, or a modified cut-off method under which the adjusted depreciable basis of the asset as of the beginning of the year of change is recovered using the new permissible method of accounting, as appropriate. However, a change from an impermissible method of computing depreciation to a permissible method of computing depreciation for an asset results in a § 481(a) adjustment. (5) With the publication of the 2020 final regulations, guidance is needed under § 168 for taxpayers that want to apply the 2020 final regulations, the 2019 final regulations, and/or the 2019 proposed regulations retroactively. Accordingly, this revenue procedure permits certain taxpayers to file an amended return, administrative adjustment request under § 6227 (AAR), or a Form 3115, Application for Change in Accounting Method, to change their method of accounting for depreciation of certain depreciable property acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer after September 27, 2017, and during the taxpayer's taxable years ending on or after September 28, 2017, and ending before the taxpayer's first taxable year that begins on or after January 1, 2021, and certain plants that are planted or grafted, as applicable, after September 27, 2017, by the taxpayer during its taxable years ending on or after September 28, 2017, and ending before the taxpayer's first taxable year that begins on or after January 1, 2021. See section 4 of this revenue procedure for the procedures for changing the depreciation of such property or plants. Further, this revenue procedure permits certain taxpayers to make a late § 168(k)(5) election, a late § 168(k)(7) election, a late § 168(k)(10) election, a late component election, a late designated transaction election, or a late proposed component election, or to revoke a § 168(k)(5) election, a § 168(k)(7) election, a § 168(k)(10) election, or a proposed component election, for certain property or plants for a limited period of time. Because of the administrative burden of filing amended returns and AARs, the Treasury Department and the IRS also have determined that it is appropriate to treat the making of these late elections or the revocation of these elections as a change in method of accounting with a § 481(a) adjustment for a limited period of time. See sections 5 and 6 of this revenue procedure for the procedures to make these late elections or to revoke these elections. SECTION 3. SCOPE This revenue procedure applies to a taxpayer that chooses to:.01 Apply both § 1.168(k)-2 and, to the extent relevant, § 1.1502-68, of the Final Regulations, in their entirety and in a consistent manner, to: (1) All depreciable property acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer after September 27, 2017, and during the taxpayer's taxable year: (a) beginning in 2016 or 2017 (2017 taxable year); (b) beginning in 2018 (2018 taxable year); (c) beginning in 2019 (2019 taxable year); or (d) beginning in 2020, and ending before the taxpayer's first taxable year that begins on or after January 1, 2021 (2020 taxable year); (2) All specified plants for which the taxpayer properly made or makes a § 168(k)(5) election and that are planted, or grafted to a plant that was previously planted, after September 27, 2017, by the taxpayer during the taxpayer's 2017 taxable year, 2018 taxable year, 2019 taxable year, or 2020 taxable year; and (3) Components acquired or self-constructed by the taxpayer after September 27, 2017, of larger self-constructed property described in § 1.168(k)-2(c)(2) of the 2020 final regulations and placed in service by the taxpayer during the taxpayer's 2017 taxable year, 2018 taxable year, 2019 taxable year, or 2020 taxable year;.02 Apply § 1.168(k)-2 of the 2019 final regulations, in its entirety, to: (1) All depreciable property acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer after September 27, 2017, and during the taxpayer's 2017 taxable year, 2018 taxable year, 2019 taxable year, or 2020 taxable year; and (2) All specified plants for which the taxpayer properly made or makes a § 168(k)(5) election and that are planted, or grafted to a plant that was previously planted, after September 27, 2017, by the taxpayer during the taxpayer's 2017 taxable year, 2018 taxable year, 2019 taxable year, or 2020 taxable year; or.03 Apply both § 1.168(k)-2 of the 2019 final regulations and the 2019 proposed regulations, in their entirety, except for § 1.168(k)-2(b)(3)(iii)(B)( 5 ) in the 2019 proposed regulations, and in a consistent manner, to: (1) All depreciable property acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer after September 27, 2017, and during the taxpayer's 2017 taxable year, 2018 taxable year, 2019 taxable year, or 2020 taxable year; (2) All specified plants for which the taxpayer properly made or makes a § 168(k)(5) election and that are planted, or grafted to a plant that was previously planted, after September 27, 2017, by the taxpayer during the taxpayer's 2017 taxable year, 2018 taxable year, 2019 taxable year, or 2020 taxable year; and (3) Components acquired or self-constructed by the taxpayer after September 27, 2017, of larger self-constructed property for which manufacture, construction, or production begins before September 28, 2017, and that is qualified property under § 168(k)(2) as in effect before the enactment of the TCJA and placed in service by the taxpayer after September 27, 2017, and during the taxpayer's 2017 taxable year, 2018 taxable year, 2019 taxable year, or 2020 taxable year. SECTION 4. METHOD CHANGE PROCEDURES TO APPLY ADDITIONAL FIRST YEAR DEPRECIATION REGULATIONS.01 Scope. This section 4 applies to a taxpayer within the scope of section 3 of this revenue procedure that is changing its method of accounting for depreciation under § 168 for depreciable property, including components described in § 1.168(k)-2(c) of the 2020 final regulations or the 2019 proposed regulations for which the taxpayer has already made the component election or proposed component election, as applicable, and specified plants, within the scope of section 3 of this revenue procedure to comply with the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations, as applicable. However, this section 4: (1) Does not apply to property that is affected by a late election, or withdrawn election, made/withdrawn by the taxpayer under § 163(j)(7)(B) (electing real property trade or business) or § 163(j)(7)(C) (electing farming business) after November 16, 2020, in accordance with Rev.Proc. 2020-22, 2020-18 I.R.B. 745. Any changes to depreciation for such property that result from such a late election, or withdrawn election, are made in accordance with sections 4.02 and 4.03, or 5.02 of Rev.Proc. 2020-22, as applicable; (2) Does not apply to property or a specified plant for which the taxpayer is changing from deducting the cost or other basis of such property as an expense to capitalizing and depreciating the cost or other basis, or vice versa; (3) Does not apply to property or a specified plant that the taxpayer does not own at the beginning of the year of change. However, and solely for purposes of this section 4: (a) In the case of property described in § 1.1502-68(e)(2)(i) of the 2020 final regulations that is acquired in a transaction that satisfies the requirements of § 1.1502-68(c)(1)(ii) or (c)(2)(ii) of the 2020 final regulations, such property is treated as owned by the taxpayer at the beginning of the year of change if any party to the transaction owned such property at that time; and (b) In the case of property that is acquired in a transaction described in § 1.168(k)-2(b)(3)(v)(C) or (D) in the 2019 proposed regulations, such property is treated as owned by the taxpayer at the beginning of the year of change if any party to the transaction owned such property at that time; and (4) Cannot be used to make a late election, or revoke an election, under § 168, § 179, or § 1.1502-68. However, see sections 5 and 6 of this revenue procedure for procedures for making or revoking certain elections..02 Changing to the depreciation allowable under the additional first year depreciation regulations. (1) In general. A taxpayer within the scope of this section 4 has a choice to apply the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations for (a) depreciable property within the scope of this section 4 that is placed in service by the taxpayer during the same taxable year, and (b) specified plants within the scope of this section 4 that are planted or grafted by the taxpayer during the same taxable year in which the taxpayer planted or grafted the specified plant to which the § 168(k)(5) election applies (the planting year). However, once a taxpayer applies § 1.168(k)-2 and, to the extent relevant, § 1.1502-68, of the Final Regulations, in their entirety, for a taxable year, the taxpayer must continue to apply § 1.168(k)-2 and, to the extent relevant, § 1.1502-68, of the Final Regulations, in their entirety, for the taxpayer's subsequent taxable years. For example, if Partnership ABC applies § 1.168(k)-2 of the Final Regulations, in its entirety, for its 2018 taxable year and if § 1.1502-68 of the Final Regulations does not apply to Partnership ABC, Partnership ABC must apply § 1.168(k)-2 of the Final Regulations for its 2019 taxable year, 2020 taxable year, and subsequent taxable years. (2) Change from impermissible or permissible method of accounting. The first time the taxpayer changes its method of accounting for depreciation under this revenue procedure for depreciable property and specified plants described in section 4.02(1) of this revenue procedure to comply with the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations, as applicable, is deemed to be a change from an impermissible method of accounting to a permissible method of accounting that is made with a § 481(a) adjustment. See section 4.03 of this revenue procedure for the procedures to make this change in method of accounting. Any subsequent time the taxpayer changes its method of accounting for depreciation for such depreciable property and such specified plants to comply with the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations, is a change from a permissible method of accounting to another permissible method of accounting that is made on a cut-off basis. See section 4.04 of this revenue procedure for the procedures to make this change in method of accounting. (3) For example, for its taxable year beginning on January 1, 2020, and ending on December 31, 2020, Taxpayer X changes its method of accounting for depreciation for qualified property acquired by Taxpayer X after September 27, 2017, and placed in service by Taxpayer X after September 27, 2017, and during its 2017 and 2018 taxable years to comply with § 1.168(k)-2 of the 2019 final regulations. This change is a change from an impermissible method of accounting to a permissible method of accounting that is made with a § 481(a) adjustment. Subsequently, for its taxable year beginning on January 1, 2021, Taxpayer X changes its method of accounting for depreciation for qualified property acquired by Taxpayer X after September 27, 2017, and placed in service by Taxpayer X after September 27, 2017, and during its 2017, 2018, and 2019 taxable years to comply with § 1.168(k)-2 and, to the extent relevant, § 1.1502-68 of the Final Regulations. This change is (a) a change from a permissible method of accounting to another permissible method of accounting that is made on a cut-off basis for qualified property acquired after September 27, 2017, and placed in service by Taxpayer X after September 27, 2017, and during its 2017 and 2018 taxable years, and (b) a change from an impermissible method of accounting to a permissible method of accounting that is made with a § 481(a) adjustment for qualified property acquired after September 27, 2017, and placed in service by Taxpayer X after September 27, 2017, and during its 2019 taxable year. (4) Ordering rules. If, for the same taxable year, a taxpayer within the scope of this section 4 makes a late election under section 5 of this revenue procedure and/or revokes an election under section 6 of this revenue procedure and also makes a change in method of accounting for the same depreciable property or same specified plant, the taxpayer applies the late election or the revocation, as applicable, first. (5) Special rules for applying consolidated group rules. In the case of property described in § 1.1502-68(e)(2)(i) of the 2020 final regulations that is acquired in a transaction that satisfies the requirements of § 1.1502-68(c)(1)(ii) or (c)(2)(ii) of the 2020 final regulations, all parties to the transaction, including the transferor member, the transferee member, and the target, as applicable, and the consolidated groups of which they are members for the taxable year(s) in which the transaction occurs and the taxable year(s) that includes the day after the deconsolidation date, as defined in § 1.1502-68(a)(2)(iii) of the 2020 final regulations, must change their methods of accounting for depreciation for the property and specified plants in the same manner under this section 4. For example, if the transferor member changes its method of accounting for depreciation for property by filing an amended return in accordance with section 4.03 of this revenue procedure, all other parties to the transaction must do the same. Similarly, in the case of property to which § 1.168(k)-2 of the 2019 proposed regulations applies and that is acquired in a transaction described in § 1.168(k)-2(b)(3)(v)(C) or (D) in the 2019 proposed regulations, all parties to the transaction, including the transferor member, the transferee member, and the target, as applicable, as defined in § 1.168(k)-2(b)(3)(v)(C) or (D) in the 2019 proposed regulations, and the consolidated groups of which they are members for the taxable year(s) in which the transaction occurs and the taxable year(s) that includes the day after the Deconsolidation Date, as defined in § 1.168(k)-2(b)(3)(v)(C)( 1 ) in the 2019 proposed regulations, must change their methods of accounting for depreciation for the property and specified plants in the same manner under this section 4. If a party to a transaction described in this section 4.02(5) was a member of a consolidated group for the taxable year(s) in which the transaction occurs and/or the taxable year(s) that includes the day after the deconsolidation date, then the change in the method of accounting for depreciation is made by the agent for the group, within the meaning of § 1.1502-77(a) and (c), in accordance with this section 4..03 Change from an impermissible to permissible method of accounting for depreciation. (1) Applicability. This section 4.03 applies to the first time that the taxpayer changes its method of accounting for depreciation under this revenue procedure to comply with the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations for (a) depreciable property within the scope of this section 4 that is placed in service during the same taxable year, and (b) specified plants within the scope of this section 4 that are planted or grafted during the same planting year. This initial change in determining depreciation is a change from an impermissible to a permissible method of accounting. (2) One-year property. For depreciable property that is within the scope of this section 4.03 and is placed in service by the taxpayer in the taxable year immediately preceding the year of change, as defined in section 3.19 of Rev.Proc. 2015-13 (1-year Property), the taxpayer may change from the impermissible method of determining depreciation to the permissible method of determining depreciation for the 1-year Property by filing a Form 3115 for this change in accordance with section 4.03(4)(b) of this revenue procedure, provided the § 481(a) adjustment reported on the Form 3115 includes the amount of any adjustment attributable to all property, including the 1-year Property, subject to the Form 3115. Similarly, for a specified plant that is within the scope of this section 4.03 and is planted or grafted by the taxpayer in the taxable year immediately preceding the year of change, as defined in section 3.19 of Rev.Proc. 2015-13 (1-year Plant), the taxpayer may change from the impermissible method of determining depreciation to the permissible method of determining depreciation for the 1-year Plant by filing a Form 3115 for this change in accordance with section 4.03(4)(b) of this revenue procedure, provided the § 481(a) adjustment reported on the Form 3115 includes the amount of any adjustment attributable to all property, including the 1-year Plant, subject to the Form 3115. Alternatively, the taxpayer may change from the impermissible method of determining depreciation to the permissible method of determining depreciation for the 1-year Property or 1-year Plant by filing an amended return or AAR, as applicable. (3) Retroactive change in method of accounting. The Commissioner allows a taxpayer within the scope of this section 4.03 to make a retroactive change in method of accounting under this section 4.03 for a limited period of time, provided the taxpayer files the amended return(s) or AAR(s) within the time and manner provided in section 4.03(4)(a) of this revenue procedure and satisfies, to the extent relevant, section 4.02 of this revenue procedure. A Form 3115 is not required to be filed with such amended return(s) or AAR(s). (4) Changing from the impermissible to the permissible method of determining depreciation. The taxpayer may change from the impermissible method of determining depreciation to a permissible method of determining depreciation under this section 4.03 by filing either: (a) A Federal amended income tax return or amended Form 1065 for the placed-in-service year of the depreciable property and for the planting year of the specified plant on or before December 31, 2021, but in no event later than the applicable period of limitations on assessment for the taxable year for which the amended return is being filed. A partnership subject to the centralized partnership audit regime enacted as part of the Bipartisan Budget Act of 2015 (BBA partnership) may file an AAR for the placed-in-service year of the depreciable property or the planting year of the specified plant, as applicable, on or before December 31, 2021, but in no event later than the applicable period of limitations on making adjustments under § 6235 for the reviewed year as defined in § 301.6241-1(a)(8) of the Procedure and Administration Regulations. This amended return or AAR must include the adjustment to taxable income for the change in determining depreciation of the depreciable property or specified plant and any collateral adjustments to taxable income or to tax liability (for example, proper amount allowed as a deduction for interest expense, taking into account the business interest limitation under § 163(j) and the regulations thereunder, for a trade or business with floor plan financing indebtedness that is applying § 1.168(k)-2(b)(2)(ii)(G) of the Final Regulations, § 1.168(k)-2(b)(2)(ii)(G) of the 2019 final regulations, or both § 1.168(k)-2(b)(2)(ii)(G) of the 2019 final regulations and § 1.168(k)-2(b)(2)(ii)(G) of the 2019 proposed regulations). Such collateral adjustments also must be made on original or amended Federal returns or AARs for any affected succeeding taxable years. If the taxpayer satisfies this section 4.03(4)(a) for all depreciable property placed in service during the same taxable year and all specified plants planted or grafted during the same planting year, the Commissioner grants consent to the taxpayer to make this retroactive method change for such property and plant; or (b) A Form 3115 with the taxpayer's timely filed original Federal income tax return or Form 1065 under the automatic change procedures in Rev.Proc. 2015-13. This change in method of accounting is made with a § 481(a) adjustment. However, consent to make a change in method of accounting under this section 4.03(4)(b) will be granted by the Commissioner only if the taxpayer satisfies, to the extent relevant, section 4.02 of this revenue procedure. Further, if a taxpayer that has a trade or business with floor plan financing indebtedness is applying § 1.168(k)-2(b)(2)(ii)(G) of the Final Regulations, § 1.168(k)-2(b)(2)(ii)(G) of the 2019 final regulations, or both § 1.168(k)-2(b)(2)(ii)(G) of the 2019 final regulations and § 1.168(k)-2(b)(2)(ii)(G) of the 2019 proposed regulations for depreciable property placed in service by the taxpayer in its 2018, 2019, or 2020 taxable year, consent to make a change in method of accounting under this section 4.03(4)(b) will be granted by the Commissioner only if the amount of the § 481(a) adjustment is adjusted to account for the proper amount of interest expense, taking into account the business interest limitation under § 163(j) and the regulations thereunder, as of the beginning of the year of change. See section 7.03 of this revenue procedure for the procedures for making this change in method of accounting..04 Change from a permissible to another permissible method of accounting for the depreciation. (1) Applicability. This section 4.04 applies to the taxpayer that previously changed its method of accounting for depreciation under this revenue procedure to comply with the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations, as applicable, for depreciable property within the scope of this section 4 that is placed in service during the same taxable year and specified plants within the scope of this section 4 that are planted or grafted during the same planting year, and now wants to make another change in method of accounting for depreciation to comply with the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations for the same depreciable property or specified plant. This subsequent change in determining depreciation is a change from one permissible method of accounting to another permissible method of accounting. (2) Changing from a permissible to another permissible method of determining depreciation allowable. The taxpayer may change from a permissible method of accounting for depreciation to another permissible method of accounting for depreciation under this section 4.04 by filing a Form 3115 with the taxpayer's timely filed original Federal income tax return or Form 1065 under the automatic change procedures in Rev.Proc. 2015-13. Consent to make a change in method of accounting under this section 4.04 will be granted by the Commissioner only if the taxpayer satisfies section 4.02 of this revenue procedure, to the extent relevant. Further, this change in method of accounting is made on a cut-off basis. See section 7.03 of this revenue procedure for the procedures for making this change in method of accounting. SECTION 5. AUTOMATIC EXTENSION OF TIME TO FILE CERTAIN ELECTIONS UNDER SECTIONS 1.168(k)-2 AND 1.1502-68.01 Scope. (1) This section 5 applies to a taxpayer within the scope of section 3 of this revenue procedure that: (a) placed in service depreciable property during its 2017, 2018, 2019, or 2020 taxable year, or planted or grafted the specified plant during its 2017, 2018, 2019, or 2020 taxable year to which the late § 168(k)(5) election applies, as applicable; (b) timely filed its Federal income tax return or Form 1065 for the placed-in-service year of such depreciable property or the planting year of such specified plant, and such return was filed before November 17, 2020; (c) applies the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations for the placed-in-service year of such depreciable property or the planting year of such specified plant; (d) wants to (i) make a § 168(k)(5) election for the planting year of such specified plant or make a § 168(k)(7) election for the placed-in-service year of the class of such depreciable property, or (ii) make a component election, designated transaction election, or proposed component election for the placed-in-service year of such depreciable property or the planting year of such specified plant and such election(s) is permitted for the placed-in-service year of such depreciable property or the planting year of such specified plant under the specific regulation in section 5.01(1)(c) of this revenue procedure that is applied by the taxpayer for that placed-in-service year or planting year; and (e) did not (i) previously revoke such election(s) in accordance with section 6.02 of this revenue procedure, (ii) previously revoke such election(s) after November 16, 2020, in accordance with section 5 of Rev.Proc. 2020-25, or (iii) previously revoke such election(s) after November 16, 2020, in accordance with section 4.03 or 5.04 of Rev.Proc. 2019-33, as applicable. (2) This section 5 also applies to a taxpayer within the scope of section 3 of this revenue procedure that: (a) placed in service depreciable property during its taxable year that includes September 28, 2017, or planted or grafted specified plants during its taxable year that includes September 28, 2017, as applicable; (b) timely filed its Federal income tax return or Form 1065 for the taxpayer's taxable year that includes September 28, 2017; (c) applies the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations for its taxable year that includes September 28, 2017; (d) wants to make a § 168(k)(10) election for such taxable year; and (e) did not (i) previously revoke a § 168(k)(10) election for such taxable year in accordance with section 6.02 of this revenue procedure, (ii) previously revoke a § 168(k)(10) election for such taxable year after November 16, 2020, in accordance with section 5 of Rev.Proc. 2020-25, or (iii) previously revoke a § 168(k)(10) election after November 16, 2020, in accordance with section 6.05 of Rev.Proc. 2019-33. (3) Solely for purposes of section 5.01 of this revenue procedure, a taxpayer applies the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations under section 5.01(1)(c) of this revenue procedure for the placed-in-service year of the depreciable property described in section 5.01(1)(a) of this revenue procedure or for the planting year of the specified plant described in section 5.01(1)(a) of this revenue procedure, or applies the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations under section 5.01(2)(c) of this revenue procedure for the placed-in-service year of the depreciable property described in section 5.01(2)(a) of this revenue procedure or for the planting year of the specified plant described in section 5.01(2)(a) of this revenue procedure, either by (a) making a change in method of accounting under section 4.03 of this revenue procedure to apply that specific regulation for the placed-in-service year of such depreciable property or for the planting year of such specified plant, or (b) complying with that specific regulation on its timely filed original Federal income tax return or Form 1065 for the placed-in-service year of such depreciable property or for the planting year of such specified plant. (4) A taxpayer within the scope of section 5.01(1) of this revenue procedure makes the § 168(k)(5) election, § 168(k)(7) election, component election, proposed component election, or designated transaction election in accordance with section 2.03(1), (2), (5), (6), or (7), respectively, of this revenue procedure or under section 5.02 of this revenue procedure. A taxpayer within the scope of section 5.01(2) of this revenue procedure makes the § 168(k)(10) election in accordance with section 2.03(3) of this revenue procedure or under section 5.02 of this revenue procedure..02 Time and manner of making a late § 168(k)(5) election, a late § 168(k)(7) election, a late § 168(k)(10) election, a late component election, a late designated transaction election, or a late proposed component election. A taxpayer within the scope of this section 5 may make the late § 168(k)(5) election, the late § 168(k)(7) election, the late § 168(k)(10) election, the late component election, the late designated transaction election, or the late proposed component election by filing either: (1) A Federal amended income tax return or amended Form 1065 for the placed-in-service year of the property, or for the planting year of the specified plant, as applicable, on or before December 31, 2021, but in no event later than the applicable period of limitations on assessment for the taxable year for which the amended return is being filed. A BBA partnership may file an AAR for the placed-in-service year of the property or the planting year of the specified plant, as applicable, on or before December 31, 2021, but in no event later than the applicable period of limitations on making adjustments under § 6235 for the reviewed year as defined in § 301.6241-1(a)(8). This amended return or AAR must include the adjustment to taxable income for the late election and any collateral adjustments to taxable income or to tax liability. Such collateral adjustments also must be made on original or amended Federal returns or AARs for any affected succeeding taxable years; or (2) A Form 3115 (a) with the taxpayer's timely filed original Federal income tax return or Form 1065 for the taxpayer's first or second taxable year succeeding the taxable year in which the taxpayer placed in service the property or the planting year of the specified plant, as applicable, or (b) if later, with the taxpayer's timely filed original Federal income tax return or Form 1065 that is filed on or after November 6, 2020, and on or before December 31, 2021. The late § 168(k)(5) election, late § 168(k)(7) election, late § 168(k)(10) election, late component election, late designated transaction election, or late proposed component election under this section 5.02(2) will be treated as a change in method of accounting with a § 481(a) adjustment only during this limited period of time. The time and manner of making this late election are described in section 7.02(2) of this revenue procedure, which modifies section 6.20 of Rev.Proc. 2019-43 to include this late election..03 Examples. The application of this section 5 is illustrated by the following examples. Example 1. Taxpayer A, a calendar year taxpayer, placed in service several depreciable assets during its 2018 taxable year that are eligible for the additional first year depreciation under § 168(k) as in effect before the enactment of the TCJA. On its timely filed Federal income tax return for the 2018 taxable year, Taxpayer A deducted 40-percent additional first year depreciation for such assets. After the issuance of the 2020 final regulations, Taxpayer A determined that one such asset is larger self-constructed property under § 1.168(k)-2(c)(2) of the 2020 final regulations and some components of that property are eligible for the component election under § 1.168(k)-2(c) of the 2020 final regulations. Pursuant to section 4.03(4)(a) of this revenue procedure, Taxpayer A (a) makes a retroactive change in method of accounting by filing in February 2021 amended Federal income tax returns for its 2018 and 2019 taxable years to apply the Final Regulations, and (b) timely files its original Federal income tax return for the 2020 taxable year applying the Final Regulations. Because Taxpayer A retroactively applied the Final Regulations to the 2018 taxable year in accordance with section 4 of this revenue procedure, Taxpayer A is eligible to make the late component election under this section 5 for eligible components placed in service by Taxpayer A during its 2018 taxable year. The result would be the same if, pursuant to section 4.03(4)(b) of this revenue procedure, Taxpayer A filed a Form 3115 with its timely filed original Federal income tax return for the 2020 taxable year under the automatic change procedures in Rev.Proc. 2015-13 and section 6.21 of Rev.Proc. 2019-43, as added by section 7.03 of this revenue procedure, to apply the Final Regulations for property placed in service by Taxpayer A during its 2018 and 2019 taxable years. Example 2. The facts are the same as in Example 1, except Taxpayer A files the amended Federal income tax returns for its 2018 and 2019 taxable years to apply the 2019 final regulations and timely files its original Federal income tax return for the 2020 taxable year applying the 2019 final regulations. Because the component election under § 1.168(k)-2(c) of the 2020 final regulations is not permitted under the 2019 final regulations, Taxpayer A is not eligible to make the late component election under this section 5 for components that are eligible for the component election under § 1.168(k)-2(c) of the 2020 final regulations and placed in service by Taxpayer A during its 2018 taxable year. Example 3. Taxpayer B, a calendar year taxpayer, placed in service several depreciable assets during its 2018 taxable year. On its timely filed Federal income tax return for the 2018 taxable year, Taxpayer B deducted 100-percent additional first year depreciation for such assets. Now, Taxpayer B wants to make a late § 168(k)(7) election for all qualified property placed in service during its 2018 taxable year. Taxpayer B did not apply, and is not applying, the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations for the 2018 taxable year. As a result, Taxpayer B is not eligible to make a late § 168(k)(7) election under this revenue procedure for the 2018 taxable year. Instead, Taxpayer B must submit a private letter ruling request under § 301.9100-3 of the Procedure and Administration Regulations to obtain the Commissioner's consent to make such late election. SECTION 6. CONSENT TO REVOKE CERTAIN ELECTIONS UNDER SECTION 168.01 Scope. (1) This section 6 applies to a taxpayer within the scope of section 3 of this revenue procedure that: (a) placed in service depreciable property during its 2017, 2018, 2019, or 2020 taxable year, or planted or grafted the specified plant during its 2017, 2018, 2019, or 2020 taxable year to which the § 168(k)(5) election applies, as applicable; (b) applies the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations for the placed-in-service year of such depreciable property or the planting year of such specified plant; (c) made a § 168(k)(5) election, § 168(k)(7) election, or proposed component election on its timely filed original Federal income tax return or Form 1065 for the placed-in-service year of such depreciable property or class of such depreciable property, as applicable, or for the planting year of the specified plant, and such return was filed before November 17, 2020, or made a § 168(k)(5) election or § 168(k)(7) election in accordance with section 4 or 5 of Rev.Proc. 2019-33, respectively, or in accordance with section 4 of Rev.Proc. 2020-25, as modified by section 8 of this revenue procedure, before November 17, 2020; and (d) wants to revoke such election. (2) This section 6 also applies to a taxpayer within the scope of section 3 of this revenue procedure that: (a) applies the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations for the taxpayer's taxable year that includes September 28, 2017; (b) made a § 168(k)(10) election on its timely filed original Federal income tax return or Form 1065 for the taxpayer's taxable year that includes September 28, 2017, or made a § 168(k)(10) election in accordance with section 6 of Rev.Proc. 2019-33 or section 4 of Rev.Proc. 2020-25, as modified by section 8 of this revenue procedure, for the taxpayer's taxable year that includes September 28, 2017, before November 17, 2020; and (c) wants to revoke the § 168(k)(10) election. (3) Solely for purposes of section 6.01 of this revenue procedure, a taxpayer applies the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations under section 6.01(1)(b) of this revenue procedure for the placed-in-service year of the depreciable property described in section 6.01(1)(a) of this revenue procedure or for the planting year of the specified plant described in section 6.01(1)(a) of this revenue procedure, or applies the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations under section 6.01(2)(a) of this revenue procedure for the taxpayer's taxable year that includes September 28, 2017, either by (a) making a change in method of accounting under section 4.03 of this revenue procedure to apply that specific regulation for the placed-in-service year of such depreciable property or for the planting year of such specified plant, or (b) complying with that specific regulation on its timely filed original Federal income tax return or Form 1065 for the placed-in-service year of such depreciable property or for the planting year of such specified plant. (4) If a taxpayer within the scope of section 6.01(1) of this revenue procedure revokes the § 168(k)(7) election in accordance with section 6.02(2) of this revenue procedure, the revocation applies to all property included in the class of property and placed in service during the same taxable year. If a taxpayer within the scope of section 6.01(2) of this revenue procedure revokes the § 168(k)(10) election in accordance with section 6.02(2) of this revenue procedure, the revocation applies to (a) all qualified property acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during its taxable year that includes September 28, 2017, and (b) all specified plants that are planted, or grafted to a plant that has already been planted, after September 27, 2017, by the taxpayer in the ordinary course of the taxpayer's farming business during its taxable year that includes September 28, 2017, if the taxpayer made the § 168(k)(5) election for that taxable year..02 Consent granted to revoke election. (1) In general. The Commissioner grants a taxpayer within the scope of this section 6 consent to revoke its § 168(k)(5) election, § 168(k)(7) election, § 168(k)(10) election, or proposed component election provided the taxpayer makes this revocation in the time and manner described in this section 6.02. (2) Revocation of § 168(k)(5) election, § 168(k)(7) election, or § 168(k)(10) election, or proposed component election. A taxpayer within the scope of this section 6 may revoke its § 168(k)(5) election, § 168(k)(7) election, § 168(k)(10) election, or proposed component election by filing either: (a) A Federal amended income tax return or amended Form 1065 for the placed-in-service year of the property or the planting year of the specified plant, as applicable, on or before December 31, 2021, but in no event later than the applicable period of limitations on assessment for the taxable year for which the amended return is being filed. A BBA partnership may file an AAR for the placed-in-service year of the property or the planting year of the specified plant, as applicable, on or before December 31, 2021, but in no event later than the applicable period of limitations on making adjustments under § 6235 for the reviewed year as defined in § 301.6241-1(a)(8). This amended return or AAR must include the adjustment to taxable income for the revocation of the § 168(k)(5) election, § 168(k)(7) election, § 168(k)(10) election, or proposed component election and any collateral adjustments to taxable income or to tax liability. Such collateral adjustments also must be made on original or amended Federal returns or AARs for any affected succeeding taxable years; or (b) A Form 3115 (a) with the taxpayer's timely filed original Federal income tax return or Form 1065 for the taxpayer's first or second taxable year succeeding the taxable year in which the taxpayer placed in service the property or the planting year of the specified plant, as applicable, or (b) if later, with the taxpayer's timely filed original Federal income tax return or Form 1065 that is filed on or after November 6, 2020, and on or before December 31, 2021. The revocation of the § 168(k)(5) election, the § 168(k)(7) election, the § 168(k)(10) election, or the proposed component election under this section 6.02(2)(b) will be treated as a change in method of accounting with a § 481(a) adjustment only during this limited period of time. The time and manner of making this revocation are described in section 7.02(2) of this revenue procedure, which modifies section 6.20 of Rev.Proc. 2019-43 to include this revocation. SECTION 7. CHANGES IN METHOD OF ACCOUNTING.01 In general. The making of a late election, or the revocation of an election, under sections 5.02(2) and 6.02(2)(b) of this revenue procedure is treated as a change in method of accounting for a limited period of time to which §§ 446(e) and 481, and the corresponding regulations, apply. A taxpayer that wants to make a late election, or revoke an election, under sections 5.02(2) and 6.02(2)(b) of this revenue procedure must use the automatic change procedures in Rev.Proc. 2015-13 or its successor..02 Modifications to existing automatic changes. (1) Section 6.01(1)(c) of Rev.Proc. 2019-43, 2019-48 I.R.B. 1107, is modified by: (a) Revising section 6.01(1)(c)(xvii) to read as follows: (xvii) any qualified improvement property, as defined in § 168(e)(6), placed in service by the taxpayer after December 31, 2017, to which section 6.19 of this revenue procedure applies. However, an original Form 3115 for such change in method of accounting may be filed under this section 6.01 instead of section 6.19 of this revenue procedure if the original Form 3115 was filed before November 17, 2020; (b) At the end of section 6.01(1)(c)(xviii), adding "; or"; (c) Adding a new section 6.01(1)(c)(xix) to read as follows: (xix) any change in method of accounting to which section 6.21 of this revenue procedure applies. (2) Section 6.19 of Rev.Proc. 2019-43 is modified by: (a) At the end of section 6.19(1)(c)(ii), deleting "or"; (b) At the end of section 6.19(1)(c)(iii), adding "; or"; (c) Adding a new section 6.19(1)(c)(iv) to read as follows: (iv) any change in method of accounting to which section 6.21 of this revenue procedure applies. (3) Section 6.20 of Rev.Proc. 2019-43 is modified to read as follows: 6.20 Certain late elections under §§ 168 and 1502 or revocation of certain elections under § 168. (1) Description of change. (a) Applicability. This change applies to: (i) A taxpayer within the scope of section 4 of Rev.Proc. 2020-25, 2020-19 I.R.B. 785, as modified by section 8 of Rev.Proc. 2020-50, 2020-48 I.R.B. 1122, that wants to make a late election provided in section 4.02(2) of Rev.Proc. 2020-25 under § 168(g)(7), (k)(5), (k)(7), or (k)(10). This change also applies to a taxpayer within the scope of section 5 of Rev.Proc. 2020-25 that wants to revoke an election provided in section 5.02(2)(b) of Rev Proc. 2020-25 under § 168(k)(5), (k)(7), or (k)(10); or (ii) A taxpayer within the scope of section 5 of Rev.Proc. 2020-50, 2020-48 I.R.B. 1122, that wants to make a late election under § 168(k)(5), (7), or (10), § 1.168(k)-2(c) (component election), § 1.1502-68(c)(4) (designated transaction election), or proposed § 1.168(k)-2(c) (proposed component election) as provided in section 5.02(2) of Rev.Proc. 2020-50. This change also applies to a taxpayer within the scope of section 6 of Rev.Proc. 2020-50 that wants to revoke an election under § 168(k)(5), (k)(7), or (k)(10), or a proposed component election as provided in section 6.02(2)(b) of Rev Proc. 2020-50. (b) Inapplicability. (i) The IRS will treat the making of a late election provided in section 4 of Rev.Proc. 2020-25 under § 168(g)(7), (k)(5), (k)(7), and (k)(10), or the revocation of an election provided in section 5 of Rev.Proc. 2020-25 under § 168(k)(5), (k)(7), and (k)(10), as a change in method of accounting with a § 481(a) adjustment only for the taxable years specified in section 6.20(2)(a) of this revenue procedure. This treatment does not apply to a taxpayer that makes these late elections or revocations before or after the time specified in section 6.20(2)(a) of this revenue procedure, and any such late election or revocation is not a change in method of accounting pursuant to § 1.446-1(e)(2)(ii)( d )( 3 )( iii ). (ii) The IRS will treat the making of a late election under § 168(k)(5), (7), or (10), a late component election, a late designated transaction election, or a late proposed component election as provided in section 5 of Rev.Proc. 2020-50, or the revocation of an election under § 168(k)(5), (k)(7), or (k)(10), or a proposed component election as provided in section 6 of Rev Proc. 2020-50, as a change in method of accounting with a § 481(a) adjustment only for the taxable years specified in section 6.20(2)(b) of this revenue procedure. This treatment does not apply to a taxpayer that makes these late elections or revocations before or after the time specified in section 6.20(2)(b) of this revenue procedure, and any such late election or revocation is not a change in method of accounting pursuant to § 1.446-1(e)(2)(ii)( d )( 3 )( iii ). (2) Time for making the change. (a) The change under section 6.20(1)(a)(i) and (b)(i) of this revenue procedure must be made for (i) the taxpayer's first or second taxable year succeeding the taxable year in which the taxpayer placed in service the property affected by the late election under § 168(g)(7), (k)(5), (k)(7), or (k)(10), as applicable, or revocation of the election under § 168(k)(5), (k)(7), or (k)(10), as applicable, or, if later, (ii) any taxable year for which the taxpayer timely files an original Federal income tax return or Form 1065, as applicable, on or after April 17, 2020, and on or before October 15, 2021. (b) The change under section 6.20(1)(a)(ii) and (b)(ii) of this revenue procedure must be made for: (i) The taxpayer's first or second taxable year succeeding the taxable year in which the taxpayer (A) placed in service the property affected by the late election under § 168(k)(7) or (10), the late component election, the late designated transaction election, or the late proposed component election, as applicable, or by the revocation of the election under § 168(k)(7) or (k)(10), or the proposed component election, as applicable, or (B) planted or grafted the specified plant to which the late § 168(k)(5) election applies or to which the revocation of the election under § 168(k)(5) applies; or, if later (ii) Any taxable year for which the taxpayer timely files an original Federal income tax return or Form 1065, as applicable, on or after November 6, 2020, and on or before December 31, 2021. (3) Certain eligibility rules inapplicable. (a) The eligibility rules in section 5.01(1)(d) and (f) of Rev.Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to the change under section 6.20(1)(a)(i) and (b)(i) of this revenue procedure for the taxpayer's first or second taxable year succeeding the taxable year in which the taxpayer placed in service the property affected by the late election under § 168(g)(7), (k)(5), (k)(7), or (k)(10), as applicable, or revocation of the election under § 168(k)(5), (k)(7), or (k)(10), as applicable, or if later, for any taxable year for which the taxpayer timely files an original Federal income tax return or Form 1065, as applicable, on or after April 17, 2020, and on or before October 15, 2021. (b) The eligibility rules in section 5.01(1)(d) and (f) of Rev.Proc. 2015-13, 2015-5 I.R.B. 419, do not apply to the change under section 6.20(1)(a)(ii) and (b)(ii) of this revenue procedure for: (i) The taxpayer's first or second taxable year succeeding the taxable year in which the taxpayer (A) placed in service the property affected by the late election under § 168(k)(7) or (10), the late component election, the late designated transaction election, or the late proposed component election, as applicable, or by the revocation of the election under § 168(k)(7) or (k)(10), or the proposed component election, as applicable, or (B) planted or grafted the specified plant to which the late § 168(k)(5) election applies or to which the revocation of the election under § 168(k)(5) applies; or, if later (ii) Any taxable year for which the taxpayer timely files an original Federal income tax return or Form 1065, as applicable, on or after November 6, 2020, and on or before December 31, 2021. (4) Reduced filing requirement. A taxpayer making a change under this section 6.20 is required to complete only the following information on Form 3115 (Rev. December 2018): (a) The identification section of page 1 (above Part I); (b) The signature section at the bottom of page 1; (c) Part I; (d) Part II, all lines except lines 11, 12, 13, 15, 16, 17, and 19; (e) Part IV, all lines; and (f) Schedule E, all lines except lines 1, 4b, 5, and 6. (5) Concurrent automatic change. (a) A taxpayer making one or more late elections, and/or revoking one or more elections, under sections 4 and 5 of Rev.Proc. 2020-25, or under sections 5 and 6 of Rev.Proc. 2020-50, for the same year of change must file a single Form 3115 for all such changes. The single Form 3115 must provide a single net § 481(a) adjustment for all such changes for all assets placed in service, and all specified plants planted or grafted, by the taxpayer during the same taxable year. See section 6.03(1)(b) of Rev.Proc. 2015-13 for information on making concurrent changes. (b) A taxpayer making one or more changes under this section 6.20 and the change in section 6.01, 6.19, or 6.21 of this revenue procedure for the same year of change must file a single Form 3115 for all such changes and must enter the designated automatic accounting method change numbers on the appropriate line on the Form 3115. The single Form 3115 must provide a single net § 481(a) adjustment for all such changes for all assets placed in service, and all specified plants planted or grafted, by the taxpayer during the same taxable year. See section 6.03(1)(b) of Rev.Proc. 2015-13 for information on making concurrent changes. (6) Designated automatic accounting method change number. The designated automatic accounting method change number for a change to the method of accounting under this section 6.20 is "245." (7) Contact information. For further information regarding a change under this section 6.20, contact Elizabeth R. Binder at (202) 317-7005 (not a toll-free number)..03 New automatic change. Rev.Proc. 2019-43 is modified to add new section 6.21 to read as follows: 6.21 Change in depreciation as a result of applying the additional first year depreciation regulations. (1) Description of Change. (a) Applicability. This change applies to a taxpayer within the scope of section 4 of Rev.Proc. 2020-50, 2020-48 I.R.B. 1122, that wants to change its method of accounting for depreciation under § 168 to comply with the Final Regulations, the 2019 final regulations, or both the 2019 final regulations and the 2019 proposed regulations, as applicable, and as defined in section 2.02 of Rev.Proc. 2020-50, for depreciable property and specified plants within the scope of section 4 of Rev.Proc. 2020-50. A change under this section 6.21 applies to (i) a taxpayer that is changing from an impermissible method of accounting to a permissible method of accounting under section 4.03(4)(b) of Rev.Proc. 2020-50, and (ii) a taxpayer that is changing from one permissible method of accounting to another permissible method of accounting under section 4.04 of Rev.Proc. 2020-50. (b) Inapplicability. This change does not apply to any property for which the taxpayer is changing its method of accounting for depreciation to the method of accounting for depreciation provided in § 1.168(i)-4, which applies when there is a change in use of the property (but see section 6.04 or 6.05 of this revenue procedure for making this change). (2) Certain eligibility rules inapplicable. (a) In general. The eligibility rule in section 5.01(1)(d) of Rev.Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this change for the property and specified plant within the scope of section 4 of Rev.Proc. 2020-50, as modified by section 6.21(1)(b) of this revenue procedure. (b) Special rule. The eligibility rule in section 5.01(1)(f) of Rev.Proc. 2015-13, 2015-5 I.R.B. 419, does not apply to a taxpayer making this change for the property and specified plant within the scope of section 4 of Rev.Proc. 2020-50, as modified by section 6.21(1)(b) of this revenue procedure, for: (i) The taxpayer's first or second taxable year succeeding the taxable year in which the taxpayer placed in service such property, or planted or grafted such specified plant, as applicable; or, if later (ii) Any taxable year for which the taxpayer timely files an original Federal income tax return or Form 1065, as applicable, on or after November 6, 2020, and on or before December 31, 2021. (3) Impermissible to permissible method of determining the depreciation deduction allowable. (a) A taxpayer may change from an impermissible method of accounting to a permissible method of accounting under section 4.03 of Rev.Proc. 2020-50 for the property and specified plant within the scope of section 4.03 of Rev.Proc. 2020-50, as modified by section 6.21(1)(b) of this revenue procedure, for which the taxpayer used the impermissible method of accounting in at least two taxable years immediately preceding the year of change (but see section 6.21(3)(b) of this revenue procedure for property placed in service or a specified plant planted or grafted in the taxable year immediately preceding the year of change). (b) If a taxpayer does not satisfy section 6.21(3)(a) of this revenue procedure for depreciable property that is within the scope of section 4.03 of Rev.Proc. 2020-50, as modified by section 6.21(1)(b) of this revenue procedure, because the depreciable property is placed in service by the taxpayer in the taxable year immediately preceding the year of change (1-year Property), the taxpayer may change from the impermissible method of determining depreciation to the permissible method of determining depreciation for the 1-year Property by filing a Form 3115 for this change in accordance with this section 6.21(3), provided the § 481(a) adjustment reported on the Form 3115 includes the amount of any adjustment attributable to all property, including the 1-year Property, subject to the Form 3115. Similarly, for a specified plant that is within the scope of section 4.03 of Rev.Proc. 2020-50, as modified by section 6.21(1)(b) of this revenue procedure, and is planted or grafted by the taxpayer in the taxable year immediately preceding the year of change (1-year Plant), the taxpayer may change from the impermissible method of determining depreciation to the permissible method of determining depreciation under this section 6.21(3) for the 1-year Plant by filing a Form 3115 for this change in accordance with this section 6.21(3), provided the § 481(a) adjustment reported on the Form 3115 includes the amount of any adjustment attributable to all property, including the 1-year Plant, subject to the Form 3115. Alternatively, the taxpayer may change from the impermissible method of determining depreciation to the permissible method of determining depreciation for the 1-year Property or 1-year Plant by filing an amended return or AAR, as applicable. (c) A change under section 4.03(4)(b) of Rev.Proc. 2020-50 and this section 6.21(3) is made with a § 481(a) adjustment. However, consent to make a change in method of accounting under this section 6.21 will be granted by the Commissioner only if the taxpayer satisfies section 4.02 of Rev.Proc. 2020-50, to the extent relevant. Further, if a taxpayer that has a trade or business with floor plan financing indebtedness is applying § 1.168(k)-2(b)(2)(ii)(G) of the Final Regulations, § 1.168(k)-2(b)(2)(ii)(G) of the 2019 final regulations, or both § 1.168(k)-2(b)(2)(ii)(G) of the 2019 final regulations and § 1.168(k)-2(b)(2)(ii)(G) of the 2019 proposed regulations for depreciable property placed in service by the taxpayer in its 2018, 2019, or 2020 taxable year, consent to make a change in method of accounting under this section 6.21 will be granted by the Commissioner only if the amount of the § 481(a) adjustment is adjusted to account for the proper amount of interest expense, taking into account the business interest limitation under § 163(j) and the regulations thereunder, as of the beginning of the year of change. (4) Permissible to another permissible method of determining the depreciation deduction allowable. (a) A taxpayer may change from one permissible method of accounting to another permissible method of accounting under section 4.04 of Rev.Proc. 2020-50 for the property and specified plant within the scope of section 4.04 of Rev.Proc. 2020-50, as modified by section 6.21(1)(b) of this revenue procedure. (b) A change under section 4.04 of Rev.Proc. 2020-50 and this section 6.21(4) is made on a cut-off basis. Accordingly, neither the modified cut-off method, as described in § 1.446-1(e)(2)(ii)( d )( 5 )( iii ), nor a § 481(a) adjustment is permitted or required. (5) Additional requirement. A taxpayer making a change under this section 6.21 also must comply with section 4.02 of Rev.Proc. 2020-50, to the extent relevant. Once a taxpayer applies § 1.168(k)-2 and, to the extent relevant, § 1.1502-68, of the Final Regulations, in their entirety, for a taxable year, the taxpayer must continue to apply § 1.168(k)-2 and, to the extent relevant, § 1.1502-68, of the Final Regulations, in their entirety, for the taxpayer's subsequent taxable years. See §§ 1.168(k)-2(h)(3)(iii) and 1.1502-68(e)(2)(iii) of the Final Regulations and section 4.02(1) of Rev.Proc. 2020-50. (6) Reduced filing requirement. A taxpayer making a change under this section 6.21 is required to complete only the following information on Form 3115 (Rev. December 2018): (a) The identification section of page 1 (above Part I); (b) The signature section at the bottom of page 1; (c) Part I; (d) Part II, all lines except lines 11, 12, 13, 15, 16, 17, and 19; (e) Part IV, all lines; and (f) Schedule E, all lines except lines 1, 4b, 5, and 6. (7) Concurrent automatic change. (a) A taxpayer making this change must file a single Form 3115 for all assets placed in service, and all specified plants planted or grafted, by the taxpayer during the same taxable year and must provide a single net § 481(a) adjustment for all the changes included in that Form 3115. (b) A taxpayer making one or more changes under section 6.21(3) of this revenue procedure and the change in section 6.01, 6.19, or 6.20 of this revenue procedure for the same year of change must file a single Form 3115 for all such changes and must enter the designated automatic accounting method change numbers on the appropriate line on the Form 3115. The single Form 3115 must provide a single net § 481(a) adjustment for all such changes for all assets placed in service, and all specified plants planted or grafted, by the taxpayer during the same taxable year. See section 6.03(1)(b) of Rev.Proc. 2015-13 for information on making concurrent changes. (8) Designated automatic accounting method change numbers. The designated automatic accounting method change number for (a) a change under section 6.21(3) of this revenue procedure is "246", and (b) a change under section 6.21(4) of this revenue procedure is "247." (9) Contact information. For further information regarding a change under this section 6.21, contact Elizabeth R. Binder at (202) 317-7005 (not a toll-free number). SECTION 8. MODIFICATIONS TO REV.PROC. 2020-25.01 Section 4.01 of Rev.Proc. 2020-25 is modified to read as follows:.01 Scope. This section 4 applies to: (1) A taxpayer that (a) placed in service depreciable property during its 2018, 2019, or 2020 taxable year, (b) timely filed its Federal income tax return or Form 1065 for the placed-in-service year of such depreciable property and such return was filed on or before April 17, 2020, (c) wants to make a § 168(g)(7) election, § 168(k)(5) election, or § 168(k)(7) election for such depreciable property, and (d)(i) did not previously revoke or withdraw such election(s) in accordance with section 5.02 of this revenue procedure, or (ii) did not previously revoke such § 168(k)(5) election or § 168(k)(7) election in accordance with section 6 of Rev.Proc. 2020-50, 2020-48 I.R.B. 1122. The taxpayer makes the § 168(g)(7) election, § 168(k)(5) election, or § 168(k)(7) election in accordance with section 2.02(1), (2), or (3), respectively, of this revenue procedure or under section 4.02 of this revenue procedure; or (2) A taxpayer that (a) timely filed its Federal income tax return or Form 1065 for the taxpayer's taxable year that includes September 28, 2017, (b) wants to make a § 168(k)(10) election for such taxable year, and (c) did not previously revoke a § 168(k)(10) election for such taxable year in accordance with section 5.02 of this revenue procedure or with section 6 of Rev.Proc. 2020-50. The taxpayer makes the § 168(k)(10) election in accordance with section 2.02(4) of this revenue procedure or under section 4.02 of this revenue procedure. SECTION 9. EFFECT ON OTHER DOCUMENTS.01 Section 6 of Rev.Proc. 2019-43 is modified to include the modifications provided in section 7.02 of this revenue procedure and the accounting method change provided in section 7.03 of this revenue procedure..02 Section 4.01 of Rev.Proc. 2020-25 is modified. SECTION 10. EFFECTIVE DATE This revenue procedure is effective November 6, 2020. SECTION 11. DRAFTING INFORMATION The principal author of this revenue procedure is Kathleen Reed of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this revenue procedure, contact Elizabeth Binder at (202) 317-4869 (not a toll-free number) or Ms. Reed at (202) 317-4660 (not a toll-free number).

Internal Revenue Service - Information Release IR-2021-111 IRS begins correcting tax returns for unemployment compensation income exclusion; periodic payments to be made May through summer May 14, 2021 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 IRS begins correcting tax returns for unemployment compensation income exclusion; periodic payments to be made May through summer IR-2021-111, May 14, 2021 WASHINGTON -- The Internal Revenue Service will begin issuing refunds this week to eligible taxpayers who paid taxes on 2020 unemployment compensation that the recently-enacted American Rescue Plan later excluded from taxable income. The IRS identified over 10 million taxpayers who filed their tax returns prior to the American Rescue Plan of 2021 becoming law in March and is reviewing those tax returns to determine the correct taxable amount of unemployment compensation and tax. This could result in a refund, a reduced balance due or no change to tax (no refund due nor amount owed). These corrections are being made automatically in a phased approach, easing the burden on taxpayers. The first phase is underway and includes the simplest returns. The next phase will include the more complex tax returns which the IRS anticipates will take through the end of summer to review and correct. The first phase of adjustments is being made for single taxpayers who had the simplest tax returns, such as those filed by taxpayers who did not claim children or any refundable tax credits. The IRS will issue refunds resulting from this effort by direct deposit for taxpayers who provided bank account information on their 2020 tax return. If valid bank account information is not available, the refund will be mailed as a paper check to the address of record. The IRS will continue to send refunds until all identified tax returns have been reviewed and adjusted. These refunds are subject to normal offset rules, such as past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support or certain federal nontax debts (i.e., student loans). The IRS will send a separate notice to the taxpayer if the refund is offset to pay unpaid debts. The IRS will send taxpayers a notice explaining the corrections, which they should expect within thirty days of when the correction is made. Taxpayers should keep any notices they receive for their records. Taxpayers should review their return after receiving their IRS notice(s). Correction to any Earned Income Tax Credit (EITC) without qualifying children and the Recovery Rebate Credit are being made automatically as part of this process. However, some taxpayers may be eligible for certain income-based tax credits not claimed on their original return, such as the EITC for their qualifying children. If so, they should file an amended tax return if the revised adjusted gross income amount makes them eligible for additional benefits. More complex corrections will begin upon the completion of the first phase and involves couples filing as married filing jointly. Unemployment compensation is taxable income. The American Rescue Plan excludes $10,200 in 2020 unemployment compensation from income used to calculate the amount of taxes owed. The $10,200 per person exclusion applies to taxpayers, single or married filing jointly, with modified adjusted gross income of less than $150,000. The $10,200 is the amount of income exclusion, not the amount of the refund. Refund amounts will vary and not all adjustments will result in a refund. The legislation also suspends the requirement to repay excess advance payments of the Premium Tax Credit (excess APTC). If a taxpayer paid an excess APTC repayment amount when they filed their 2020 return, the IRS is also refunding this amount automatically. If the IRS corrects the taxpayer's account to reflect the unemployment income exclusion, the excess APTC amount that the taxpayer paid will be included in that adjustment. The IRS is also adjusting accounts for those who repaid excess APTC but did not report unemployment compensation on their 2020 tax return. Taxpayers who have not yet filed a tax return should follow the guidance for Forms 1040 and 1040-SR, which details how to exclude unemployment compensation. For additional information - Tax Treatment of Unemployment Compensation - Unemployment Compensation Exclusion FAQs - Tax Year 2020: Requirement to repay excess advance payments of the Premium Tax Credit is suspended

Internal Revenue Service - Information Release IR-2023-210 Tax season rapidly approaching: Get ready now to file 2023 federal income tax returns in early 2024 November 13, 2023 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 Tax season rapidly approaching: Get ready now to file 2023 federal income tax returns in early 2024 IR-2023-210, Nov. 13, 2023 WASHINGTON -- With the nation's tax season rapidly approaching, the Internal Revenue Service reminds taxpayers there are important steps they can take now to help "get ready" to file their 2023 federal tax return. This is the first in a series of special IRS "Get Ready" reminders to help taxpayers prepare for the upcoming tax filing season in early 2024. A little advance work now can help people have the paperwork and information ready to file their tax returns quickly and accurately. As part of this education effort, the IRS has a special page outlining items taxpayers can look into now to get ready to file their 2023 tax returns. Get helpful information to file through IRS Online Account Taxpayers can create or access their Online Account at IRS.gov/account. New users should have their photo identification ready. With an Online Account taxpayers can access a variety of helpful information to help them during the 2024 filing season, including: - View key data from the most recently filed tax return, including adjusted gross income. - Get account transcripts. - Sign power of attorney and tax information authorizations. - Receive notices electronically. - Get email notifications for new account information or activity. - Make and view payments. - View, create or change payment plans. - See the amount owed by year. Gather, organize and update tax records Organizing tax records makes it easier to prepare a complete and accurate tax return. It helps avoid errors that can slow down refunds and may also help find overlooked deductions or tax credits. Most income is taxable, including unemployment compensation, refund interest and income from the gig economy and digital assets. Taxpayers should gather Forms W-2, Wage and Tax Statement, Forms 1099-MISC, Miscellaneous Income, and other income documents before filing their return. Don't forget to notify the IRS of an address change and be sure to notify the Social Security Administration of any legal name changes as soon as possible. Be sure paychecks have enough tax withheld; time running out to make 2023 changes The Tax Withholding Estimator is a tool on IRS.gov that can help taxpayers determine the right amount of tax to have withheld from their paychecks. This tool can be helpful if an earlier tax return resulted in tax owed or a large refund. And for those that have life changes or events such as getting married or divorced or welcoming a child, or for those taking on a second job or managing self-employment income, it can help calculate estimated tax payments. To change federal tax withholding, taxpayers will need to update their withholding with their employer, either online or by submitting a new Form W-4, Employee's Withholding Allowance Certificate. But to make adjustments in time to affect 2023 tax withholding, taxpayers need to act quickly. Only a few pay periods remain in the year, and payroll systems need time to make withholding changes. Speed refunds with direct deposit Direct deposit is the fastest and safest way to get a tax refund. Taxpayers can make direct deposits to bank accounts, banking apps and reloadable debit cards, but will need to provide the routing and account information associated with the account. If the routing and account number cannot be located, taxpayers should contact their bank, financial institution or app provider. Taxpayers requesting a paper check are much more likely to report an issue getting their refund because of non-receipt, forgery, theft or checks returned for a bad address, compared to taxpayers using direct deposit. Need a bank account? Taxpayers without a bank account can learn how to open an account at an FDIC-Insured bank or with a credit union through the National Credit Union Locator tool. Veterans can use the Veterans Benefits Banking Program to find participating banks and credit unions that offer free accounts. Volunteer to help eligible taxpayers file their tax returns The IRS and its community partners are looking for people around the country interested in becoming IRS-certified volunteers. Join the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs and help eligible taxpayers with free tax preparation. Visit IRS.gov/volunteers to learn more and sign up. After signing up, volunteers will receive more information about attending a virtual orientation. Bookmark IRS.gov resources and online tools Everyone should make IRS.gov their first stop. Here they'll find online tools to help get them the information they need. The tools are easy-to-use and available 24 hours a day. Millions of people use them to help file and pay taxes, track their refunds, find information about their accounts and get answers to tax questions. Tips for choosing a tax pro Tax professionals play an essential role for taxpayers and the nation's tax system. There are many types of tax return preparers, including certified public accountants, enrolled agents, attorneys and many others who don't have a professional credential. Preparers should be skilled in tax preparation and accurately filing income tax returns. Taxpayers trust them with their most personal information. Most tax return preparers provide outstanding and professional tax service. However, choosing the wrong tax return preparer hurts taxpayers financially every year. Be sure to check tips for choosing a tax preparer and how to avoid unethical "ghost" return preparers. People can use the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

Private Letter Ruling Number: 202237014 Internal Revenue Service May 10, 2021 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Release Number: 202237014 Release Date: 9/16/2022 UIL CODE: 501.07-00 Date: May 10, 2021 Taxpayer ID number: Form Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: CERTIFIED MAIL - RETURN RECEIPT REQUESTED Dear ******: Why we are sending you this letter This is a final determination explaining why your organization doesn't qualify as an organization described in Internal Revenue Code (IRC) Section 501(c)(7) for the tax periods above. In the future, if you believe your organization qualifies for tax-exempt status and would like a determination letter from the Internal Revenue Service, you can request a determination by filing Form 1024, Application for Recognition of Exemption Under Section 501(a), or Form 1024-A, Application for Recognition of Exemption Under Section 501(c)(4) of the Internal Revenue Code, (as applicable) and paying the required user fee. Our adverse determination as to your exempt status was made for the following reasons: You have not established that you are organized and operated exclusively for an exempt purpose within the meaning of IRC Section 501(c)(7). You have not established that you are organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, substantially all the activities of which are for such purposes and no part of the net earnings of which inures to the benefit of any private shareholder. Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns and pay tax, where applicable. For further instructions, forms and information please visit www.irs.gov. What you must do if you disagree with this determination If you want to contest our final determination, you have 90 days from the date this determination letter was mailed to you to file a petition or complaint in one of the three federal courts listed below. How to file your action for declaratory judgment If you decide to contest this determination, you may file an action for declaratory judgment under the provisions of IRC Section 7428 in one of the following three venues: 1) United States Tax Court, 2) the United States Court of Federal Claims or 3) the United States District Court for the District of Columbia. Please contact the clerk of the appropriate court for rules and the appropriate forms for filing an action for declaratory judgment by referring to the enclosed Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. You may write to the courts at the following addresses: United States Tax Court 400 Second Street, NW Washington, DC 20217 U.S. Court of Federal Claims 717 Madison Place, NW Washington, DC 20439 U.S. District Court for the District of Columbia 333 Constitution Ave., N.W. Washington, DC 20001 Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory judgment under IRC Section 7428. Information about the IRS Taxpayer Advocate Service The IRS office whose phone number appears at the top of the notice can best address and access your tax information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Contact your local Taxpayer Advocate Office at: Internal Revenue Service Taxpayer Advocate Office Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights, go to taxpayeradvocate.irs.gov. Do not send your federal court pleading to the TAS address listed above. Use the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time to file an action for declaratory judgment. Where you can find more information Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for more comprehensive information. Find tax forms or publications by visiting www.irs.gov/forms or calling 800-TAX-FORM (800-829-3676). If you have questions, you can call the person shown at the top of this letter. If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best time to call, and a copy of this letter. Keep the original letter for your records. Sincerely, Sean E. O'Reilly Director, Exempt Organizations Examinations Enclosures: Publication 1 Publication 594 Publication 892 cc: Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Date: June 25, 2020 Taxpayer ID number: Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: Address: Manager's contact information: Name: ID number: Telephone: Response due date: July 27, 2020 Dear ******: Why you're receiving this letter We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that your organization doesn't qualify as an organization described in Internal Revenue Code (IRC) Section 501(c)(7). This letter is not a determination of your tax-exempt status under IRC Section 501(c)(7) for any period other than the tax periods above. If you agree If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. We'll issue a final adverse letter determining that you aren't an organization described in IRC Section 501(c)(7) for the periods above. If you disagree 1. Request a meeting or telephone conference with the manager shown at the top of this letter. 2. Send any information you want us to consider. 3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information. The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For your protest to be valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't apply now that we've issued this letter. 4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the IRS. If you're considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals. If we don't hear from you If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final adverse determination letter. In the future, if you believe your organization qualifies for tax-exempt status and would like a status determination letter from the IRS, you can request a determination by filing Form 1024, Application for Recognition of Exemption Under Section 501(a), and paying the required user fee. Contacting the Taxpayer Advocate Office is a taxpayer right The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778. For additional information You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person shown at the top of this letter. Sincerely, Sean E. O'Reilly Director, Exempt Organizations Examinations Enclosures: Form 886-A Form 6018 Publication 3498 and 892 ISSUE ****** (hereafter the "EO") qualify as a tax exempt organization described in Section 501(c)(7) of the Internal Revenue Code (hereafter the "Code")? FACTS ****** is a self-declared tax-exempt organization pursuant to Section 501(c)(7) of the Code. The EO has not been given a ruling or determination letter granting tax exempt status from the IRS, and it is not covered under a group exemption ruling. The EO was organized under ****** State Law in ****** and began filing a Form ******, Return of Organization Exempt from Income Tax, in ******. The EO's purpose, per its Bylaws, is "****** On ****** the examiner conducted an interview via teleconference with the******, ****** regarding the examination of the EO's Form ****** for the tax year ending ******. During the interview, ****** explained that the EO is supported by membership dues which are collected annually through ******. Once the membership dues are received, ****** ships the members a membership package which includes a ******, ******, ******, ******, membership card, and a ******. The EO maintains a website that provides the members with information on membership, ******, and content regarding ******. The members of the EO are located throughout the ****** and do not have the opportunity to physically commingle or socialize. There are no meetings or events that provide social interactions amongst the members. ****** is the ****** and the only board member. The EO does not have a vice president, secretary, or treasurer. The EO does not have any tangible or intangible property or any facility for its members to use or for the purpose of comingling or socializing. LAW Required purposes Section 501(c)(7) of the Code allows for federal income tax exemption of clubs organized for pleasure, recreation, and other non-profitable purposes if substantially all of a club's activities are for such purposes and no part of the net earnings from such activities inures to the benefit of any private shareholder. Revenue Ruling 58-589, C.B. 1958-2, 266, sets forth the criteria for exemption under Section 501(c)(7) of the Code and provides that a club must have a membership of individuals, personal contacts, and fellowship. A commingling of members must play a material part in the activities of the organization. A social or recreational club must provide the opportunity for personal contact between its members and the members must be bound together by a common objective of pleasure, recreation, and other nonprofitable purposes. See Rev.Rul. 74-30, 1974-1 C.B. 137, Rev.Rul. 69-632, 169-2 C.B. 126, and Rev.Rul. 70-32, 1970-1 C.B. 132. TAXPAYER'S POSITION The EO has not stated their position. GOVERNMENT'S POSITION Based on the examination, the EO does not qualify for exemption as a social club described in Section 501(c)(7) of the Code since the EO does not meet the operational requirement of providing members the opportunity to socialize or establish physical contact per Rev.Rul. 74-30, 1974-1 C.B. 137. Rather, the EO's activities consist of providing members with a membership package that does not include any means of physical or virtual socializing or comingling. The organization does not have any property or facility for its members to use. The EO does not have any meetings and there are no opportunities for their members to commingle or conduct social activities. CONCLUSION ****** does not qualify as a tax-exempt entity under Section 501(c)(7) of the Code because it does not provide its members the opportunity for personal contact or activities that bind the members together by a common objective of pleasure, recreation, and other nonprofitable purposes. Therefore, it is proposed that your self-declared exempt status under § 501(c)(7) of the Code be disqualified effective ******. Should this disqualification be upheld, Form ****** must be filed starting with tax periods ending ******. If you agree to this conclusion, please sign the attached Form ******. If you disagree please submit a statement of your position.

Private Letter Ruling Number: 202245006 Internal Revenue Service January 20, 2022 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Release Number 202245006 Release Date: 11/11/2022 UIL: 501.03-00 Date: January 20, 2022 Taxpayer ID number: Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: CERTIFIED MAIL - RETURN RECEIPT REQUESTED Why we are sending you this letter This is a final determination that you don't qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3), effective ******. Your determination letter dated ******, is revoked. Our adverse determination as to your exempt status was made for the following reasons: Organizations described in IRC Section 501(c)(3) and exempt under IRC Section 501(a) must be both organized and operated exclusively for exempt purposes. You have not demonstrated that you are organized exclusively for charitable, educational, or other exempt purposes within the meaning of IRC Section 501(c)(3). You have also failed to demonstrate that you are operated exclusively for charitable, educational, or other exempt purposes within the meaning of IRC Section 501(c)(3). Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns and pay tax, where applicable. For further instructions, forms and information please visit www.irs.gov. Contributions to your organization are no longer deductible under IRC Section 170. What you must do if you disagree with this determination If you want to contest our final determination, you have 90 days from the date this determination letter was mailed to you to file a petition or complaint in one of the three federal courts listed below. How to file your action for declaratory judgment If you decide to contest this determination, you may file an action for declaratory judgment under the provisions of IRC Section 7428 in one of the following three venues: 1) United States Tax Court, 2) the United States Court of Federal Claims or 3) the United States District Court for the District of Columbia. Please contact the clerk of the appropriate court for rules and the appropriate forms for filing an action for declaratory judgment by referring to the enclosed Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. You may write to the courts at the following addresses: United States Tax Court 400 Second Street, NW Washington, DC 20217 U.S. Court of Federal Claims 717 Madison Place, NW Washington, DC 20439 U.S. District Court for the District of Columbia 333 Constitution Ave., N.W. Washington, DC 20001 Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory judgment under IRC Section 7428. We'll notify the appropriate state officials (as permitted by law) of our determination that you aren't an organization described in IRC Section 501(c)(3). Information about the IRS Taxpayer Advocate Service The IRS office whose phone number appears at the top of the notice can best address and access your tax information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Contact your local Taxpayer Advocate Office at: Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights, go to taxpayeradvocate.irs.gov. Do not send your federal court pleading to the TAS address listed above. Use the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time to file an action for declaratory judgment. Where you can find more information Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for more comprehensive information. Find tax forms or publications by visiting www.irs.gov/forms or calling 800-TAX-FORM (800-829-3676). If you have questions, you can call the person shown at the top of this letter. If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best time to call, and a copy of this letter. Keep the original letter for your records. Sincerely, Sean E. O'Reilly Director, Exempt Organizations Examinations Enclosures: Publication 1 Publication 594 Publication 892 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Date: October 13, 2021 Taxpayer ID number: Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: Manager's contact information: Name: D number: Telephone: Response due date: CERTIFIED MAIL -- Return Receipt Requested Why you're receiving this letter We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to revoke your tax-exempt status as an organization described in Internal Revenue Code (IRC) Section 501(c)(3). If you agree If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. We'll issue a final adverse letter determining that you aren't an organization described in IRC Section 501(c)(3) for the periods above. After we issue the final adverse determination letter, we'll announce that your organization is no longer eligible to receive tax deductible contributions under IRC Section 170. If you disagree 1. Request a meeting or telephone conference with the manager shown at the top of this letter. 2. Send any information you want us to consider. 3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information. The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For your protest to be valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't apply now that we've issued this letter. 4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the IRS. If you're considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals. If we don't hear from you If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final adverse determination letter. Contacting the Taxpayer Advocate Office is a taxpayer right The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778. For additional information You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person shown at the top of this letter. Sincerely. for Sean E. O'Reilly Director, Exempt Organizations Examinations Enclosures: Form 886-A Form 6018 ISSUES Whether ****** (the Organization) qualifies for exemption from federal income tax under Internal Revenue Code (IRC) Section (Sec.) 501(c)(3). FACTS Formation The Organization was incorporated as a ****** not-for-profit corporation on ****** using the generic electronic Articles of Incorporation (****** provided by the state. Article III of the ****** stated the Organization's purpose as: "To provide education and business counseling support to not for profit organizations and other lawful activities." The generic ****** didn't include the requisite purpose and dissolution clauses or the requisite language restricting private inurement or political activity. Application for Recognition of Exemption On ****** a Form ******, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, was submitted for the Organization. The Form ****** listed ****** as the President/Director, ****** as the Secretary/Director, and ****** as the Treasurer/Director. The Form ****** listed ****** as the signer with the box checked stating, "I declare under penalty of perjury that I am authorized to sign this application on behalf of the above organization and that I have examined this application, and to the best of my knowledge, it is true, correct, and complete." Other pertinent information listed on the Form ****** is as follows: - The box to attest that the Organization had completed the Form ****** Eligibility Worksheet in the current instructions, was eligible to apply for exemption using Form ******, and had read and understood the requirements to be exempt under section 501(c)(3) was checked in the affirmative. - Part II, Organizational Structure, listed the following: 1. The date of incorporation was listed as ******. 2. The state of incorporation was listed as ******. 3. All boxes were checked in the affirmative, attesting that the Organization's organizing documents met the following requirements: - were sufficient as necessary for a corporation; - limited its purpose to one or more exempt purposes within section 501(c)(3); - didn't expressly empower it to engage, otherwise than an insubstantial part of its activities, in activities that in themselves are not in furtherance of one or more exempt purposes; and - contained the dissolution provision under section 501(c)(3) or relied on the operation of state law in the state in which it was formed for its dissolution provision. - Part III, Your Specific Activities, listed the following: 1. The box for "Education" was checked, attesting that the Organization was organized and operated exclusively for that purpose. 2. The box under item No. 3 was checked, attesting to, among other things, that the Organization had not conducted and would not conduct activities that - furthered non-exempt purposes more than insubstantially; and - were organized and operated for the primary purpose of conducting a trade or business that is not related to its exempt purpose. 3. Boxes 4 through 11 were all checked "No," indicating, among other things, that the Organization wouldn't pay compensation to any of its offices, directors, or trustees, and that it wouldn't have unrelated business gross income of more than $ ****** in a tax year. - Under Part IV, Foundation Classification, the box was checked to attest that the Organization normally receives more than one-third of its support from a combination of gifts, grants, contributions, membership fees, and gross receipts (from permitted sources) from activities related to its exempt functions and normally receives not more than one-third of its support from investment income and unrelated business taxable income. Exemption On ****** the Organization received recognition of exemption under IRC Sec. 501(c)(3) as a public charity, effective ******. Examination On ******, the Revenue Agent (Examiner) issued an initial contact letter, Information Document Request (IDR), and Publication 1 to inform the Organization of the examination and request an Initial Interview via conference call on ******. In response to the initial contact letter, the Organization's Chief Operations Officer, ****** (the COO), called to explain that the Organization's co-founders, ****** and ******, had just returned home from the hospital after suffering from COVID-19 and requested a delay of the Initial Interview. The Initial Interview was rescheduled and was finally held on ****** via conference call with the ******, the COO (the Organization's main point of contact), the Organization's CPA/POA, ****** (the POA), and the Organization's lawyer, ******, who is not currently a POA for the Organization. Initial Interview and Exit Interview The following information was provided during the Initial Interview and a follow-up call with the COO and the POA, which served as the Exit Interview: History For over ****** years, the ****** had careers in ****** as ****** and ******. During that time, due to their ******, they were often asked to emcee at fundraising events for various nonprofit organization. In doing so, they began to realize the need for education in many of these organizations regarding their general business operations, and, more specifically, with their fundraising events. As they began to use their experience as educators and in media to educate nonprofit organizations on how to improve their fundraising events and how to use the media to help their cause, they began to realize this was something they wanted to do on a more permanent basis. Timeline In ******, ****** gave up ****** job in ****** to work with nonprofits full time, purportedly as an unpaid volunteer, while ****** kept ****** job in ****** to support them. At some point prior to that time, ****** was asked to step in on an emergency basis as an ****** at a fundraising event. Since acting as an ****** in the state of ****** requires a license, ****** obtained ****** license in ******. In ******, ****** incorporated ****** (******). The ****** stated that they incorporated as a for-profit entity because they didn't know how to become a nonprofit at the time. They contend that ****** always operated as a nonprofit in the same manner that the Organization does. (Based on a review of ****** Forms ****** information and the Organization's Forms ******, the Examiner noted that the ****** entities appeared to be operated in the same manner in that ****** entities received the majority of their income from "****** Income," which is income derived from the "sale" of ****** packages prepared by ******s, and now by the Organization, for other tax-exempt entities to use as ****** items at their fundraising events.) In ******, ****** left ****** job and joined ****** full time. They also incorporated the Organization as a ****** nonprofit corporation that year (as previously noted and discussed above). They stated they were both able to work as unpaid volunteers using funds they'd saved up from ****** previous employment until those funds ran out in late ******. In late ******/early ******, ****** stated that ****** responded to an internet advertisement from a "******, CPA" in order to apply for tax-exempt status. According to ******, ****** never spoke to ******, but to a ****** who answered ****** call and requested some information. Apparently, ****** paid the required fee, because shortly thereafter, on ******, they received the final determination letter from the IRS granting the Organization tax exemption under IRC 501(c)(3) as a public charity with an effective date of ****** (as previously noted and discussed above). Application for Recognition of Exemption Upon hearing ****** explanation regarding how the Organization obtained its tax exemption, the Examiner asked if the ******, the COO, the POA, or the Organization's lawyer were aware that ****** office had applied for tax exemption on behalf of the Organization using a Form ****** application. They were not. As such, the Examiner explained that based on ****** review of ****** and the Organization's historical revenue and assets it appears the Organization wasn't eligible to apply for tax exemption using Form ******. ****** also explained that the Form ****** application listed the Organization's date of incorporation as ****** and its state of incorporation as ******. The ****** and the COO were genuinely surprised when they received this information. They had all stressed their displeasure with how the application transaction was conducted and the difficulty in obtaining any follow up information from "******, CPA" even before receiving this information from the Examiner. The COO explained that she had tried on numerous occasions to get a copy of the application form and any supporting documentation, but the CPA's office, which is still in business and advertising in the same manner, told ****** that they don't keep that information on file. As such, the ****** and the COO weren't aware that the Organization had applied for tax exemption using a Form ******. (Subsequent to the interview, the COO faxed over the information from the CPA's website, for "****** CPA PC", with comments and highlighted areas provided by ******.) Activities The Organization provides education and training for other tax-exempt organizations, most of which are 501(c)(3) tax-exempt organizations, and assists in handling silent and live ****** for those organizations. As the Organization grew and evolved it adjusted its training program and now has a training facility located within its new office building. It also created curriculum to help other tax-exempt organizations become more sustaining. Due to COVID-19 and the restrictions it's presented, however, the Organization has been conducting virtual and "hybrid" events and has also created a ****** to help with the training sessions and ******. The Organization began hiring employees in ****** or ****** and hired independent contractors prior to that time. In order to obtain a better understanding of the Organization's activities, during the follow-up call/Exit Interview with the COO and POA the Examiner asked what percentage of time the Organization devoted to education. The COO responded that it was around ** %. The POA explained, though, that income and expenses aren't bifurcated between education/training activities and other activities including ******. Since the Organization doesn't charge for any of the training and education it provides, it doesn't maintain a mechanism to accurately represent these services in its income and expenses. Instead, the Organization considers the revenue it receives from preparing and providing ****** as ****** items for fundraising events conducted by other tax-exempt organizations as Program Service Revenue related to the Organization's tax-exempt purpose in that the revenue is used to carry on its operations. The Organization's fee for providing these ****** as ****** items is $ ****** regardless of the cost or size of the trip. The COO noted, however, that this fee is only received by the Organization for ****** that are actually sold at ******. Further explanation regarding the sale of the ****** sold at ****** revealed that the Organization is responsible for completing the entire financial transaction with the individual who purchases the ******. In other words, the individual with the winning bid for ****** of the ****** being offered at ****** pays the full amount of that winning bid directly to the Organization. Then the Organization performs the necessary accounting to determine the hosting organization's portion of the proceeds and subsequently remits that amount to that organization. (The Examiner noted that this was demonstrated by the copies of the "****** Closeout Report" letter packages provided in response to the initial IDR. Each "****** Closeout Report" letter package contained an "****** Reconciliation Report" that snowed the basic accounting performed by the Organization -- the "Minimum" amount for each ****** sold, the "****** Price" for that ******, and the resultant "Gross Return" for that ******. As explained, the "Minimum" amount included the expected cost of the ****** and the $ ****** fee charged by the Organization. This amount was subtracted from the "******" the ****** sold for and the remaining "Gross Return" amount represented the portion of the proceeds being remitted to the hosting organization.) The POA offered the following example to further demonstrate how revenue is received and booked by the Organization: Suppose the winning bid for a ****** is $ ****** and the expected cost for the ****** is $ ******. Included in the "Minimum" for each trip as Cost of Goods Sold (COGS) is the $ ****** fee charged by the Organization. So for the example presented, $ ****** is booked to Cash, $ ****** to the "******" liability account (basically a reserve account used to pay for the ****** when the person winning the ****** decides to ******), the $ ****** designated as COGS is booked to revenue, and the remaining $ ****** is booked to an account, which appears to be called "****** Client Payment," that eventually goes back to the hosting organization that held the fundraising event as their portion of the proceeds from the sale. With regard to the ****** packages created for ******, the COO further explained that the Organization had ****** standard ****** it provided for ****** prior to ******. ****** stated that in ****** the Organization added a few more ******, which, presumable, brought the total to at least ****** standard ******. The COO further explained that all of the ****** are standard pre-planned ****** and don't change, but that the price for each trip changes from year to year. Since the ****** aren't paid for until taken, the Organization set up the "******" reserve account in its Other Liabilities to hold the cash for the expected cost of the trip until needed. When the ****** is taken, it's paid for out of the "******" account and any increase or decrease in price hits the Organization's Current Year General Ledger. Articles of Incorporation (******)/Bylaws Since the Organization applied for tax exemption using Form ******, no ****** or Bylaws were required or provided. Further, since the Form ****** application stated the Organization was incorporated in ******, the Examiner wasn't able to obtain the ****** or Bylaws on the ****** website since it isn't a jurisdiction that provides this service. As noted above, the Examiner had previously obtained the generic electronic ****** dated ****** from the ****** Department of State's website, but these ****** provided little information. As such, the Examiner requested the Organization's ****** and Bylaws in the initial IDR. In response, the Organization provided the "Amended and Restated Articles of Incorporation," signed and dated ******, which included the appropriate language, including purpose and dissolution clauses, for a 501(c)(3) entity. Also attached were the generic electronic ****** filed with the ****** Secretary of State on ******. When asked whether the ****** were the only ****** the Organization had, or has, the COO responded that the only ****** prior to the request from the Examiner were the generic electronic ******. The response also included Bylaws which are in order but weren't signed and dated. The certification date included in the Bylaws is listed as ******, but since the copy submitted wasn't signed and dated it's unclear if these Bylaws were in effect prior to submission to the Examiner. As previously stated, ****** was incorporated in ******. The entity is still listed as being active on the ****** Department of State's website and lists ****** and ****** as co-founders and ****** as the COO. When asked about the relationship between the ****** entities during the Initial Interview, the ****** explained this was how they conducted business prior to the Organization receiving its tax-exempt status. They, along with the COO, reiterated their belief that ****** operated as a nonprofit in exactly the same manner that the Organization now operates. When asked about tax returns filed for ******, ****** stated that the last tax return was filed for the ****** tax year and that it wasn't marked final, which was confirmed by the Organization's lawyer, ******. ****** explained that he began having major health issues around that time, which continue to the present date, and, as such, never got around to dissolving ******. During a previous discussion with the COO, she stated that the reason ****** was still in existence is that it holds certain licenses and couldn't be dissolved for that reason, but this wasn't mentioned in the Initial Interview discussion. In a letter from the POA to the COO, dated ******, he stated that ****** didn't have any operations in ****** and didn't file a tax return for that period. The ****** basically contend that became the new tax-exempt Organization. In fact, all in attendance at the Initial Interview seemed to agree that ****** became, or was rolled into, the Organization and that ****** ceased operations beginning in ****** with all previous operations being assumed by the Organization. This is further demonstrated by the fact that all of the Organization's employment tax filings, including Forms W-2 and 1099-MISC, were filed using ******s name and EIN, which appears to be how it was done in the years prior to incorporating the Organization. A review of ****** Form ****** for the tax year ended ****** revealed ordinary business income for the year of $ ****** on sales of $ ******. It listed the entity's business activity as "Conduct ******" and its product or service as "Fundraising ******." ****** was listed as the ** % shareholder on his Schedule ******, which listed the $ ****** as his "Ordinary business income (loss)" on Line 1. Also, in response to the initial IDR request for bank statements, the COO sent bank statements for separate accounts, ****** in the Organization's name and ****** in ******' name. In response to a question regarding the ****** bank accounts during the Initial Interview, she stated that all ****** accounts were being used by the Organization, which the ****** and the POA confirmed. (The Examiner noted during the examination of the Organization's bank statements that all ****** bank accounts were comingled with transfers to and from the separate accounts and that the amounts from all ****** bank accounts were used to determine cash assets for the Organization's Form ****** for the short tax year ended ******.) In response to the request for the Organization's ****** bank statements, which was included in the initial IDR for the tax year ended ******, the Organization provided ****** bank statements; the bank statements for the ****** bank accounts corresponding to the bank accounts provided in the request for the Organization's ****** bank accounts and ****** accounts in the name of ******. A review and analysis of the ****** bank accounts revealed that all ****** accounts were comingled with transfers to and from the separate accounts and that the amounts from all ****** bank accounts were used to determine cash assets for the Organization's Form ****** for the tax year ended ******. The Examiner reviewed the ****** Department of State website and discovered that ****** was formed by ****** as a ****** not-for-profit corporation on ****** and is still active, listing the same address as that of the Organization and currently listing ****** as President and Secretary, ****** as Co-President, and ****** as Vice President and Chief Operations Officer. Further review provided no indication that ****** applied for or received tax-exempt status from the IRS or that it had any activity prior to ******. The Examiner discussed the relationship between the Organization and ******, Inc. with the COO and issued IDR 3 requesting a detailed description and/or explanation of the entity ****** to include a discussion of the relationship between the Organization and the entity. The IDR also requested the same information, if any, for any entities other than the Organization, ******, ******, and ****** that might have been formed prior to or during the tax year ended ****** that are related in any way to the Organization. The response to the IDR indicated that there were no entities other than the ****** listed that are related to the Organization and provided the following explanation: The relationship of the ******, a ******-not-for-profit corporation (******) and the ******, a ****** not-for-profit corporation, (******) is as follows. ****** is a not-for-profit foundation which donates all funds it receives over its operating costs to other, service-providing not-for-profit organizations. The vast majority of the organizations receiving those donated funds are recognized by the IRS as 501c3 charitable organizations. ****** obtains the funds it donates to those service-providing 501c3 nonprofits by supplying ****** for those 501c3 nonprofits to sell at their typical annual fundraising dinners, black-tie galas, etc. ****** supplies those ****** through ******. ****** provides and manages ****** and ****** for ****** awards only. It does not sell or otherwise provide any ****** or ****** for anything other than nonprofit organizations. It does not deal in the for-profit travel business in any way. ****** Statutes ****** requires that those ****** be supplied by a state licensed travel agency. That requirement can be confirmed at the State of ****** Legislature website: ****** In order to provide the ****** in accordance with the law, ****** established and incorporated ****** and ****** has remained in good standing ever since. That can be confirmed by accessing the official State of ****** Department of State, ****** website at: ****** The validity ****** required licensure under license number ****** can be verified at the ****** website: ****** by entering the name "******". ****** is also licensed by and registered with ****** the ******. A copy of the****** website's confirmation of licensure is reproduced below. (Note that the image of the "****** website's confirmation of licensure" isn't included here, but the Examiner noted that license number ****** was issued on ******, expiring ******, to ****** as a "******" registered as a "******.") After reviewing the response, the Examiner asked the COO how the Organization met the requirement to be licensed as a ****** prior to ******. ****** provided the following response: ******, I would like to follow up with a further explanation for the establishment of ****** which was licensed in the State of ****** in ******. You received a written explanation from ******, our founder as to the licensing requirements for offering ******; however, ****** did not expound on the necessity and background for obtaining it. First and foremost, we ONLY book ****** of the ****** that are won at ****** of our nonprofit partners events. For a number of years, an individual worked with the ****** as the "******" ******. ****** is shown on all our payroll documents as a ****** contracted employee. (You can see this on the information previously provided to you.) ****** owned ****** own small ****** and held the necessary licenses and permits to book trips. The agreement was that she would book our ****** at a "net" rate, allowing ****** to obtain the lowest price possible for the ****** thereby giving us the ability to provide a higher level of funding support to our nonprofit organizations. The "net" price means ****** was not entitled to accept commissions (which in ****** lingo is considered "gross" price.) By about mid-year ******, we began to be suspicious of ****** (******) receiving unauthorized commissions on our trips, entering into a scheme to defraud our organization with another employee on our payroll (******) by diverting funds, purchasing gift cards with our company ******, and creating ****** email accounts to cover ****** tracks. ****** began to secure the necessary licenses and permits so that we could bring our bookings completely "in-house" and set up ****** as a result. ****** and ****** were terminated ******. It took us nearly a year (******) to "unwind" all the crafty things the ****** of them had done. We did bring the ****** in-house. We also filed a civil suit against both of them for the $ ****** + theft as well as their taking our intellectual property. (Training Materials). I also wanted to let you know, in case it was not clear previously, we do not book the ****** in advance. The ****** as you now know, fund our ability to educate and train the nonprofits we choose to support. They also fund the causes of those organizations, too. But because the winner of any of our ****** have full years to decide when they want to ******, (and each ****** includes ******, ****** and other experiences) the funds must be held until the booking occurs. We payout funds to the organizations we support within *** days of their event, so they have the necessary money they need for their cause. The additional funds are held by us to cover the cost for the ******. We have over ****** that have to be fulfilled (booked) and that number increases each week. As we indicated those funds are not ****** funds - they are the funds necessary to fulfill the obligation of the promised trip. The fluctuations in ****** alone can cause us to lose money over that period of years. During Covid we felt it was the right thing to do to allow another year extension for anyone unable to ****** or fulfill their ****** during the time allotted. We have no way of predicting rising costs in ****** but are beginning to see increases across the board in both ****** as a result of additional testing, cleaning protocols, etc., etc. Whereas the amount of our cash may seem extreme to someone from the outside looking in - we still sweat knowing that we will have enough to cover our basic costs and the promised ******. Please let me know if you have any questions about this. Tax-Exempt Purpose During a conference call on ****** the COO and the POA explained they were struggling with how to provide the necessary documentation to demonstrate the Organization was meeting its tax-exempt purpose of education. As they explained, since the documentation was so voluminous they weren't sure how best to provide the information. The Examiner discussed the options for obtaining the necessary documentation and prepared IDR 4 to request the agreed upon information. The following information was requested in the IDR as some of the items the Organization might provide to demonstrate its tax-exempt purpose of education: 1. A document for each year under examination, possibly in calendar format, listing all of the conferences, seminars and other training sessions the organization provided for the year. 2. A brief explanation and/or list of the day-to-day operations of the organization and its employees as it relates to training and educational activities. 3. A small sample, possibly ****** or ****** from each year, of the "Thank You" notes you mentioned that the organization received from attendees of training and educational conferences or seminars, preferably from different types of training conferences or seminars and on different dates. 4. Any other document, or documents, you have or can prepare to help demonstrate that the overwhelming majority of the organization's activities are related to training and education verses the amount of time spent in assisting with and/or performing auction activities. As noted in the IDR, this list of items was based on our discussion regarding the most efficient and reasonable manner for the COO to provide documentation to demonstrate the Organization's tax-exempt purpose and was not intended to be all inclusive. The COO was encouraged to provide any other documentation she thought could be helpful in demonstrating the Organization's tax-exempt purpose of education. In response to the IDR, the COO provided a description of the process the Organization undertook to evaluate tax-exempt organizations seeking training for and assistance with their fundraising events, which included a discussion of the "Qualifying Calls" conducted with each organization, a list of the ****** training modules that were used during the ****** and ****** tax years, and a sample of some of the "Thanks You" notes the Organization had received from past attendees of its training and educational events. ****** also provided summarized calendars for each year that listed the entities the Organization had provided training for and assisted with their fundraising events. As ****** explained, the calendars had to be summarized to meet the restrictions of faxing over the information and, as such, didn't list each training module separately. Instead, the training modules were notated as "Education Module" with a corresponding date, but actually represented several training modules that had been tailored for and delivered to each organization's key personnel as necessary based on the information ascertained in the "Qualifying Call." As noted in the response, the Qualifying Calls, which are led by one of the "****** Development Directors or officers," are a required part of the process and are used as a diagnostic process to determine if the organization seeking assistance qualifies to receive "sponsorship support" from the Organization. If the organization seeking assistance is deemed qualified, it's moved "forward for review by a member of the ****** Board of Directors for consideration as a sponsored organization." The response further stated "[T]he diagnostic process of the qualifying call is essential and provides significant information to the ****** Development Director and ultimately helps determine whether they will be selected for support and the investment of ****** in all the educational support materials needed to actualize a successful event." As indicated, not all organizations seeking assistance qualify for "sponsorship support" from the Organization, but, based on the response, all the organizations seeking assistance were provided "educational advice and often educational tools" by the ****** Development Director on the Qualifying Call. The response further provided: If an organization is approved for educational and event support a simple supply agreement is signed between both parties to secure the event date on the ****** calendar. Once signed, a call is set up to discuss training needs and a schedule for training and who on behalf of their organization will be participating in the training. Some training sessions must be truncated if an event is occurring within ****** days of ****** involvement. Other organizations are able to take advantage of some of the longer training programs that extend beyond the immediate needs of their fundraising goals. The Examiner reviewed the list of training modules and noted by the names provided, as well as the training module samples subsequently provided, that most of the training appeared to be related to how to improve an organization's fundraising events. Upon review of the summarized training calendars, the Examiner noted that each item listed indicated multiple dates for training/education for each separate organization leading up to that particular organization's fundraising event, but that no organization was listed as receiving training/education that didn't subsequently hold a fundraising event for which it received assistance from the Organization. Further, the Examiner noted that several organizations listed on the Organization's summarized training calendar were also listed on the Organization's summarized ****** training calendar. LAW Internal Revenue Code (IRC) IRC Sec. 501(c)(3) exempts from federal income tax entities organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which 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. IRC Sec. 513(c) provides that the term "trade or business" includes any activity which is carried on for the production of income from the sale of goods or the performance of services. For purposes of the preceding sentence, an activity does not lose identity as a trade or business merely because it is carried on within a larger aggregate of similar activities or within a larger complex of other endeavors which may, or may not, be related to the exempt purposes of the organization. Where an activity carried on for profit constitutes an unrelated trade or business, no part of such trade or business shall be excluded from such classification merely because it does not result in profit. Treasury Regulations (Treas.Reg.) Treas.Reg. Sec. 1.501(c)(3)-1(a)(1) states that in order to be exempt as an organization described in section 501(c)(3), an organization must be both organized and operated exclusively for one or more of the purposes specified in such section. If an organization fails to meet either the organizational test or the operational test, it is not exempt. Treas.Reg. Sec. 1.501(c)(3)-1(c)(1) states that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose. Treas.Reg. Sec. 1.501(c)(3)-1(d)(3)(i) provides that the term educational, as used in section 501(c)(3), relates to: (a) The instruction or training of the individual for the purpose of improving or developing his capabilities; or (b) The instruction of the public on subjects useful to the individual and beneficial to the community. Treas.Reg. Sec. 1.501(c)(3)-1(e)(1) states that an organization may meet the requirements of section 501(c)(3) although it operates a trade or business as a substantial part of its activities, if the operation of such trade or business is in furtherance of the organization's exempt purpose or purposes and if the organization is not organized or operated for the primary purpose of carrying on an unrelated trade or business, as defined in section 513. In determining the existence or nonexistence of such primary purpose, all the circumstances must be considered, including the size and extent of the trade or business and the size and extent of the activities which are in furtherance of one or more exempt purposes. An organization which is organized and operated for the primary purpose of carrying on an unrelated trade or business is not exempt under section 501(c)(3) even though it has certain religious purposes, its property is held in common, and its profits do not inure to the benefit of individual members of the organization. Treas.Reg. Sec. 1.513-1(b) states that the primary objective of adoption of the unrelated business income tax was to eliminate a source of unfair competition by placing the unrelated business activities of certain exempt organizations upon the same tax basis as the nonexempt business endeavors with which they compete. On the other hand, where an activity does not possess the characteristics of a trade or business within the meaning of section 162, such as when an organization sends out low-cost articles incidental to the solicitation of charitable contributions, the unrelated business income tax does not apply since the organization is not in competition with taxable organizations. However, in general, any activity of a section 511 organization which is carried on for the production of income and which otherwise possesses the characteristics required to constitute trade or business within the meaning of section 162 - and which, in addition, is not substantially related to the performance of exempt functions - presents sufficient likelihood of unfair competition to be within the policy of the tax. Accordingly, for purposes of section 513 the term trade or business has the same meaning it has in section 162, and generally includes any activity carried on for the production of income from the sale of goods or performance of services. Thus, the term trade or business in section 513 is not limited to integrated aggregates of assets, activities and good will which comprise businesses for the purposes of certain other provisions of the Internal Revenue Code. Activities of producing or distributing goods or performing services from which a particular amount of gross income is derived do not lose identity as trade or business merely because they are carried on within a larger aggregate of similar activities or within a larger complex of other endeavors which may or may not, be related to the exempt purposes of the organization. Thus, for example, the regular sale of pharmaceutical supplies to the general public by a hospital pharmacy does not lose identity as trade or business merely because the pharmacy also furnishes supplies to the hospital and patients of the hospital in accordance with its exempt purposes or in compliance with the terms of section 513(a)(2). Similarly, activities of soliciting, selling, and publishing commercial advertising do not lose identity as a trade or business even though the advertising is published in an exempt organization periodical which contains editorial matter related to the exempt purposes of the organization. However, where an activity carried on for the production of income constitutes an unrelated trade or business, no part of such trade or business shall be excluded from such classification merely because it does not result in profit. Treas.Reg. Sec. 1.513-7(a) provides that travel tour activities that constitute a trade or business, as defined in section 1.513-1(b), and that are not substantially related to the purposes for which exemption has been granted to the organization constitute an unrelated trade or business with respect to that organization. Whether travel tour activities conducted by an organization are substantially related to the organization's exempt purpose is determined by looking at all relevant facts and circumstances, including, but not limited to, how a travel tour is developed, promoted and operated. Section 513(c) and section 1.513-1(b) also apply to travel tour activity. Application of the rules of section 513(c) and section 1.513-1(b) may result in different treatment for individual tours within an organization's travel tour program. Treas.Reg. Sec. 1.513-7(b) states that the provisions of this section are illustrated by the following examples. In all of these examples, the travel tours are priced to produce a profit for the exempt organization. The examples are as follows: Example 1. O, a university alumni association, is exempt from federal income tax under section 501(a) as an educational organization described in section 501(c)(3). As part of its activities, O operates a travel tour program. The program is open to all current members of O and their guests. O works with travel agencies to schedule approximately 10 tours annually to various destinations around the world. Members of O pay $x to the organizing travel agency to participate in a tour. The travel agency pays O a per person fee for each participant. Although the literature advertising the tours encourages O's members to continue their lifelong learning by joining the tours, and a faculty member of O's related university frequently joins the tour as a guest of the alumni association, none of the tours includes any scheduled instruction or curriculum related to the destinations being visited. The travel tours made available to O's members do not contribute importantly to the accomplishment of O's educational purpose. Rather, O's program is designed to generate revenues for O by regularly offering its members travel services. Accordingly, O's tour program is an unrelated trade or business within the meaning of section 513(a). Example 2. N is an organization formed for the purpose of educating individuals about the geography and culture of the United States. It is exempt from federal income tax under section 501(a) as an educational and cultural organization described in section 501(c)(3). N engages in a number of activities to accomplish its purposes, including offering courses and publishing periodicals and books. As one of its activities, N conducts study tours to national parks and other locations within the United States. The study tours are conducted by teachers and other personnel certified by the Board of Education of the State of P. The tours are directed toward students enrolled in degree programs at educational institutions in P, as reflected in the promotional materials, but are open to all who agree to participate in the required study program. Each tours study program consists of instruction on subjects related to the location being visited on the tour. During the tour, ****** or ****** hours per day are devoted to organized study, preparation of reports, lectures, instruction and recitation by the students. Each tour group brings along a library of material related to the subject being studied on the tour. Examinations are given at the end of each tour and the P State Board of Education awards academic credit for tour participation. Because the tours offered by N include a substantial amount of required study, lectures, report preparation, examinations and qualify for academic credit, the tours are substantially related to N's educational purpose. Accordingly, N's tour program is not an unrelated trade or business within the meaning of section 513(a). Example 3. R is a section 501(c)(4) social welfare organization devoted to advocacy on a particular issue. On a regular basis throughout the year, R organizes travel tours for its members to ******. While in ******, the members follow a schedule according to which they spend substantially all of their time during normal business hours over several days attending meetings with legislators and government officials and receiving briefings on policy developments related to the issue that is R's focus. Members do have some time on their own in the evenings to engage in recreational or social activities of their own choosing. Bringing members to ****** to participate in advocacy on behalf of the organization and learn about developments relating to the organization's principal focus is substantially related to R's social welfare purpose. Therefore, R's operation of the travel tours does not constitute an unrelated trade or business within the meaning of section 513(a). Example 4. S is a membership organization formed to foster cultural unity and to educate X Americans about X, their country of origin. It is exempt from federal income tax under section 501(a) and is described in section 501(c)(3) as an educational and cultural organization. Membership in S is open to all Americans interested in the X heritage. As part of its activities, S sponsors a program of travel tours to X. The tours are divided into two categories. Category A tours are trips to X that are designed to immerse participants in the X history, culture and language. Substantially all of the daily itinerary includes scheduled instruction on the X language, history and cultural heritage, and visits to destinations selected because of their historical or cultural significance or because of instructional resources they offer. Category B tours are also trips to X, but rather than offering scheduled instruction, participants are given the option of taking guided tours of various X locations included in their itinerary. Other than the optional guided tours, Category B tours offer no instruction or curriculum. Destinations of principally recreational interest, rather than historical or cultural interest, are regularly included on Category B tour itineraries. Based on the facts and circumstances, sponsoring Category A tours is an activity substantially related to S's exempt purposes, and does not constitute an unrelated trade or business within the meaning of section 513(a). However, sponsoring Category B tours does not contribute importantly to S's accomplishment of its exempt purposes and, thus, constitutes an unrelated trade or business within the meaning of section 513(a). Example 5. T is a scientific organization engaged in environmental research. T is exempt from federal income tax under section 501(a) as an organization described in section 501(c)(3). T is engaged in a long term study of how agricultural pesticide and fertilizer use affects the populations of various bird species. T collects data at several bases located in an important agricultural region of country U. The minutes of a meeting of T's Board of Directors state that, after study, the Board has determined that non-scientists can reliably perform needed data collection in the field, under supervision of T's biologists. The Board minutes reflect that the Board approved offering one-week trips to T's bases in U, where participants will assist T's biologists in collecting data for the study. Tour participants collect data during the same hours as Ts biologists. Normally, data collection occurs during the early morning and evening hours, although the work schedule varies by season. Each base has rustic accommodations and few amenities, but country U is renowned for its beautiful scenery and abundant wildlife. T promotes the trips in its newsletter and on its Internet site and through various conservation organizations. The promotional materials describe the work schedule and emphasize the valuable contribution made by trip participants to T's research activities. Based on the facts and circumstances, sponsoring trips to T's bases in country U is an activity substantially related to T's exempt purpose, and, thus, does not constitute an unrelated trade or business within the meaning of section 513(a). Example 6. V is an educational organization devoted to the study of ancient history and cultures and is exempt from federal income tax under section 501(a) as an organization described in section 501(c)(3). In connection with its educational activities, V conducts archaeological expeditions around the world, including in the Y region of country Z. In cooperation with the ****** of Z, V recently presented an exhibit on ancient civilizations of the Y region of Z, including artifacts from the collection of the Z ******. V instituted a program of travel tours to V's archaeological sites located in the Y region. The tours were initially proposed by V staff members as a means of educating the public about ongoing field research conducted by V. V engaged a travel agency to handle logistics such as accommodations and transportation arrangements. In preparation for the tours, V developed educational materials relating to each archaeological site to be visited on the tour, describing in detail the layout of the site, the methods used by V's researchers in exploring the site, the discoveries made at the site, and their historical significance. V also arranged special guided tours of its exhibit on the Y region for individuals registered for the travel tours. ****** archaeologists from V (both of whom had participated in prior archaeological expeditions in the Y region) accompanied the tours. These experts led guided tours of each site and explained the significance of the sites to tour participants. At several of the sites, tour participants also met with a working team of archaeologists from V and the ****** of Z, who shared their experiences. V prepared promotional materials describing the educational nature of the tours, including the daily trips to V's archaeological sites and the educational background of the tour leaders, and providing a recommended reading list. The promotional materials do not refer to any particular recreational or sightseeing activities. Based on the facts and circumstances, sponsoring trips to the Y region is an activity substantially related to V's exempt purposes. The scheduled activities, which include tours of archaeological sites led by experts, are part of a coordinated educational program designed to educate tour participants about the ancient history of the Y region of Z and V's ongoing field research. Therefore, Vs tour program does not constitute an unrelated trade or business within the meaning of section 513(a). Example 7. W is an educational organization devoted to the study of the performing arts and is exempt from federal income tax under section 501(a) as an organization described in section 501(c)(3). In connection with its educational activities, W presents public performances of musical and theatrical works. Individuals become members of W by making an annual contribution to W of $ ******. Each year, W offers members an opportunity to travel as a group to one or more major cities in the United States or abroad. In each city, tour participants are provided tickets to attend a public performance of a play, concert or dance program each evening. W also arranges a sightseeing tour of each city and provides evening receptions for tour participants. W views its tour program as an important means to develop and strengthen bonds between W and its members, and to increase their financial and volunteer support of W. W engaged a travel agency to handle logistics such as accommodations and transportation arrangements. No educational materials are prepared by W or provided to tour participants in connection with the tours. Apart from attendance at the evening cultural events, the tours offer no scheduled instruction, organized study or group discussion. Although several members of W's administrative staff accompany each tour group, their role is to facilitate member interaction. The staff members have no special expertise in the performing arts and play no educational role in the tours. W prepared promotional materials describing the sightseeing opportunities on the tours and emphasizing the opportunity for members to socialize informally and interact with one another and with W staff members, while pursuing shared interests. Although W's tour program may foster goodwill among W members, it does not contribute importantly to W's educational purposes. W's tour program is primarily social and recreational in nature. The scheduled activities, which include sightseeing and attendance at various cultural events, are not part of a coordinated educational program. Therefore, W's tour program is an unrelated trade or business within the meaning of section 513(a). Revenue Rulings (Rev.Rul.) Rev.Rul. 77-366 held that an organization formed to conduct winter-time ocean cruises that included activities to further religious and educational purposes in addition to substantial social and recreational activities didn't qualify for exemption under section 501(c)(3). The Rev.Rul. further states that "the extensive amount of time, energy, and other resources which are regularly devoted to the conduct of social and recreational activities, together with the manner in which such activities are scheduled in relation to other cruise programs... demonstrate that the organization's conduct of such social and recreational activities serve substantial independent purposes of a noncharitable nature." Rev.Rul. 67-327 held that a nonprofit organization formed for the purpose of arranging group tours for students and faculty of a university to allow them to travel abroad and which has no other activities is not entitled to exemption from federal income tax under section 501(c)(3). As further stated in the Rev.Rul., "[T]he arranging of group tours is not in itself the instruction or training of the individual for the purpose of improving or developing his capabilities. In view of the organization's stated purpose and activities, it does not qualify for tax exemption under section 501(c)(3) of the Code." Court Cases In Better Business Bureau of Washington D.C., Inc. v. United States, 326 U.S. 279, 66 S.Ct. 112, 90 L.Ed. 67, 1945 C.B. 375 (1945), the Supreme Court held that the presence of a single non-exempt purpose, if substantial in nature, will destroy the exemption regardless of the number or importance of truly exempt purposes. In Greater United Navajo Development Enterprises v. Commissioner, 74 T.C. 69 (1980), the court held that the developer's most substantial activity and primary source of revenue was the leasing of oil well drilling equipment for profit; therefore, it wasn't operated exclusively for exempt purposes within the meaning of section 501(c). In short, the destination of the business income to a charitable purpose couldn't transform a non-exempt business into an exempt activity. In Make a Joyful Noise, Inc. v. Commissioner, T.C. Memo 1989-4, the court held that an organization formed to operate bingo games for other exempt organizations didn't qualify for exemption under section 501(c)(3) because the services were characteristic of a commercial business. GOVERNMENT'S POSITION It is the Government's position that the Organization does not qualify for exemption under IRC Sec. 501(c)(3). Under IRC Sec. 501(c)(3), an entity organized and operated exclusively for educational purposes may be exempted from federal income tax if no part of its net earnings inures to the benefit of any private shareholder or individual, if no substantial part of its activities are in carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and if it doesn't 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. Under Treas.Reg. Sec. 1.501(c)(3)-1(a), in order to be exempt as an organization described in section 501(c)(3), an organization must be both organized and operated exclusively for one or more of the purposes specified in such section. If an organization fails to meet either the organizational test or the operational test, it is not exempt. Under Treas.Reg. Sec.1.501(c)(3)-1(c), an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in IRC Sec. 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose. Treas.Reg. Sec. 1.501(c)(3)-1(d)(3)(i) defines the term educational, as used in section 501(c)(3), as either the instruction or training of the individual for the purpose of improving or developing his capabilities, or the instruction of the public on subjects useful to the individual and beneficial to the community. Under Treas.Reg. Sec. 1.501(c)(3)-1(e)(1), an organization may still meet the requirements of section 501(c)(3) even if it operates a trade or business as a substantial part of its activities, but only if the operation of such trade or business is in furtherance of the organization's exempt purpose or purposes and if the organization is not organized or operated for the primary purpose of carrying on an unrelated trade or business, as defined in section 513. The Treas.Reg. further provides that in determining the existence or nonexistence of such primary purpose, all the circumstances must be considered, including the size and extent of the trade or business and the size and extent of the activities which are in furtherance of one or more exempt purposes. IRC Sec. 513(c) defines the term "trade or business" as any activity which is carried on for the production of income from the sale of goods or the performance of services and further stipulates that an activity doesn't lose its identity as a trade or business merely because it's carried on within a larger aggregate of similar activities or within a larger complex of other endeavors which may, or may not, be related to the exempt purposes of the organization. The Code section further states that where an activity carried on for profit constitutes an unrelated trade or business, no part of such trade or business shall be excluded from such classification merely because it doesn't result in profit. Treas.Reg. Sec. 1.513-1(b) provides that the primary objective in adopting the unrelated business income tax was to eliminate a source of unfair competition by placing the unrelated business activities of certain exempt organizations upon the same tax basis as the nonexempt business endeavors with which they compete. Under Treas.Reg. Sec. 1.513-7(a), travel tour activities that constitute a trade or business, as defined in section 1.513-1(b), and that are not substantially related to the purposes for which exemption has been granted to the organization constitute an unrelated trade or business with respect to that organization. This Treas.Reg. further stipulates that whether travel tour activities conducted by an organization are substantially related to the organization's exempt purpose is determined by looking at all relevant facts and circumstances, including, but not limited to, how a travel tour is developed, promoted and operated. Treas.Reg. Sec. 1.513-7(b) lists seven examples, all of which are for travel tours priced to produce a profit for the exempt organization. Of the examples listed, those that are most pertinent to the current case are Examples 1, 4, and 7. Example 1 describes a university alumni association exempt from federal income tax under section 501(a) as an educational organization described in section 501(c)(3) that operates a travel tour program open to all current members and their guests as part of its activities. The organization works with various travel agencies to schedule the tours and the members make payment directly to the travel agency, which, in turn, pays the organization a per person fee for each participant. However, none of the tours include any scheduled instruction or curriculum related to the destinations being visited, nor do they contribute importantly to the accomplishment of the organization's educational purpose. Instead, the travel tour program is designed to generate revenues for the organization. As such, the travel tour program is an unrelated trade or business within the meaning of section 513(a). Example 4 describes a membership organization formed to foster cultural unity and to educate a certain ethnic group of Americans about their country of origin. The organization is exempt from federal income tax under section 501(a) and is described in section 501(c)(3) as an educational and cultural organization. As part of its activities, the organization sponsors a program of travel tours to the members' country of origin. Category A tours are trips to the country of origin that are designed to immerse participants in the country's history, culture and language. Substantially all of the daily itinerary includes scheduled instruction on the country's language, history and cultural heritage, and visits to destinations selected because of their historical or cultural significance or because of instructional resources they offer. Category B tours are also trips to the country, but rather than offering scheduled instruction, participants are given the option of taking guided tours of various locations included in their itinerary. Other than the optional guided tours, Category B tours offer no instruction or curriculum. Destinations of principally recreational interest, rather than historical or cultural interest, are regularly included on Category B tour itineraries. Based on the facts and circumstances, sponsoring Category A tours is an activity substantially related to the organization's exempt purposes and does not constitute an unrelated trade or business within the meaning of section 513(a). However, sponsoring Category B tours does not contribute importantly to the organization's accomplishment of its exempt purposes and, thus, constitutes an unrelated trade or business within the meaning of section 513(a). Example 7 describes an educational organization devoted to the study of the performing arts that is exempt from federal income tax under section 501(a) as an organization described in section 501(c)(3). In connection with its educational activities, the organization presents public performances of musical and theatrical works. Individuals become members by making an annual contribution to the organization. Each year, the organization offers members an opportunity to travel as a group to one or more major cities in the United States or abroad. In each city, tour participants are provided tickets to attend a public performance of a play, concert or dance program each evening. The organization also arranges a sightseeing tour of each city and provides evening receptions for tour participants and views its tour program as an important means to develop and strengthen bonds between the organization and its members, as well as a way to increase its financial and volunteer support of the organization. The organization engaged a travel agency to handle logistics such as accommodations and transportation arrangements. The organization doesn't prepare or provide educational materials to tour participants in connection with the tours, and, apart from attendance at the evening cultural events, the tours offer no scheduled instruction, organized study, or group discussion. Although several members of the organization's administrative staff accompany each tour group, their role is to facilitate member interaction. The staff members have no special expertise in the performing arts and play no educational role in the tours. The organization prepared promotional materials describing the sightseeing opportunities on the tours and emphasizing the opportunity for members to socialize informally and interact with one another and with its staff members, while pursuing shared interests. Although the organization's tour program may foster goodwill among its members, it doesn't contribute importantly to the organization's educational purposes. The tour program is primarily social and recreational in nature. The scheduled activities, which include sightseeing and attendance at various cultural events, are not part of a coordinated educational program. Therefore, the organization's tour program is an unrelated trade or business within the meaning of section 513(a). In Rev.Rul. 77-366 an organization formed to conduct winter-time ocean cruises that included activities to further religious and educational purposes in addition to substantial social and recreational activities didn't qualify for exemption under section 501(c)(3). The Rev.Rul. further states that "the extensive amount of time, energy, and other resources which are regularly devoted to the conduct of social and recreational activities, together with the manner in which such activities are scheduled in relation to other cruise programs... demonstrate that the organization's conduct of such social and recreational activities serve substantial independent purposes of a noncharitable nature." In Rev.Rul. 67-327 a nonprofit organization formed for the purpose of arranging group tours for students and faculty of a university to allow them to travel abroad and which has no other activities is not entitled to exemption from federal income tax under section 501(c)(3). As further stated in the Rev.Rul., "[T]he arranging of group tours is not in itself the instruction or training of the individual for the purpose of improving or developing ****** capabilities. In view of the organization's stated purpose and activities, it does not qualify for tax exemption under section 501(c)(3) of the Code." Based on the Supreme Court's decision in Better Business Bureau of Washington D.C., Inc. v. United States, 326 U.S. 279, 66 S.Ct. 112, 90 L.Ed. 67, 1945 C.B. 375 (1945), even the presence of a single non-exempt purpose, if substantial in nature, will destroy the exemption regardless of the number or importance of truly exempt purposes. Under the ruling of Greater United Navajo Development Enterprises v. Commissioner, 74 T.C. 69 (1980), the court decided the developers most substantial activity and primary source of revenue was the leasing of oil well drilling equipment for profit, and, therefore, it wasn't operated exclusively for exempt purposes within the meaning of section 501(c). Basically, the destination of the business income to a charitable purpose couldn't transform a non-exempt business into an exempt activity. The court decided in Make a Joyful Noise, Inc. v. Commissioner, T.C. Memo 1989-4 that an organization formed to operate bingo games for other exempt organizations didn't qualify for exemption under section 501(c)(3) because the services were characteristic of a commercial business. The examination of the Organization's activities, its books and records, and the facts and circumstances surrounding the case revealed that the Organization's activities related to the fundraising ****** held for other tax-exempt entities, along with the revenue generated from the sale of the ****** packages it provided for these events, neither accomplish nor support its tax-exempt purpose of education. Further, these activities represent more than an insubstantial part of the Organization's activities. As stated by the Organization's co-founders, ****** and ******, the Organization is carrying on the same activities that its predecessor, ******. (******), a for-profit entity, carried on. As stated in the "Facts" section above, ****** listed its business activity as "Conduct ******" and its product or service as "Fundraising ******" on its last filed Form ****** for the tax year ended ******. Although, the ****** contend that ****** always operated as a nonprofit in the same manner that the Organization does, the facts and circumstances don't support that argument. While it is true, as previously explained, that the ****** organizations appear to be operated in the same manner, ****** was operated for the purpose of earning revenue as a for-profit entity and not as a nonprofit organization. Since, as the examination concluded, the Organization is, in fact, operating in the same manner as ******, it's apparent that the Organization is performing an activity that doesn't further its tax-exempt purpose and is substantial in nature. Also, while the Examiner agrees that the Organization provides training and education to other tax-exempt organizations, and that IRC Sec. 501(c)(3) and the Regulations thereunder do not preclude an organization that receives tax exemption for the purpose of education under this Code section from being able to specify the type and purpose of the education it provides, the examination clearly determined that the training and education the Organization provides is merely a means to the end of providing for-profit fundraising for other tax-exempt entities. Although there isn't necessarily anything wrong with providing these products and services to other tax-exempt organizations and doing so provides a great service to increase the fundraising efforts of these other tax-exempt organizations, the manner in which the Organization provides these products and services, along with the way the Organization handles all of the related financial transactions, is indicative of a commercial enterprise and not a tax-exempt purpose. The Organization's activities related to preparing for and assisting with the fundraising events of other entities, for which the Organization provides luxury ****** packages as ****** items and charges a fee of $ ****** for each ****** package sold at ******, demonstrate characteristics of a commercial business that doesn't further the Organization's tax-exempt purpose of education. IRC Sec. 513(c) and Treas.Reg. Sections 1.513-1(b), 1.513-7(a), and 1.513-7(b), specifically Examples 1, 4 and 7, discuss what constitutes unrelated business income and how the unrelated business income relative to the Organization impacts the case. Generally, organizations exempt from federal income tax are allowed to engage in an insubstantial amount of unrelated business income transactions and maintain their tax-exempt status by paying the associated unrelated business income tax. In the instant case, however, as determined during the examination, the Organization derives all of its income from unrelated business income transactions, specifically the fee of ****** it charges for each of the ****** packages sold at ******. Further, Rev. Rulings 77-366 and 67-327 provide similar fact patterns with the Organization whereby the organizations described therein failed to qualify for exemption under section 501(c)(3). In Rev.Rul. 77-366 the failure was due to the substantial amount of social and recreational activities enjoyed by the tour group, while Rev.Rul. 67-327 clearly states that "[T]he arranging of group tours is not in itself the instruction or training of the individual for the purpose of improving or developing ****** capabilities" when referring to university student and faculty participants. Therefore, based on the pertinent law and the court cases cited, the facts and circumstances of the case demonstrate that the Organization does not qualify for exemption under IRC Sec. 501(c)(3). TAXPAYER'S POSITION The Examiner discussed ****** findings with the COO and explained that the Government will be recommending revocation of the Organization's exemption under Sec. 501(c)(3). As previously stated, the Organization's co-founders and COO contend that the Organization meets the requirements of a 501(c)(3) tax-exempt organization, so it's unclear if the Organization will accept the recommended revocation or choose to appeal. The Organization is being solicited for its position at this time. CONCLUSION The Organization does not qualify for exemption from federal income tax as it failed to substantiate that it is operated exclusively for one or more exempt purposes, resulting in its failure to comply with the requirements of IRC Sec. 501(c)(3) and Treas.Reg. Sec.1.501(c)(3)-1(c). It is the Government's position that the Organization failed to operate exclusively to accomplish one or more of such exempt purposes specified in IRC Sec. 501(c)(3). Because the Organization was not operated exclusively for the exempt purpose under IRC Sec. 501(c)(3), its federal tax-exempt status under such section should be revoked effective ******. The Organization is liable for filing Form ******, U.S. Corporation Income Tax Return, for the short tax year ended ****** and all years thereafter.

Private Letter Ruling Number: 202335011 Internal Revenue Service June 5, 2023 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202335011 Release Date: 9/1/2023 Index Number: 9100.00-00, 1400Z.02-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:ITA:B04 PLR-123659-22 Date: June 05, 2023 Dear ******: This letter responds to Taxpayer's request, dated Date 3. Specifically, Taxpayer requests relief, pursuant to sections 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations, for its Form 8996, Qualified Opportunity Fund, filed on Date 2, to be treated as timely for purposes of the election to: (1) self-certify Taxpayer as a qualified opportunity fund ("QOF") as defined in section 1400Z-2(d) of the Internal Revenue Code (Code); and (2) for Taxpayer to be treated as a QOF, effective as of the month Taxpayer was formed, as provided under section 1400Z-2 of the Code and section 1.1400Z2(d)-1(a) of the Income Tax Regulations. FACTS According to the facts and representations provided, Taxpayer was organized as a limited liability company on Date 1 under the laws of State and is classified as a partnership for U.S. federal income tax purposes. Taxpayer was organized for the purpose of being a qualified opportunity fund and to invest qualified opportunity zone property. In Month 2, Tax Director, an authorized representative of Taxpayer, engaged Accounting Firm to prepare and file Taxpayer's Year 1 federal income tax return, including any forms and elections to self-certify Taxpayer as a QOF. Tax Director communicated Taxpayer's intention to self-certify as a QOF and provided Accounting Firm with the necessary information to prepare Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns to extend the filing deadline for Taxpayer's Year 1 Form 1065, U.S. Return of Partnership Income. Due to an administrative error, Accounting Firm failed to prepare and file Taxpayer's Form 7004 for Year 1. As a result, Taxpayer's Form 8996, Qualified Opportunity Fund to self-certify as a QOF was not filed by the due date of its federal income tax return for Year 1. In Month 3, while preparing Taxpayer's Year 1 tax return, Accounting Firm realized that it failed to file Taxpayer's Form 7004 and notified Taxpayer. Taxpayer then asked Accounting Firm to prepare this request for a private letter ruling. Accounting Firm filed Taxpayer's Year 1 Form 1065 and accompanying Form 8996 to self-certify as a QOF on Date 2. LAW AND ANALYSIS Section 1400Z-2(e)(4)(A) directs the Secretary to prescribe regulations for rules for the certification of QOFs. Treas.Reg. section 1.1400Z2(d)-1(a)(2)(i) provides that the self-certification of a QOF must be timely-filed and effectuated annually in such form and manner as may be prescribed by the Commissioner of Internal Revenue in the IRS forms or instructions, or in publications or guidance published in the Internal Revenue Bulletin. To self-certify as a QOF, a taxpayer must file Form 8996, Qualified Opportunity Fund, with its tax return for the year to which the certification applies. The Form 8996 must be filed by the due date of the tax return (including extensions). The information provided indicates that Taxpayer did not file its Form 8996 by the due date of its income tax return (including extensions) as a result of Accounting Firm's administrative error in failing to file Taxpayer's Form 7004 to extend the due date of Taxpayer's U.S. federal income tax return for Year 1. Section 1.1400Z2(d)-1(a)(2)(i) sets forth the manner and timing for electing to be a QOF and electing to self-certify as a QOF. As such, these elections are regulatory elections, as defined in section 301.9100-1(b). Sections 301.9100-1 through 301.9100-3 provide the standards that the Commissioner will use to determine whether to grant an extension of time to make a regulatory election. Section 301.9100-3(a) provides that requests for extensions of time for regulatory elections (other than automatic extensions covered in section 301.9100-2) will be granted when the taxpayer provides evidence (including affidavits) to establish that the taxpayer acted reasonably and in good faith and the grant of relief will not prejudice the interests of the Government. Section 301.9100-3(b)(1) provides that a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer (i) requests relief before the failure to make the regulatory election is discovered by the Service; (ii) failed to make the election because of intervening events beyond the taxpayer's control; (iii) failed to make the election because, after exercising reasonable diligence, the taxpayer was unaware of the necessity for the election; (iv) reasonably relied on the written advice of the Service; or (v) reasonably relied on a qualified tax professional, and the professional failed to make, or advise the taxpayer to make, the election. In addition, section 301.9100-3(b)(3) provides that a taxpayer is deemed not to have acted reasonably and in good faith if the taxpayer-- (i) seeks to alter a return position for which an accuracy-related penalty has been or could be imposed under section 6662 at the time the taxpayer requests relief, and the new position requires or permits a regulatory election for which relief is requested; (ii) was fully informed in all material respects of the required election and related tax consequences but chose not to make the election; or (iii) uses hindsight in requesting relief. If specific facts have changed since the original deadline that make the election advantageous to a taxpayer, the Service will not ordinarily grant relief. Section 301.9100-3(c)(1) provides that the Commissioner will grant a reasonable extension of time to make the regulatory election only when the interests of the Government will not be prejudiced by the granting of relief. Section 301.9100-3(c)(1)(i) provides that the interests of the Government are prejudiced if granting relief would result in a taxpayer having a lower tax liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made (taking into account the time value of money). Section 301.9100-3(c)(1)(ii) provides that the interests of the government are ordinarily prejudiced if the taxable year in which the regulatory election should have been made or any taxable year that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under section 6501(a) before the taxpayer's receipt of a ruling granting relief under this section. CONCLUSION Based on the facts and information submitted in connection with this request, we conclude Taxpayer has acted reasonably and in good faith, and that the granting of relief would not prejudice the interests of the Government. Accordingly, Taxpayer has satisfied the requirements of the regulations for the granting of relief, and Taxpayer's Form 8996 filed on Date 2, shall be considered timely filed. Accordingly, Taxpayer has thereby made the election under section 1400Z-2 and section 1.1400Z2(d)-1(a)(2)(i) to self-certify as a QOF as of Month 1. Taxpayer should submit a copy of this letter ruling to the IRS Service Center where Taxpayer files its income tax returns, along with a cover letter requesting that the Service associate this ruling with Taxpayer's Year 1 federal income tax return. This ruling is based upon facts and representations submitted by Taxpayer and accompanied by penalty of perjury statements executed by the appropriate parties. This office has not verified any of the material submitted in support of the request for a ruling. However, as part of an examination process, the Service may verify the factual information, representations, and other data submitted. This ruling addresses the granting of Treas.Reg. section 301.9100-3 relief as applied to the election to self-certify Taxpayer as a QOF by filing Form 8996 for Year 1. Except as expressly provided herein, no opinion is either expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, we have no opinion, either express or implied, concerning whether any investments made into Taxpayer are qualifying investments as defined in Treas.Reg. section 1.1400Z2(a)-1(b)(34) or whether Taxpayer meets the requirements and structure under section 1400Z-2 and the regulations thereunder to be a QOF. In addition, we also express no opinion on whether any interest owned in any entity by Taxpayer qualifies as qualified opportunity zone property, as defined in section 1400Z-2(d)(2), or whether such entity would be treated as a qualified opportunity zone business, as defined in section 1400Z-2(d)(3). We express no opinion regarding the tax treatment of the instant transaction under the provisions of any other sections of the Code or regulations that may be applicable, or regarding the tax treatment of any conditions existing at the time of, or effects resulting from, the instant transaction. We express no opinion as to whether Taxpayer's Year 1 Federal income tax return is considered timely filed. A copy of this letter must be attached to any tax return to which it is relevant. Alternatively, taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter ruling. This ruling is directed only to the taxpayer requesting it. Code section 6110(k)(3) provides that it may not be used or cited as precedent. Enclosed is a copy of the letter ruling showing the deletions proposed to be made when it is disclosed under Code section 6110. Pursuant to the Form 2848, Power of Attorney and Declaration of Representation, on file, we are sending a copy of this letter to Taxpayer's authorized representatives. This letter is being issued electronically in accordance with Rev.Proc. 2022-1, 2022-1 I.R.B. 1. A paper copy will not be mailed to the taxpayer. Sincerely, Mon L. Lam Senior Counsel, Branch 4 Office of Chief Counsel (Income Tax & Accounting) Cc:

Private Letter Ruling Number: 202343015 Internal Revenue Service July 27, 2023 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202343015 Release Date: 10/27/2023 Index Number: 2501.00-00, 2601.00-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:04 PLR-102056-23 Date: July 27, 2023 Dear ******: This letter responds to your authorized representative's letter dated December 27, 2022, and subsequent correspondence, requesting rulings concerning the federal gift and generation-skipping transfer tax consequences of a court-approved settlement agreement. FACTS The facts submitted and representations made are as follows. Settlor died testate on Date 1, a date prior to September 25, 1985. Settlor's Will consists of the original instrument dated Date 2, a first codicil dated Date 3, a second codicil dated Date 4, a third codicil dated Date 5, and a fourth codicil dated Date 6 (collectively, Settlor's Will). At his death, Article Fourth of Settlor's Will created separate trusts for the benefit of his three children, Child 1, Child 2, and Child 3 (collectively, Children), their spouses, and their descendants: Trust A for the benefit of Child 1; Trust B for the benefit of Child 2; and Trust C for the benefit of Child 3. In addition to the trusts for the primary benefit of Children, Article Third of Settlor's Will created a marital trust for Settlor's wife, Spouse, which granted Spouse a testamentary general power of appointment over any trust property remaining in the marital trust at the time of her death. Spouse exercised her power of appointment under Article VII of Spouse's Will, dated Date 7, with a first codicil dated Date 8 (collectively, Spouse's Will). Pursuant to Spouse's Will, upon Spouse's death on Date 9, the remaining property of the marital trust was divided into three separate trusts for the benefit of Children, their spouses, and their descendants: Trust D for the benefit of Child 1; Trust E for the benefit of Child 2; and Trust F for the benefit of Child 3. Section 8 of Article VI of Spouse's Will provides that to the extent not specifically stated otherwise, all trusts created by Spouse's Will would be governed by the provisions of Settlor's Will. Child 3 died on Date 10, leaving no surviving spouse or descendants. Upon Child 3's death, the property held in Trust C was divided into two equal shares and each share distributed to Trust A and Trust B. Similarly, the property of Trust F was divided into two equal shares and each share distributed to Trust D and Trust E. On Date 11, pursuant to a State Court order, Trust D for the primary benefit of Child 1 was divided into six separate trusts for the benefit of Child 1's six children and their respective descendants, as well as Child 1 and Child 1's spouse: Trust D1 for the benefit of Grandchild 1; Trust D2 for the benefit of Grandchild 2; Trust D3 for the benefit of Grandchild 3; Trust D4 for the benefit of Grandchild 4; Trust D5 for the benefit of Grandchild 5; and Trust D6 for the benefit of Grandchild 6. On Date 12, pursuant to a State Court order, Trust A for the primary benefit of Child 1 was divided into six separate trusts for the benefit of Child 1's six children and their respective descendants, as well as Child 1 and Child 1's spouse: Trust A1 for the benefit of Grandchild 1; Trust A2 for the benefit of Grandchild 2; Trust A3 for the benefit of Grandchild 3; Trust A4 for the benefit of Grandchild 4; Trust A5 for the benefit of Grandchild 5; and Trust A6 for the benefit of Grandchild 6. In a companion State Court order on the same date, Trust B for the primary benefit of Child 2 and Trust E for the primary benefit of Child 2, were divided into two separate trusts for the benefit of Child 2's two children, Grandchild 7 and Grandchild 8 and their respective descendants, as well as Child 2 and Child 2's spouse. The divided trusts were subsequently merged into two trusts known as Trust BE1 for the benefit of Grandchild 7 and Trust BE2 for the benefit of Grandchild 8. Article Fourth of Settlor's Will governs the distribution provisions of Trust A, Trust B, Trust D, Trust E, Trusts A1 through A6, Trusts D1 through D6, and Trusts BE1 and BE2 (collectively, the Family Trusts). Until a trust for whom a grandchild is named terminates, the Trustee has discretion to make distributions of income from such trust to the grandchild. The portion of income not distributed may be accumulated or may be distributed to the grandchild's spouse, the surviving parents of the grandchild, and the descendants of grandchild, in whole or in part, in the discretion of the Trustee. Trustee has unfettered discretion to make distributions of principal to a grandchild for whom a trust is established. A trust for whom a grandchild is named shall terminate upon the later to occur of the death of the grandchild or the grandchild's spouse, if any, and at such time the share for such grandchild shall be distributed to the descendants of such grandchild, per stirpes. Section 4 of Article Fifth of Settlor's Will provides that any trust established pursuant to Settlor's Will shall cease and terminate upon the expiration of twenty-one years after the death of the last surviving of Settlor's descendants who were in being at the time of Settlor's death, and if at the expiration of this period any property is still held in trust, such property shall immediately be distributed to and among the persons receiving or entitled to have the benefit of the income therefrom in equal shares. Pursuant to Article Fourth of Settlor's Will, if a grandchild of Settlor dies without a living spouse or descendants, the trust principal of such grandchild's trust will be distributed to Settlor's other descendants. Section 3 of Article Fifth of Settlor's Will provides as follows: The words "children" and "descendants" shall be deemed to refer to issue of the body born in lawful wedlock and to children adopted by legal proceedings of public record and to their children and descendants so defined. Of Settlor's eight grandchildren, Grandchild 5 and Grandchild 7 currently have biological descendants. Grandchild 2 adopted Adoptee 1 and Grandchild 3 adopted Adoptee 2 and Adoptee 3. Each adopted individual was adopted after reaching the age of majority (collectively, Adult Adoptees). The Trustee of each Family Trust is Trust Company. On Date 13, Trustee filed a petition with the State Court requesting an order construing the terms "children" and "descendants" under Section 3 of Article Fifth of Settlor's Will to determine whether individuals adopted as adults qualify as "descendants" under Settlor's Will. A controversy exists among the descendants of Settlor as to whether the Adult Adoptees are "descendants" of Settlor under Settlor's Will. If the Adult Adoptees are considered descendants of Settlor, the number of potential remainder beneficiaries increases and affects the per stirpital shares at the time of final distribution of the Family Trusts. On Date 14, State Court issued a memorandum opinion and order for evidentiary hearing to determine whether Grandchild 2 and/or Grandchild 3 functioned as parents to the Adult Adoptees before they reached age 18, based on State Law 1, which was enacted after Settlor's date of death. Grandchild 1, joined by other family members, filed a motion for summary judgment and amendment of the Date 14 order in objection to the State Court's application of State Law 1 rather than the law at the time of Settlor's date of death. State Law 1 provides that in construing a dispositive provis ion of a transferor who is not the adoptive parent, an adoptee is not considered the child of the adoptive parent unless the adoptive parent functioned as a parent of the adoptee before the adoptee reached 18 years of age. State Law 2 provides that the effective date of the title of State Law 1 is Date 15, a date that is after Settlor's date of death, and applies to any proceedings in court then pending or thereafter commenced regardless of the time of the death of decedent except to the extent that in the opinion of the court the former procedure should be made applicable in a particular case in the interest of justice or because of infeasibility of application of the procedure of the title. Over several years, the interested parties engaged in substantial litigation and other proceedings in preparation for trial, including filing cross motions for summary judgment, extensive discovery, and voluntary mediation. Based on the issue before State Court, the outcome of the litigation would be that the Adult Adoptees are determined to be or not be descendants of Settlor. After several attempts to resolve the contested issues, on Date 16 the parties entered into a Settlement Agreement resolving the litigation regarding the status of the Adult Adoptees as descendants of Settlor. The Settlement Agreement was revised on Date 17 (Revised Settlement Agreement). Both the Settlement Agreement and the Revised Settlement Agreement were approved by order of State Court and contingent upon receipt of a favorable private letter ruling from the Internal Revenue Service (IRS). All parties to the agreement were represented by legal counsel. The Revised Settlement Agreement provides for certain payments to and for the benefit of Adoptee 1. It provides that the amount of $a will be distributed outright and in cash to Adoptee 1 from Trusts A1 through A6 and Trusts D1 through D6 (each trust distributing $b). In addition, the amount of $a will be distributed outright and in cash to Grandchild 2 (adoptive parent of Adoptee 1) from Trust A2 and Trust D2 (each trust for the primary benefit of Grandchild 2 and each distributing $c), whereupon Grandchild 2, as settlor and transferor, will immediately establish (and contribute the $a in cash to) a special needs trust for the primary benefit of Adoptee 1. Finally, the amount of $d will be distributed outright and in cash to Adoptee 1 from Trust A2 and Trust D2 (each trust distributing $e). Upon receipt of cash in the amounts of $a and $d, Adoptee 1, as settlor and transferor, will immediately establish (and contribute the sum of $a and $d in cash to) a revocable trust for his primary benefit. The Revised Settlement Agreement provides for certain payments to and for the benefit of Adoptee 2 and Adoptee 3. It provides that the amount of $a will be distributed outright and in cash to each of Adoptee 2 and Adoptee 3 from Trusts A1 through A6 and Trusts D1 through D6 (each distributing $b). Further, after the cash distributions to Adoptee 2 and Adoptee 3 are made, the assets then making up Trust A3 and Trust D3 (collectively referred to going forward as the Grandchild 3 Settlement Trusts), each for the primary benefit of Grandchild 3 (adoptive parent of Adoptee 2 and Adoptee 3), will be kept separate and segregated from the assets of any other Family Trust. No further additions shall be made to the Grandchild 3 Settlement Trusts from any other Family Trust by reason of the death of any beneficiary of those other Family Trusts. Except for certain excluded property related to agricultural land and business interests in entities whose primary holding is agricultural land (Excluded Property), Adoptee 2 and Adoptee 3 are the named beneficiaries of the Grandchild 3 Settlement Trusts. Upon the death of the survivor of Child 1's spouse, Grandchild 3, and Grandchild 3's spouse, the remaining assets of the Grandchild 3 Settlement Trusts, less the Excluded Property, will be distributed in equal shares to Adoptee 2 and Adoptee 3, or all to the survivor. Adoptee 2 and Adoptee 3 have a testamentary power to appoint such individual's respective share of the Grandchild 3 Settlement Trusts to or for the benefit of such individual's spouse or descendants. If Adoptee 2 or Adoptee 3 does not exercise such power of appointment but has living descendants, the Trustee shall distribute such individual's respective share to such descendants, per stirpes. Any asset appointed under the terms of the Revised Settlement Agreement (including the assets of the Grandchild 3 Settlement Trusts) may not extend the time for vesting of that asset beyond a period of twenty-one years after the death of the last surviving descendant of Settlor who was in being on Date 18. Any remaining assets of the Grandchild 3 Settlement Trusts not otherwise distributed (including the Excluded Property) shall be distributed according to Settlor's Will without regard to any surviving Adult Adoptees or their descendants. Under the Revised Settlement Agreement, all claims by the Adult Adoptees with regard to Settlor and Settlor's Spouse's trusts and estates are resolved and, after obtaining a favorable private letter ruling from the IRS, Trustee will agree to dismiss the petition filed in State Court with prejudice and all parties will agree that State Court can enter the dismissal without awarding costs to any party and without further notice. It is represented that each Family Trust was irrevocable on September 25, 1985, and that there were no additions, constructive or actual, after that date. You have requested the following rulings: 1. The Revised Settlement Agreement, the State Court order approving the Revised Settlement Agreement, and the implementation and distributions made in accordance with the Revised Settlement Agreement, will not cause any of the Family Trusts to lose their status as trusts exempt from GST tax for purposes of chapter 13 of the Code. 2. Entering into the Revised Settlement Agreement will not cause any party to the Settlement Agreement to be treated as having made a gift to any other individual for purposes of chapter 12 of the Code. LAW AND ANALYSIS Ruling 1 Section 2601 imposes a tax on every generation-skipping transfer (GST), which is defined under § 2611 as a taxable distribution, a taxable termination, and a direct skip. Under § 1433(a) of the Tax Reform Act of 1986 (Act) and § 26.2601-1(a) of the Generation-Skipping Transfer Tax Regulations, the GST tax is generally applicable to GSTs made after October 22, 1986. However, under § 1433(b)(2)(A) of the Act and § 26.2601-1(b)(1)(i), the tax does not apply to a transfer under a trust (as defined in § 2652(b)) that was irrevocable on September 25, 1985, but only to the extent that such transfer is not made out of corpus added to the trust after September 25, 1985 (or out of income attributable to corpus so added). Section 26.2601-1(b)(4) provides rules for determining when a modification, judicial construction, settlement agreement, or trustee action with respect to a trust that is exempt from the GST tax under § 26.2601-1(b)(1), (b)(2), or (b)(3) will not cause the trust to lose its exempt status. The rules of § 26.2601-1(b)(4) are applicable only for purposes of determining whether an exempt trust retains its exempt status for GST tax purposes. They do not apply in determining, for example, whether the transaction results in a gift subject to gift tax, or may cause the trust to be included in the gross estate of a beneficiary, or may result in the realization of capital gain for purposes of § 1001. Section 26.2601-1(b)(4)(i)(B) provides that a court-approved settlement of a bona fide issue regarding the administration of a trust or the construction of terms of the governing instrument will not cause an exempt trust to be subject to the provisions of chapter 13, if -- ( 1 ) The settlement is the product of arm's length negotiations; and ( 2 ) The settlement is within the range of reasonable outcomes under the governing instrument and applicable state law addressing the issues resolved by the settlement. A settlement that results in a compromise between the positions of the litigating parties and reflects the parties' assessments of the relative strengths of their positions is a settlement that is within the range of reasonable outcomes. In the present case, each Family Trust was created and was irrevocable before September 25, 1985. It is represented that no additions, constructive or actual, have been made to any of the Family Trusts on or after September 25, 1985. Consequently, each Family Trust is currently exempt from GST tax. In this case, each party was represented by separate legal counsel. The prospective beneficiaries had distinct and adverse economic and administrative interests. The parties were involved in protracted and substantial litigation to resolve the issue of the identity of Settlor's descendants under Settlor's Will. Settlement negotiations were carried out over several years until the Revised Settlement Agreement was reached. The parties have obtained State Court approval of the Revised Settlement Agreement pending the issuance of this private letter ruling. We conclude that the Revised Settlement Agreement constitutes a settlement of a bona fide issue regarding construction of the terms "children" and "descendants" in Settlor's Will. We further conclude that the terms of the Revised Settlement Agreement are the product of arm's length negotiations. Finally, we conclude that the Revised Settlement Agreement represents a compromise between the positions of the interested parties and reflects the assessments of the relative strengths of their positions; therefore, we additionally conclude that the Revised Settlement Agreement is within the range of reasonable outcomes under the governing instrument and the applicable State law addressing the issues resolved by the Revised Settlement Agreement. Accordingly, based on the facts submitted and the representations made, we rule that the Revised Settlement Agreement, the State Court order approving the Revised Settlement Agreement, and the implementation and distributions made in accordance with the Revised Settlement Agreement, will not cause any of the Family Trusts to lose their status as trusts exempt from GST tax for purposes of chapter 13 of the Code. Ruling 2 Section 2501 imposes a tax for each calendar year on the transfer of property by gift during such calendar year by any individual. Section 2511 provides that the tax imposed by § 2501 applies whether the transfer is in trust or otherwise, direct or indirect, and whether the property transferred is real or personal, tangible or intangible. Section 25.2511-1(c)(1) of the Gift Tax Regulations provides that any transaction in which an interest in property is gratuitously passed or conferred upon another, regardless of the means or device employed, constitutes a gift subject to tax. Whether an agreement settling a dispute is effective for gift tax purposes depends on whether the settlement is based on a valid enforceable claim asserted by the parties and, to the extent feasible, produces an economically fair result. See Ahmanson Foundation v. United States, 674 F.2d 761, 774-775 (9 th Cir. 1981). Thus, state law must be examined to ascertain the legitimacy of each party's claim. A settlement that fairly reflects the relative merits and economic values of the various claims asserted by the parties and reaches a settlement that is within a range of reasonable settlements will not result in a transfer for gift tax purposes. As discussed above, the Revised Settlement Agreement represents the resolution of a bona fide controversy among the family members as beneficiaries of Settlor's Will. All interested parties have been represented in the proceedings that culminated in the Court Order approving the Revised Settlement Agreement. Further, based on the facts as presented, the terms of the Revised Settlement Agreement are the product of arm's length negotiations among all the interested parties. We conclude that the Revis ed Settlement Agreement reflects the rights of the parties under the applicable law of State that would be applied by the highest court of State. Accordingly, based on the facts submitted and representations made, we rule that implementation of the Revised Settlement Agreement will not result in a gift under § 2501 by the parties to the Revised Settlement Agreement. Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative. The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. Sincerely, Karlene M. Lesho Karlene M. Lesho Chief, Branch 4 Office of Associate Chief Counsel (Passthroughs and Special Industries) Enclosures Copy for § 6110 purposes cc:

Private Letter Ruling Number: 202319019 Internal Revenue Service January 4, 2023 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Release Number: 202319019 Release Date: 5/12/2023 UIL Code: 501.07-00 Date: January 4, 2023 Taxpayer ID number (last 4 digits): Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: Last day to file petition with United States Tax Court: April 4, 2023 CERTIFIED MAIL - Return Receipt Requested Dear ******: Why we are sending you this letter This is a final determination that you don't qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(7), for the tax periods above. Your determination letter dated ******, is revoked. Our adverse determination as to your exempt status was made for the following reasons: Organizations described under IRC Section 501(c)(7) are organized and operated for the pleasure and recreation of their members or other non-profitable purposes and no part of the net earnings inure to the benefit of any private shareholder. You have not established that you are organized and operated exclusively for an exempt purpose within the meaning of IRC Section 501(c)(7). Your primary activity is managing and maintaining property. As a result, you are not operating substantially for pleasure, recreation, or other non-profitable purposes. Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns and pay tax, where applicable. For further instructions, forms and information please visit IRS.gov. What you must do if you disagree with this determination If you want to contest our final determination, you have 90 days from the date this determination letter was mailed to you to file a petition or complaint in one of the three federal courts listed below. How to file your action for declaratory judgment If you decide to contest this determination, you can file an action for declaratory judgment under the provisions of Section 7428 of the Code in either: - The United States Tax Court, - The United States Court of Federal Claims, or - The United States District Court for the District of Columbia You must file a petition or complaint in one of these three courts within 90 days from the date we mailed this determination letter to you. You can download a finable petition or complaint form and get information about filing at each respective court's website listed below or by contacting the Office of the Clerk of the Court at one of the addresses below. Be sure to include a copy of this letter and any attachments and the applicable filing fee with the petition or complaint. You can eFile your completed U.S. Tax Court petition by following the instructions and user guides available on the Tax Court website at ustaxcourt.gov/dawson.html. You will need to register for a DAWSON account to do so. You may also file your petition at the address below: United States Tax Court 400 Second Street, NW Washington, DC 20217 ustaxcourt.gov The websites of the U.S. Court of Federal Claims and the U.S. District Court for the District of Columbia contain instructions about how to file your completed complaint electronically. You may also file your complaint at one of the addresses below: US Court of Federal Claims 717 Madison Place, NW Washington, DC 20439 uscfc.uscourts.gov US District Court for the District of Columbia 333 Constitution Avenue, NW Washington, DC 20001 dcd.uscourts.gov Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory judgment under IRC Section 7428. Information about the IRS Taxpayer Advocate Service The IRS office whose phone number appears at the top of the notice can best address and access your tax information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Contact your local Taxpayer Advocate Office at: Internal Revenue Service Taxpayer Advocate Office Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights, go to taxpayeradvocate.IRS.gov. Do not send your federal court pleading to the TAS address listed above. Use the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time to file an action for declaratory judgment. Where you can find more information Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for more comprehensive information. Find tax forms or publications by visiting IRS.gov/forms or calling 800-TAX-FORM (800-829-3676). If you have questions, you can call the person shown at the top of this letter. If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best time to call, and a copy of this letter. You may fax your documents to the fax number shown above, using either a fax machine or online fax service. Protect yourself when sending digital data by understanding the fax service's privacy and security policies. Keep the original letter for your records. Sincerely, Lynn Brinkley Acting Director, Exempt Organizations Examinations Enclosures: Publication 1 Publication 594 Publication 892 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Date: August 26, 2022 Taxpayer ID number: Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: Address: Manager's contact information: Name: ID number: Telephone: Response due date: September 26,2022 Dear ******: Why you're receiving this letter We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to revoke your tax-exempt status as an organization described in Internal Revenue Code (IRC) Section 501(c)(7) If you agree If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. We'll issue a final adverse letter determining that you aren't an organization described in IRC Section 501(c)(7) for the periods above. After we issue the final adverse determination letter, we'll announce that your organization is no longer eligible to receive tax deductible contributions under IRC Section 170. If you disagree 1. Request a meeting or telephone conference with the manager shown at the top of this letter. 2. Send any information you want us to consider. 3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information. The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For your protest to be valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't apply now that we've issued this letter. 4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the IRS. If you're considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals. If we don't hear from you If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final adverse determination letter. Contacting the Taxpayer Advocate Office is a taxpayer right The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpaveradvocate.irs.gov or call 877-777-4778. For additional information You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person shown at the top of this letter. Sincerely, Jerry Marrow Jerry Morrow for Lynn A. Brinkley Acting Director Exempt Organizations Examinations Enclosures: Form 886-A Form 6018 ISSUE: Whether ****** ("******") meets the requirements for exemption under Internal Revenue Code ("IRC") section 501(c)(7). FACTS: ****** was originally incorporated on ******. The articles of incorporation were last amended with the State of ******. Per the Articles, its purpose is to "promote, foster and encourage in its members, the study, understanding, and appreciation of the history of ******, the background and ******." On ******, ****** was issued a determination letter from the Internal Revenue Service ("IRS") advising it that it had been recognized as exempt under IRC Section 501(c)(7). The letter included a caveat that states "IRC 501(c)(7) exempts from Federal Income tax "clubs organized for pleasure, recreation, and other nonprofitable purposes and no part of the net earnings of which inures to the benefit of any private shareholder. You are advised that matters relating to the cottages have to be in compliance with the above mentioned requirements." ****** owns and manages the property at ******, including a Lodge and several cottages that are "owned" by certain members for their exclusive use. Property taxes are paid through ****** who charges cottage members for their portion of taxes. ****** rents the lodge out to members and non-members for activities such as weddings, meetings, etc. In partnership with the ****** and the ******, ****** sponsors a seasonal series of breakfasts open to the public and for the purpose of subsidizing the upkeep of the Lodge. ****** meetings and activities are limited to planning and implementing property maintenance and property management and does not regularly include many of the cottage owners, many of whom live significant distances from ******. LAW: IRC section 501(c)(7) exempts from federal income tax clubs organized for pleasure, recreation, and other non-profitable purposes. Prior to its amendment in 1976, IRC section 501(c)(7) required that social clubs be operated exclusively for pleasure, recreation and other nonprofitable purposes. Public Law 94-568 amended the "exclusive" provision to read "substantially' in order to allow an IRC section 501(c)(7) organization to receive up to 35% of its gross receipts, including investment income, from sources outside its membership without losing its tax exempt status. P. L. 94-568 amended IRC 501(c)(7) to provide for exemption from federal income tax of clubs organized for pleasure, recreation, and other nonprofitable purposes, substantially all of the activities of which are for such purposes and no part of the net earnings of which inures to the benefit of any private shareholder. Various revenue rulings have defined the requirement for fellowship, commingling, and the sharing of interest and goals including: - Rev.Rul. 69-635,1969-2 C.B. 126 - Rev.Rul. 74-30,1974-1 C.B. 137 - Rev.Rul. 70-32,1970-1 C.B. 132 - Rev.Rul. 55-716,1955-2 C.B. 263 (Face-to-Face interaction) - Rev.Rul. 67-139,1967-1 C.B. 129 (Mineral Society) - Rev.Rul. 66-179,1966-1 C.B. 139 (Garden Club) Therefore, an IRC section 501(c)(7) organization must satisfy the following statutory requirements: - A club which may consist of a membership of individuals, the existence of personal contact, commingling, fellowship among members, sharing of active interests amongst members, and sharing goals by members justifying the existence of the organization; - Organized for pleasure, recreation, and other nonprofitable purposes; - Substantially all of the activities of which are for such purposes; - No part of the net earnings inure to the benefit of a private shareholder; and GOVERNMENT'S POSITION: Based upon the facts found during the examination, ****** is not operated exclusively for exempt purposes within the scope of IRC Section 501(c)(7) and as a result, it does not qualify for exemption under IRC Section 501(c)(7). ****** primary activity is managing and maintaining the ****** property and not fellowship and commingling related to the stated purpose of the organization and fails the social component of IRC section 501(c)(7). Cottages are not open to all member's use and enjoyment, and in fact, membership in ****** appears to be a pro forma requirement for members to maintain their cottage ownership. This fails the prohibition on inurement in IRC section 501(c)(7). We are proposing revocation of your tax-exempt status for tax years ended ****** through ****** and effective ******. For the years referenced, ****** has a Form 1120 filing requirement and is responsible for filing the Form 1120 with the Service. TAXPAYER'S POSITION: Taxpayer has verbally indicated that they understand the IRS position and accept the Service's findings CONCLUSION: ****** ("******") does not meet the requirements for exemption under Internal Revenue Code ("IRC") section 501(c)(7) and therefore, the Service recommends revocation.

Private Letter Ruling Number: 202205019 Internal Revenue Service November 8, 2021 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202205019 Release Date: 2/4/2022 Index Number: 2632.00-00, 9100.00-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:04 PLR-113648-21 Date: November 08, 2021 Dear *******: This letter responds to your personal representative's letter of June 9, 2021, and subsequent correspondence, requesting an extension of time under § 2642(g) of the Internal Revenue Code (Code) and § 301.9100-1 and § 301.9100-3 of the Procedure and Administration Regulations to make an election under § 2632(c)(5) to elect out of the generation-skipping transfer (GST) exemption automatic allocation rules with respect to certain transfers to trusts. The facts and representations submitted are as follows: On Date 1, a date after December 31, 2000, in Year 1, Taxpayer established Trust 1, an irrevocable trust, for the benefit of Spouse and issue. Trust 1 has GST tax potential. Also on Date 1 in Year 1, Taxpayer established Trust 2, an irrevocable grantor retained annuity trust (GRAT). Taxpayer funded Trust 2 with x shares of Company (Year 1 Transfer). Under the terms of Trust 2, Taxpayer's retained interest terminated and the remaining principal of Trust 2 passed to Trust 1 on Date 2 in Year 2. Thus, for GST tax purposes, the estate tax inclusion period (ETIP) with respect to the transfer to Trust 2 closed on Date 2 in Year 2. Trust 1 was created for the primary benefit of Spouse and the issue of Taxpayer. Taxpayer did not intend to allocate GST exemption to Trust 1; rather Taxpayer intended to use his GST exemption on future transfers. Taxpayer retained Accountant from Firm to prepare Taxpayer's Year 1 Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, in order to report gifts made in Year 1, including the Year 1 Transfer to Trust 2. Accountant did not advise Taxpayer of the rules under § 2632(c) regarding the automatic allocation of GST exemption and the ability to elect out of the automatic allocation of GST exemption by making an election under § 2632(c)(5) on a Form 709. Taxpayer's gift of Company stock to Trust 2 was reported on Schedule A, Part 3 (Indirect Skips) of Taxpayer's Year 1 Form 709 with no indication to elect out of the automatic allocation of GST exemption. As a result, Taxpayer failed to make an election on a Year 2 (or earlier) Form 709 to opt out of the automatic allocation of GST exemption to the Year 1 Transfer to Trust 2. GST exemption was automatically allocated to Taxpayer's Year 1 Transfer to Trust 2 at the expiration of the ETIP on Date 2 in Year 2 as a result of the failure to make an election under § 2632(c)(5) to opt out of the automatic allocation of GST exemption for the transfer. Taxpayer requests an extension of time under § 2642(g) and § 301.9100-3 to elect under § 2632(c)(5) to have the automatic allocation of GST exemption not apply to Taxpayer's Year 1 Transfer to Trust 2. Law and Analysis Section 2601 imposes a tax on every GST. A GST is defined under § 2611(a) as, (1) a taxable distribution, (2) a taxable termination, and (3) a direct skip. Section 2602 provides that the amount of GST tax imposed by § 2601 is the taxable amount multiplied by the applicable rate. Section 2641(a) defines the applicable rate as the product of the maximum federal estate tax rate and the inclusion ratio with respect to the transfer. Section 2631(a) provides that, for purposes of determining the inclusion ratio, every individual shall be allowed a GST exemption amount which may be allocated by such individual (or his executor) to any property with respect to which such individual is the transferor. Section 2631(b) provides that any allocation under § 2631(a), once made, shall be irrevocable. Section 2632(c)(1) provides that if any individual makes an "indirect skip" during such individual's lifetime, any unused portion of such individual's GST exemption is treated as allocated to the property transferred to the extent necessary to make the inclusion ratio for such property zero. If the amount of the indirect skip exceeds such unused portion, the entire unused portion shall be allocated to the property transferred. Under § 2632(c)(3)(A), the term "indirect skip" means any transfer of property (other than a direct skip) subject to the tax imposed by chapter 12 made to a GST trust, as defined in § 2632(c)(3)(B). Under § 2632(c)(3)(B), a GST trust is a trust that could have GST potential with respect to the transferor unless the trust satisfies any of the exceptions listed in § 2632(c)(3)(B)(i)-(vi). Section 2632(c)(4) provides that for purposes of § 2632(c), an indirect skip to which § 2642(f) applies shall be deemed to have been made only at the close of the ETIP. The fair market value of such transfer shall be the fair market value of the trust property at the close of the ETIP. Section 2632(c)(5)(A)(i) provides, in part, that an individual may elect to have § 2632(c) not apply to an indirect skip or any or all transfers made by such individual to a particular trust. Section 2632(c)(5)(B)(ii) provides that the election may be made on a timely filed gift tax return for the calendar year for which the election is to become effective. Section 2642(b)(1)(A) provides that, except as provided in § 2642(f), if the allocation of the GST exemption to any transfers of property is made on a gift tax return filed on or before the date prescribed by § 6075(b) for such transfer or is deemed to be made under § 2632(b)(1) or (c)(1), the value of such property for purposes of § 2642(a) shall be its value as finally determined for purposes of chapter 12 (within the meaning of § 2001(f)(2)), or, in the case of an allocation deemed to have been made at the close of an ETIP, its value at the time of the close of the ETIP. Section 2642(f)(1) provides that, for purposes of determining the inclusion ratio, if an individual makes an inter vivos transfer of property, and the value of such property would be includible in the gross estate of such individual under chapter 11 if such individual died immediately after making such transfer (other than by reason of § 2035), any allocation of GST exemption to such property shall not be made before the close of the ETIP (and the value of such property shall be determined under § 2642(f)(2)). If such transfer is a direct skip, such skip shall be treated as occurring as of the close of the ETIP. Section 2642(f)(3) provides that, for purposes of § 2642(f), the term "estate tax inclusion period" means any period after the transfer described in § 2642(f)(1) during which the value of the property involved in such transfer would be includible in the gross estate of the transferor under chapter 11 if he died. Section 26.2632-1(b)(2)(i) of the Generation-Skipping Transfer Tax Regulations provides that, in the case of an indirect skip made after December 31, 2000, to which § 2642(f) (relating to transfers subject to the estate tax inclusion period or ETIP) does not apply, the transferor's unused GST exemption is automatically allocated to the property transferred (but not in excess of the fair market value of the property on the date of the transfer). This automatic allocation is effective whether or not a Form 709 is filed reporting the transfer, and is effective as of the date of the transfer to which it relates. An automatic allocation is irrevocable after the due date of the Form 709 for the calendar year in which the transfer is made. Section 26.2632-1(b)(2)(ii) provides that, except as otherwise provided, the transferor may prevent the automatic allocation of GST exemption with regard to an indirect skip by making an election as provided in § 26.2632-1(b)(2)(iii). Section 26.2632-1(b)(2)(iii)(A) provides, in relevant part, that a transferor may prevent (1) the automatic allocation of GST exemption (elect out) with respect to one or more (or all) current-year transfers made by the transferor to a specified trust or trusts, and (2) the automatic allocation of GST exemption (elect out) with respect to all future transfers made by the transferor to a specified trust or trusts. Section 26.2632-1(b)(2)(iii)(B) provides that to elect out, the transferor must attach an election out statement to a Form 709 filed within the time period provided in § 26.2632-1(b)(2)(iii)(C). In general, the election out statement must identify the trust, and specifically must provide that the transferor is electing out of the automatic allocation of GST exemption with respect to the described transfer or transfers. Under § 26.2632-1(b)(2)(iii)(C), to elect out, the Form 709 with the attached election out statement must be filed on or before the due date for timely filing the Form 709 for the calendar year in which (1) for a transfer subject to § 2642(f), the ETIP closes or (2) for all other elections out, the first transfer to be covered by the election out was made. Section 26.2632-1(c)(1)(i) provides that a direct skip or an indirect skip that is subject to an ETIP is deemed to have been made only at the close of the ETIP. The transferor may prevent the automatic allocation of GST exemption to a direct skip or an indirect skip by electing out of the automatic allocation rules at any time prior to the due date of the Form 709 for the calendar year in which the close of the ETIP occurs (whether or not any transfer was made in the calendar year for which the Form 709 was filed, and whether or not a Form 709 otherwise would be required to be filed for that year). Section 2642(g)(1)(A) provides, generally, that the Secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of GST exemption described in § 2642(b)(1) or (2), and an election under § 2632(b)(3) or (c)(5). Section 2642(g)(1)(B) provides that in determining whether to grant relief under § 2642(g)(1), the Secretary shall take into account all relevant circumstances, including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the Secretary deems relevant. For purposes of determining whether to grant relief, the time for making the allocation (or election) shall be treated as if not expressly prescribed by statute. Notice 2001-50, 2001-2 C.B. 189, provides that, under § 2642(g)(1)(B), the time for allocating the GST exemption to lifetime transfers and transfers at death, the time for electing out of the automatic allocation rules, and the time for electing to treat any trust as a GST trust are to be treated as if not expressly prescribed by statute. The Notice further provides that taxpayers may seek an extension of time to make an allocation described in § 2642(b)(1) or (b)(2) or an election described in § 2632(b)(3) or (c)(5) under the provisions of § 301.9100-3. Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make an election. Under § 301.9100-1(c), the Commissioner has discretion to grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Code except subtitles E, G, H, and I. Section 301.9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation (and not expressly provided by statute). In accordance with § 2642(g)(1)(B) and Notice 2001-50, a taxpayer may seek an extension of time to make an allocation described in § 2642(b)(1) or (b)(2) or an election described in § 2632(b)(3) or (c)(5) under the provisions of § 301.9100-3. Section 301.9100-3(a) provides, in part, that requests for relief subject to § 301.9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government. Section 301.9100-3(b)(1)(v) provides that a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer reasonably relied on a qualified tax professional, including a tax professional employed by the taxpayer, and the tax professional failed to make, or advise the taxpayer to make, the election. Based on the facts submitted and representations made, we conclude that the requirements of § 301.9100-3 have been satisfied. Accordingly, Taxpayer is granted an extension of time of 120 days from the date of this letter to make an election under § 2632(c)(5) that the automatic allocation rules not apply to Taxpayer's Year 1 Transfer to Trust 2. The election should be filed with the Internal Revenue Service Center, at the following address: Department of the Treasury, Internal Revenue Service Center, Kansas City, MO 64999. A copy of this letter should be attached to the Form 709. Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. The rulings contained in this letter are based upon information and representations submitted by the taxpayers and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representatives. Sincerely, Associate Chief Counsel (Passthroughs & Special Industries) Leslie H. Finlow By: _____________________ Leslie H. Finlow Senior Technician Reviewer, Branch 4 Office of the Associate Chief Counsel (Passthroughs & Special Industries) Enclosure Copy for § 6110 purposes cc:

Notice 2023-13 Internal Revenue Service 2023-6 I.R.B. 454 Service Industry Tip Compliance Agreement Program Notice 2023-13 PURPOSE This notice sets forth a proposed revenue procedure that establishes the Service Industry Tip Compliance Agreement (SITCA) program, a voluntary tip reporting program offered by the Internal Revenue Service (IRS) to employers in the service industry (excluding gaming industry employers) 1. The SITCA program is intended to replace the Tip Reporting Alternative Commitment (TRAC) program and the Tip Rate Determination Agreement (TRDA) program, as set forth in Announcement 2001-1, 2001-2 I.R.B. 277, as well as the Employer-Designed Tip Reporting Program (EmTRAC), as set forth in Notice 2001-1, 2001-2 I.R.B. 261. The proposed revenue procedure provides that upon termination of the TRAC, TRDA, and EmTRAC programs, employers with existing tip reporting agreements in those programs will have a transition period during which their existing agreements will remain effective. The transition period will end upon the earliest of (1) the employer's acceptance into the SITCA program, (2) an IRS determination that the employer is noncompliant with the terms of the TRAC, TRDA, or EmTRAC agreement, or (3) the end of the first calendar year beginning after the date on which the final revenue procedure is published in the Internal Revenue Bulletin. The IRS is issuing this guidance in proposed form to provide an opportunity for public feedback. 1 The Gaming Industry Tip Compliance Agreement (GITCA) program is available to employers in the gaming industry. Gaming industry employers are not eligible to participate in the SITCA program, even if they are not currently enrolled in the GITCA program. The GITCA program was established by Rev. Proc. 2003-35, 2003-20 I.R.B. 919, and was updated by Rev. Proc. 2007-32, 2007-22 I.R.B. 1322, with a new model GITCA. Revenue Procedure 2020-47, 2020-48 I.R.B. 1121 modified Rev. Proc. 2007-32 to provide that the term of a GITCA is generally five years. BACKGROUND The Tip Reporting Determination/Education Program (TRD/EP) was designed by the IRS to enhance tax compliance through educational programs and the use of voluntary tip reporting agreements instead of traditional audit techniques. Since 1995, TRD/EP has offered employers in the food and beverage industry the opportunity to enter into TRAC agreements. In general, TRAC agreements require employers to establish an educational program for tipped employees and tip reporting procedures for cash and charged tips. In 1996, TRD/EP began offering employers in certain other industries the opportunity to enter into TRAC agreements and introduced the TRDA program, which is available to employers in a variety of tipping industries and requires the determination of minimum tip rates based on occupational categories that employees must use to report tips to the employer. The decision to enter into a TRAC or TRDA agreement has always been voluntary. In 2000, the IRS simultaneously published a series of announcements requesting comments on proposed new and revised TRAC agreements and TRDAs for various industries. 2 Under the TRDA program, the IRS and the employer work together to arrive at a tip rate for the employer's various occupational categories, and employees enter into Tipped Employee Participation Agreements (TEPAs) with their employers to report tips at the agreed upon tip rates. The TRAC agreements do not require employers or employees to report at agreed upon tip rates but do require employers to (1) implement educational programs for their employees for reporting tips and (2) establish a procedure under which a written or electronic statement is prepared and processed on a regular basis (no less frequently than monthly), reflecting all tips for services attributable to each employee. At the same time, the IRS also published Notice 2000-21, 2000-1 C.B. 967, which set forth the requirements employers in the food and beverage industry must meet to participate in the new EmTRAC program. The EmTRAC program is similar to the TRAC program but was created for employers that wish to submit their own educational programs and tip reporting procedures for approval by the IRS. Notice 2000-21 requested comments on all aspects of the EmTRAC program, and specifically on what types of electronic tip reporting systems would meet the educational requirement. 2 Announcement 2000-19, 2000-19 I.R.B. 973 (proposed TRAC for use in industries other than food and beverage, cosmetology and barber); Announcement 2000-20, 2000-19 I.R.B. 977 (proposed TRDA for use in industries other than food and beverage and gaming); Announcement 2000-21, 2000-19 I.R.B. 983 (proposed TRAC for cosmetology and barber industries); Announcement 2000-22, 2000-19 I.R.B. 987 (proposed revision for TRAC for use in food and beverage industry); and Announcement 2000-23, 2000-19 I.R.B. 992 (proposed revision for TRDA for use in food and beverage industry). Those proposed TRAC, TRDA, and EmTRAC programs all provided a commitment that the IRS would provide protection to the employer from section 3121(q) liability 3 by not initiating any tip examinations of the employer for periods in which the agreements were in effect. The proposed TRDAs included a similar commitment for employers with respect to their employees who reported tips at or above the tip rate established for the employee. TRAC agreements did not specifically provide tip examination protection for employees, but the IRS stated, in the series of announcements concerning the TRAC program that were published in 2000, that employees who properly report tips would not be subject to challenge by the IRS. Notice 2000-21 was silent as to the tip examination impact on employees in the EmTRAC program. 3 Protection from section 3121(q) liability ensures that the employer will not be liable for the employer share of FICA taxes on any tips that employees fail to report to the employer and will not be subject to notice and demand from the IRS for the employer share of FICA taxes on the unreported tips. In 2001, the IRS issued Announcement 2001-1, which finalized pro forma TRAC and TRDA agreements described in Announcements 2000-19 through 2000-23, and provided that the final versions would be available on http://www.irs.gov. In addition, the IRS issued Notice 2001-1 to supersede Notice 2000-21 and make several non-substantive clarifying changes to the EmTRAC program. The TRAC, TRDA, and EmTRAC programs have continued largely unchanged and have had substantial participation. The TRAC agreements and TRDAs currently available on the Small Business/Self-Employed (SB/SE) Division webpage on http://www.irs.gov are similar to the agreements proposed in the series of announcements from 2000 and 2001. The EmTRAC program currently available on the SB/SE Division webpage on www.irs.gov is the program described in Notice 2001-1. In Announcement 2012-25, 2012-26 I.R.B. 1054, the IRS stated that it planned to request public comment on possible changes to the existing TRD/EP. On April 29, 2013, the IRS issued Announcement 2013-29, 2013-18 I.R.B. 1024, soliciting comments on all aspects of TRACs and TRDAs and on ways to improve tip reporting compliance and utilize technological advancements to decrease the administrative burden on taxpayers and the IRS. In addition to providing a list of items to be updated, the IRS specifically solicited comments on the processes, computational methodologies, agreement language, and suggested topics for Frequently Asked Questions. Comments received by the IRS encouraged the use of a point-of-sale system (POS System) to track and improve tip reporting for both directly and indirectly tipped employees and requested that any changes to tip reporting compliance programs provide added flexibility to cover a wide range of business models. Commenters requested that any new agreement include incentives for employee participation and clarify when the IRS may retroactively revoke a tip reporting agreement. Some commenters suggested that minimum tip rates should be established, and that consolidated reporting be available for all establishments located in the same facility. Commenters also requested that any new agreement be released with an additional opportunity for public comment. SUMMARY OF PROPOSED REVENUE PROCEDURE The proposed revenue procedure describes the SITCA program, which is a new voluntary tip reporting program being proposed by the National Tip Reporting Compliance Program (NTRCP) to replace the TRAC, TRDA, and EmTRAC programs. NTRCP is part of the Small Business/Self-Employed Division of the IRS. Under the proposed revenue procedure, the SITCA program is available to employers in all service industries (excluding gaming industry employers) with at least one business location, called a "Covered Establishment," operating under the Employer Identification Number (EIN) of the employer. The SITCA program is designed to take advantage of advancements in POS Systems and time and attendance systems, as well as the use of electronic payment settlement methods to improve tip reporting compliance and to decrease taxpayer and IRS administrative burden. After acceptance into the SITCA program, an employer must annually establish that each of its participating Covered Establishments satisfies a minimum reported tips requirement with respect to its tipped employees in order for that Covered Establishment to continue with the program into the next year. If the employer cannot establish that a Covered Establishment meets this requirement with respect to a calendar year, the Covered Establishment will be removed from the program retroactively to the beginning of that calendar year and will not be eligible to participate in the SITCA program again for the immediately succeeding three completed calendar years or as otherwise provided by the IRS. The proposed revenue procedure sets forth requirements for an employer to participate in the SITCA program. An eligible employer, called a "Service Industry Employer," is generally an employer (excluding gaming industry employers) that (1) is in a service industry where employees perform services for customers and those services generate sales that are subject to tipping by customers, (2) has at least one Covered Establishment, and (3) is compliant with Federal, state, and local tax laws for the three completed calendar years immediately preceding the date the application is filed (the preceding period), plus the calendar quarters following the end of the preceding period through any calendar quarters during which the Service Industry Employer's application is pending for some or all of the quarter. 4 After acceptance, Service Industry Employers must continue to satisfy these requirements to continue participating in the SITCA program. 4 For a SITCA applicant that was not operating as an employer in a service industry for all or part of the preceding period of three completed calendar years, a preceding period of less than three completed calendar years may be used upon approval by the IRS, but in no event may the preceding period be less than one completed calendar year. The proposed revenue procedure also sets forth the requirements for each Covered Establishment to participate in the SITCA program. A Covered Establishment must have tipped employees who utilize a technology-based time and attendance system to report tips under section 6053(a). Each Covered Establishment must also utilize a POS System to record all sales subject to tipping, and that POS System must accept the same forms of electronic payment for tips as it does for sales. The IRS will accept employers and Covered Establishments into the SITCA program that meet the eligibility criteria if the IRS also determines, in its sole discretion, that acceptance is warranted by the facts and circumstances and is in the interest of sound tax administration. Similar to the TRAC, TRDA, and EmTRAC programs, the proposed SITCA program will provide accepted employers with protection from section 3121(q) liability with respect to their Covered Establishments that remain in compliance with the program unless the liability is based on (1) tips received by a tipped employee where the asserted liability is based upon the final results of an audit or agreement of the tipped employee, or (2) the reporting of additional tip income by a tipped employee. The protection from section 3121(q) liability applies only to Service Industry Employers with Covered Establishments for the periods for which they have been approved to participate in the SITCA program. It does not apply to Service Industry Employers to the extent they have Covered Establishments that have been removed from the SITCA program, for the period of time between a Covered Establishment's removal and reinstatement (if applicable), or to the extent a Service Industry Employer has other business locations, either with tipped employees or without, that are not approved to participate in the SITCA program. Service Industry Employer compliance is measured, in part, by satisfying a minimum reported tips requirement with respect to total tips reported for a calendar year by tipped employees at each Covered Establishment. In order for the Service Industry Employer to be compliant with respect to a Covered Establishment participating in the SITCA program, the tips reported by tipped employees at each Covered Establishment must meet or exceed the sum of (1) all charge tips, as established by the Covered Establishment's POS System, plus (2) an estimation of all cash tips calculated using charge tips and other data from the POS System and applying a minimum charge tip rate as well as applying discount rates for both stiffing and the differential between cash and charge tipping (cash tipping is typically lower). In calculating the annual estimated amount of all cash tips, the Covered Establishment will use three rates established by the IRS: the SITCA Minimum Charge Tip Percentage, the Cash Differential, and the Stiff Rate. The IRS will calculate these rates using tipping data it collects from service industry establishments though the TRDA program (until those agreements have ended), the GITCA program (especially gaming-related food and beverage establishments that participate in this program), and the SITCA program itself, once data from this program becomes available. These three rates will be specified on www.irs.gov and updated annually. 5 5 Based on existing data, the IRS estimates that the current values for these rates, if the SITCA program were in operation presently, would be a 16 percent SITCA Minimum Charge Tip Percentage, a 2 percent Cash Differential, and a 5 percent Stiff Rate. For each calendar year in which the accepted employer demonstrates that a Covered Establishment has satisfied these and the other requirements of the proposed revenue procedure, the Service Industry Employer will receive protection from liability under section 3121(q) and the Covered Establishment may continue to participate in the SITCA program through the Service Industry Employer into the next calendar year. The proposed revenue procedure requires Service Industry Employers to demonstrate compliance with the SITCA program by submitting an annual report on behalf of each Covered Establishment after the close of the calendar year. If the Service Industry Employer cannot establish that a Covered Establishment satisfied the minimum reported tips requirements in its annual report, the Service Industry Employer will not receive protection from liability under section 3121(q) with respect to that Covered Establishment for the calendar year to which the annual report applies and that Covered Establishment will be removed from the SITCA program. Once a Covered Establishment is removed from the SITCA program, it is generally eligible for reinstatement only after the Service Industry Employer can establish that it has satisfied the minimum reported tips requirement with respect to that Covered Establishment for three completed calendar years. A study conducted by the Treasury Inspector General for Tax Administration (TIGTA) in 2018 concluded that the IRS was providing tip income audit protection to potentially noncompliant employers and employees. 6 Using data from the TIGTA Data Center Warehouse's Business Returns Transaction File to review samples and analyze trends, TIGTA determined that 30 percent of the employers with tip reporting agreements that filed a Form 1120, U.S. Corporation Income Tax Return; Form 1120S, U.S. Income Tax Return for an S Corporation; or Form 1065, U.S. Return of Partnership Income, and Form 941, Employer's Quarterly Federal Tax Return, for the 2016 tax year had projected unreported tips totaling nearly $1.66 billion. One of the problems identified by TIGTA is that the IRS rarely revokes tip reporting agreements, resulting in continued tip income audit protection for noncompliant employers, and in some cases, their employees. TIGTA recommended that the IRS train its employees on specific criteria for revoking tip reporting agreements with noncompliant taxpayers. 6 TIGTA Rep't No. 2018-30-081, Billions in Tip-Related Tax Noncompliance Are Not Fully Addressed and Tip Agreements Are Generally Not Enforced. In response to these concerns, the proposed SITCA program has several features designed to result in increased tip reporting compliance. The proposed SITCA program streamlines both compliance with and enforcement of tip reporting requirements by eliminating employee participation and the corresponding employee tip income audit protection and providing for automatic removal of a Covered Establishment that fails to satisfy SITCA's minimum reported tip requirement in its annual report. Unlike the GITCA and TRDA programs, the proposed SITCA program does not require any tax reporting commitment from employees. Employees are not required to report tips at an hourly rate, nor are employers required to provide educational or tip reporting training programs to their employees as is the case in the TRAC program. Employees have a responsibility to report actual tips received pursuant to section 6053(a), but employees do not sign participation agreements or otherwise agree to be monitored for compliance by their employers, as is the case in the GITCA and TRDA programs. Providing employee tip examination protection to employees without a measurable form of tip reporting compliance would not be in the interest of sound tax administration and would impose significant additional recordkeeping burdens on employers and the IRS to determine the eligibility of individual employees. Therefore, no tip examination protection is provided to employees under the proposed SITCA program. Because any Covered Establishments that do not meet the minimum reported tips requirement will be removed from the program, the IRS and Treasury view the SITCA program as providing employers with an incentive to train, educate, and implement procedures for employees to provide an accurate report of all tips received. More accurate tip reporting also benefits employees upon audit and can result in higher social security wages credited to them upon retirement. The SITCA program is intended to serve as the sole tip reporting compliance program for employers in all service industries (excluding gaming industry employers). The proposed revenue procedure provides that for employers with existing agreements in the TRAC, TRDA and EmTRAC programs, there will be a transition period during which the existing agreements will remain in effect. The transition period will end upon the earliest of (1) the employer's acceptance into the SITCA program; (2) an IRS determination the employer is noncompliant with the terms of the TRAC, TRDA, or EmTRAC agreement; or (3) the end of the first calendar year beginning after the date on which the final revenue procedure is published in the Internal Revenue Bulletin. The proposed revenue procedure provides that employers participating in the TRAC, TRDA, and EmTRAC programs at the time the final revenue procedure is published in the Internal Revenue Bulletin will continue to have protection from section 3121(q) liability to the extent they are compliant with their existing tip reporting agreements prior to termination. Employees who have been receiving protection from tip income examination through their employer's participation in an existing TRAC, TRDA, or EmTRAC agreement will also continue to receive that protection for the return periods covered by their employer's agreement (including during the transition period) to the extent their employers remain compliant with the terms of their agreement. REQUEST FOR COMMENTS The IRS requests comments on all aspects of the proposed revenue procedure, and specifically requests comments on the following issues: - How a technology-based time and attendance system may be used by tipped employees to report tips, including tips in cash and other forms of tipping made through electronic payments methods (other than a credit card), regardless of whether the tips are received directly from customers or through tip sharing arrangements; - How tip sharing practices vary across service industries and how the SITCA program can support employer participation while accommodating potential differences in Federal, state, and local labor and employment law requirements; - How employers of large food or beverage establishments participating in the SITCA program may meet their filing and reporting obligations under section 6053(c) and also satisfy the SITCA program requirements for compliance, while minimizing the administrative burdens on taxpayers and the IRS. Comments must be received by May 7, 2023 and may be submitted in one of two ways: (1) Mail. Send paper submissions to CC:PA:LPD:PR (Notice 2023-13), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044. (2) Electronically. Submit electronic submissions via the Federal eRulemaking Portal at www.regulations.gov (indicate IRS and Notice 2023-13) by following the online instructions for submitting comments. Once submitted to the Federal Rulemaking Portal, comments cannot be edited or withdrawn. Commenters are strongly encouraged to submit public comments electronically. The Treasury Department and the IRS will publish for public availability any comment submitted electronically, and to the extent practicable on paper, to its public docket. CONTINUED APPLICATION OF ANNOUNCEMENT 2001-1 AND NOTICE 2001-1 Pending publication of the final revenue procedure in the Internal Revenue Bulletin, Announcement 2001-1 and Notice 2001-1 continue to apply with respect to participating employers. However, the IRS will not enter into any new TRAC, TRDA, or EmTRAC agreements with any employers that do not already have an agreement, as of March 8, 2023. DRAFTING INFORMATION The principal author of this notice is Stephanie Caden of the Office of the Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). For further information regarding this notice, contact Stephanie Caden at 202-317-4774 (not a toll-free number). PROPOSED REVENUE PROCEDURE TABLE OF CONTENTS SECTION 1. PURPOSE The purpose of this revenue procedure is to establish the Service Industry Tip Compliance Agreement (SITCA) program, a voluntary tip reporting program offered by the Internal Revenue Service (IRS) to employers in the service industry (excluding gaming industry employers). The SITCA program will replace the Tip Reporting Alternative Commitment (TRAC) program and the Tip Rate Determination Agreement (TRDA) program, as provided in Announcement 2001-1, 2001-2 I.R.B. 277, and the Employer-Designed Tip Reporting Program (EmTRAC), as provided in Notice 2001-1, 2001-2 I.R.B. 261. Upon termination of the TRAC, TRDA, and EmTRAC programs, this revenue procedure provides that a transition period will apply to employers with existing tip reporting agreements and their employees. For such employers, the existing agreements will end upon the earliest of (1) the employer's acceptance into the SITCA program, (2) an IRS determination that the employer is noncompliant with the terms of the TRAC, TRDA, or EmTRAC agreement, or (3) the end of the first calendar year beginning after the date on which the final revenue procedure is published in the Internal Revenue Bulletin. The SITCA program is part of the Tip Rate Determination/Education Program implemented by the National Tip Reporting Compliance Program (NTRCP). NTRCP is part of the Small Business/Self-Employed Division of the IRS. The SITCA program is designed to promote voluntary compliance by employers and employees with the provisions of the Internal Revenue Code (Code) related to the Federal taxation of tips, promote accurate tip reporting, and reduce disputes under section 3121(q) of the Code while reducing taxpayer burden. Additionally, the SITCA program is intended to facilitate and promote the use of current financial information technology in the tip reporting process. SECTION 2. BACKGROUND Sections 3101 and 3111 impose Federal Insurance Contributions Act (FICA) taxes on employees and employers, respectively, equal to a percentage of the wages received by an individual with respect to employment. FICA taxes consist of two separate taxes, the Old Age, Survivors, and Disability Insurance (social security) tax and the Hospital Insurance (Medicare) tax. Sections 3101(a) and 3101(b) impose the employee portions of social security tax and the Medicare tax, respectively. Sections 3111(a) and 3111(b) impose the employer portions of the social security tax and the Medicare tax, respectively. All wages are subject to Medicare tax; however, the amount of wages subject to social security tax is limited by an annual contribution and benefit base. Section 3102(c) provides that the employer shall withhold the employee share of FICA taxes on the reported tips from the wages of the employee (generally excluding tips) or from other funds made available by the employee for this purpose. Section 3121(a) defines "wages," for FICA tax purposes, as all remuneration for employment, with certain exceptions. Section 3121(a)(12)(A) excludes, from the definition of wages, tips paid in any medium other than cash; section 3121(a)(12)(B) excludes cash tips received by an employee in any calendar month in the course of the employee's employment by an employer unless the amount of the cash tips is $20 or more. Under section 3121(q), tips received by an employee in the course of the employee's employment are considered remuneration for that employment and are deemed to have been paid by the employer for purposes of the employer portion of FICA taxes imposed by sections 3111(a) and (b). Generally, the remuneration is deemed to be paid when a written statement including the tips is furnished to the employer by the employee pursuant to section 6053(a), as discussed below. Section 3111 imposes the employer portion of Medicare tax on the total amount of cash tips received by the employee. It also imposes the employer portion of social security tax on the amount of cash tips received by the employee up to (when combined with all other wages) the contribution and benefit base as determined under section 3121(a)(1). Special rules apply if the employee did not furnish the employer with the statement required by section 6053(a) or furnished an incomplete or otherwise inaccurate statement. In those cases, the employer's liability in connection with taxes imposed by section 3111 with respect to tips is determined based on the amount of remuneration deemed to have been paid on the date on which notice and demand is made to the employer by the IRS. Section 3121(q). Section 6053(a) requires every employee who, in the course of the employee's employment by an employer, receives in any calendar month tips that are wages (as defined in section 3121(a) for FICA tax purposes or section 3401(a) for income tax withholding purposes) to report all those tips in one or more written statements furnished to the employer on or before the tenth day of the following month. The employee is to furnish the statements in the form and manner prescribed by the IRS. See § 31.6053-1(b) of the Employment Tax Regulations. Under § 31.6053-1(b) the statement may be provided on paper or transmitted electronically and must be signed by the employee. The statement must disclose the name, address, and social security number of the employee and the name and address of the employer, and must specify the date of the report and the period that the report covers. Section 6053(c)(3) states that employers of large food or beverage establishments must allocate tips among employees performing services who customarily receive tip income if the total tips reported are below eight percent of gross receipts. The factors used to determine whether payments constitute tips or service charges (extra amounts automatically added to a bill for services rendered) are set forth in Rev. Rul. 2012-18, 2012-26 I.R.B. 1032. Q&A-1 of Rev. Rul. 2012-18 provides that the absence of any of the following factors creates a doubt as to whether a payment is a tip and indicates that the payment may be a service charge: (1) the payment must be made free from compulsion; (2) the customer must have the unrestricted right to determine the amount; (3) the payment should not be the subject of negotiation or dictated by employer policy; and (4) generally, the customer has the right to determine who receives the payment. All the surrounding facts and circumstances must be considered. Q&A-1 also provides an example illustrating that a fixed charge added to all bills for parties of six or more customers at a restaurant, which the restaurant distributes to waiters and bussers, is not a tip but a service charge. To the extent any portion of a service charge paid by a customer is distributed to an employee, it is included in the employee's wages for FICA tax purposes and not separately required to be reported as tips by the employee. See also Rev. Rul. 59-252, 1959-2 C.B. 215. SECTION 3. DEFINITIONS The following definitions apply for purposes of this revenue procedure..01 "Annual Report" is the yearly report submitted by a Service Industry Employer to the IRS on behalf of each Covered Establishment participating in the SITCA program..02 "Cash Differential" is the fixed percentage point reduction established by the IRS (to be updated annually) and applied to the SITCA Charge Tip Percentage that takes into account the different tipping practices customers utilize when paying tips in cash as compared to when they charge tips..03 "Cash Tip Percentage" is the percentage determined by reducing the SITCA Charge Tip Percentage by the Cash Differential. This percentage is then used to calculate Tips in Cash..04 "Compliance Review" is a review or other inspection of a Service Industry Employer's books, records and filed federal tax and information returns related to a Service Industry Employer's participation in the SITCA program. A Compliance Review is neither an examination nor an inspection of books for purposes of either section 7605(b) or the IRS's policy and procedures for reopening cases closed after examination. In addition, a Compliance Review is not an audit for purposes of section 530 of the Revenue Act of 1978..05 "Covered Establishment" is a business location at which Service Industry Tipped Employees who report tips under section 6053(a) perform services and that operates under the Service Industry Employer or SITCA Applicant's employer identification number (EIN). If a Service Industry Employer or SITCA Applicant has just a single business location, that Service Industry Employer or SITCA Applicant will be a Covered Establishment for purposes of all the provisions of this revenue procedure..06 "Covered Establishment Charge Tip Percentage" is the percentage of Tips by Charge made on Covered Establishment Sales Subject to Charge Tipping. This percentage is calculated for a Covered Establishment by dividing the total Tips by Charge by total Covered Establishment Sales Subject to Charge Tipping for a calendar year..07 "Covered Establishment Sales Subject to Charge Tipping" are Sales Subject to Tipping for which Tips by Charge are included with the payment, as reflected in a Covered Establishment's POS System..08 The "Employee Tips Report" or "ETR" is a report of the total tips received by a Service Industry Tipped Employee in the course of the employee's employment by the Service Industry Employer at a Covered Establishment for a time period not greater than one calendar month. The ETR is generated by the Time and Attendance System utilized by the Service Industry Employer at a Covered Establishment and is based on information entered into the Time and Attendance System by the Service Industry Tipped Employee. The ETR must meet the requirements set forth in section 6053(a) and § 31.6053-1 for reporting tips by the employee to the employer, and must include categories for cash tips, credit and debit card tips, and tips paid out, as reported by the Service Industry Employee..09 "Large Food or Beverage Establishment" is a trade or business described in section 6053(c)(4) and § 31.6053-3(j)(7)..10 "Minimum Reported Tips Requirement" is the SITCA program requirement that a Covered Establishment's Reported Tips for the calendar year meet or exceed the sum of Tips by Charge and Tips in Cash..11 A "Point-of-Sale (POS) System" is a technology-based system utilized at a Covered Establishment to process and record the retail transactions taking place between the Service Industry Employer or SITCA Applicant and its customers, at the time that goods and services are purchased..12 "Reported Tips" are the total amount of tips reported by Service Industry Tipped Employees for the calendar year pursuant to section 6053(a), determined on a Covered Establishment-by-Covered Establishment basis and as reflected in the Covered Establishment's Time and Attendance System..13 "Requisite Prior Period" is the period of three completed calendar years immediately preceding the date the SITCA Applicant applies to participate in the SITCA program (these completed years are referred to as the preceding period), plus the completed calendar quarters between the end of the preceding period and the date of the SITCA Application. For a SITCA Applicant that was operating as an employer in a Service Industry for less than the preceding period of three completed calendar years, the Requisite Prior Period may include a preceding period of less than three completed calendar years upon approval by the IRS, but in no event may the preceding period be less than one completed calendar year..14 "Sales Adjustment for Stiffing" is a reduction in the amount of Sales Subject to Cash Tipping reflecting the Stiff Rate. This amount is calculated by multiplying the Sales Subject to Cash tipping by the Stiff Rate..15 "Sales Subject to Cash Tipping" is an amount calculated by subtracting the SITCA Sales Subject to Charge Tipping from Sales Subject to Tipping. This amount is used to calculate Tips in Cash..16 "Sales Subject to Tipping" are amounts from the sale of products and services for which Service Industry Tipped Employees may receive tips in the course of their employment, as reflected in a Covered Establishment's POS System. When a tip is provided, Sales Subject to Tipping also include the retail value of complimentary products and services provided at or by a Covered Establishment and the receipts from carry-out or delivery sales. Sales Subject to Tipping do not include state or local taxes, nor do they include investment income, rental income, royalties, service fees, sales subject to service charges when no additional tip is paid, commissions, and income from the sale of products and services to customers that are not related to services provided by the Service Industry Tipped Employee..17 A "Service Industry" is an industry (excluding the gaming industry) in which employees are hired to perform services for customers and those services generate Sales Subject to Tipping..18 A "Service Industry Employer" is an employer (other than a gaming industry employer) in a Service Industry that is required to report tips under Subtitle F of the Code and has been accepted to participate in the SITCA program. A Service Industry Employer may comprise a single Covered Establishment or have multiple Covered Establishments that all operate under the same EIN. For purposes of this revenue procedure, the entity for which an employee performs services (that is, the employer that operates the Covered Establishment) is considered the Service Industry Employer..19 A "Service Industry Tipped Employee" is an employee who receives tip income of $20 or more in any calendar month in the course of the employee's employment by the Service Industry Employer or SITCA Applicant at one or more Covered Establishments, including those who receive $20 or more in any calendar month through tip-sharing arrangements..20 A "SITCA Applicant" is an employer that submits or has submitted (including through the services of a third party) an application to be a Service Industry Employer in the SITCA program in accordance with this revenue procedure, the instructions in the online application, and any subsequent applicable guidance. A SITCA Applicant remains a SITCA Applicant until the SITCA Applicant either receives a notice of acceptance into the SITCA program described in section 5.11 of this revenue procedure, withdraws its application pursuant to section 5.09 of this revenue procedure, or receives a notice of denial as described in section 5.10 of this revenue procedure. When a SITCA Applicant utilizes the service of a third party to submit the application, the SITCA Applicant must ensure that the third party has a valid Form 2848, Power of Attorney and Declaration of Representative, for the SITCA Applicant on file with the IRS..21 A "SITCA Application" is the online application to participate in the SITCA program in accordance with this revenue procedure, the instructions in the online application, and any subsequent applicable guidance..22 The "SITCA Charge Tip Percentage" is the greater of the Covered Establishment Charge Tip Percentage or the SITCA Minimum Charge Tip Percentage. It is used to calculate the Cash Tip Percentage..23 The "SITCA Minimum Charge Tip Percentage" is a fixed percentage established by the IRS and updated annually. It is used as the SITCA Charge Tip Percentage if the Covered Establishment Charge Tip Percentage is lower than the SITCA Minimum Charge Tip Percentage..24 The "SITCA Sales Subject to Charge Tipping" is calculated by dividing the Tips by Charge by the SITCA Charge Tip Percentage. This amount will be the same as the Covered Establishment Sales Subject to Charge Tipping unless the Covered Establishment Charge Tip Percentage is below the SITCA Minimum Charge Tip Percentage. The SITCA Sales Subject to Charge Tipping is used to calculate Sales Subject to Cash Tipping..25 The "Stiff Rate" is the fixed percentage established by the IRS and updated annually to take into account that sometimes customers do not leave a tip on cash sales..26 A "Time and Attendance System" is a technology-based system utilized by an employer in a Service Industry for tipped employees to report all tips received at an establishment in the course of their employment..27 "Tips by Charge" are tips paid by credit card, debit card, gift card, or any other form of electronic settlement or mobile payment application (excluding virtual currency) that are reflected in a Covered Establishment's POS System..28 "Tips in Cash" is an estimate of tips received that are not paid by credit card, debit card, gift card, or any form of electronic settlement or digital payment that are included in Tips by Charge. The Tips in Cash amount is an estimate of the total tips paid by coin, paper money cash and other forms of monetary settlement that are not reflected in the Covered Establishment's POS System. Tips in Cash is calculated by reducing the Sales Subject to Cash Tipping by the Sales Adjustment for Stiffing and then multiplying the result by the Cash Tip Percentage. SECTION 4. REQUIREMENTS FOR SITCA APPLICANTS.01 To be eligible to participate in the SITCA program, a SITCA Applicant must meet the following requirements: (1) Length of time in operation. A SITCA Applicant must have operated as an employer in a Service Industry for at least one completed calendar year immediately preceding the date the SITCA Applicant applies to participate in the SITCA program. (2) Covered Establishments. A SITCA Applicant must have one or more Covered Establishments. The Covered Establishments may all share the same Service Industry, or they may operate in a different Service Industry. (3) Compliance. The SITCA Applicant must be in compliance with Federal, state, and local tax laws during the following periods, as applicable: (1) the Requisite Prior Period, (2) the period that a SITCA Application is pending, and (3) the period between acceptance into the SITCA Program and the start of the next calendar year, taking into consideration any applicable IRS relief provisions (collectively referred to as the applicable periods). The SITCA Applicant must timely and accurately file all Federal, state, and local tax and information returns (including Federal employment tax returns) and deposit and pay any applicable Federal, state, and local tax (including any Federal employment taxes), during the applicable periods. A SITCA Applicant that fails to satisfy this requirement may be considered in compliance if the failure to comply is determined to be due to reasonable cause and not due to willful neglect. (4) No fraud penalties. The SITCA Applicant must not have been assessed any fraud penalties by the IRS or a state or local tax authority during the applicable periods. (5) Gaming Industry Tip Compliance Agreement (GITCA) program. The SITCA Applicant must not be a participant in the GITCA program or a gaming industry employer that is eligible to participate in the GITCA program..02 Eligibility of Covered Establishments. A SITCA Applicant must establish that each Covered Establishment submitted with its SITCA Application individually satisfies the following requirements: (1) Time and Attendance System. The Covered Establishment must utilize a Time and Attendance System for Service Industry Tipped Employees to report all tips received in the course of their employment, which includes tips paid in cash, by credit card, debit card, gift card, or by any other form of electronic settlement or digital payment. (2) POS System. The Covered Establishment must utilize a POS System to record all Sales Subject to Tipping during the calendar year and must accept the same forms of payment for tips as it does for Sales Subject to Tipping. The POS System must be able to determine both the Tips by Charge and the Covered Establishment Sales Subject to Charge Tipping for the calendar year. (3) Minimum Reported Tips for Covered Establishment. The Covered Establishment must satisfy the Minimum Reported Tips Requirement for the prior completed calendar year. (4) Employee Tips Report (ETR). The Covered Establishment must provide an ETR to each Service Industry Tipped Employee showing the amount of tips reported by the Service Industry Tipped Employee as reflected in the Time and Attendance System for that Covered Establishment, no less frequently than every calendar month..03 IRS Discretion. The IRS has the discretion to determine whether acceptance of a SITCA Applicant and each of its Covered Establishments is in the interest of sound tax administration..04 Suitability of Large Food or Beverage Establishment for SITCA program. A Covered Establishment that is also a Large Food or Beverage Establishment generally will not be suitable for the SITCA program if it allocates tips to Service Industry Employees under section 6053(c). SECTION 5: APPLYING TO PARTICIPATE IN THE SITCA PROGRAM.01 Method of submission. A SITCA Applicant must electronically submit a properly completed and executed SITCA Application along with all accompanying forms and documentation required by this revenue procedure, the instructions in the online application, and any subsequent applicable guidance. A paper submission will be treated as an incomplete application as described in section 5.06 of this revenue procedure..02 Required documents, representations and information. As part of the SITCA Application, a SITCA Applicant must submit certain documents, representations, and information, as well as any additional materials the IRS requests to determine a SITCA Applicant's suitability for the SITCA program. (1) A SITCA Applicant must provide a representation that the SITCA Applicant is in compliance with Federal, state, and local tax laws for the Requisite Prior Period (taking into consideration any applicable IRS relief provisions). Any failure to comply must be determined to be due to reasonable cause and not due to willful neglect. Documentation must accompany the representation that demonstrates the timely and accurate filing of Federal, state, and local tax and information returns (including Federal employment tax returns), and the timely and accurate deposit and payment of all applicable Federal, state, and local taxes (including any Federal employment taxes). The SITCA Applicant must also provide a representation that it has not been assessed any fraud penalties by the IRS or a state or local tax authority for any period during the Requisite Prior Period. The SITCA Applicant must provide these representations and documentation for every subsequent calendar quarter during which its SITCA Application is pending for some or all of the quarter. These representations and documentation must be provided by the last day of the second month after the end of each such subsequent quarter, even if the SITCA Applicant receives a notice of acceptance before this deadline. (2) If applicable, a SITCA Applicant must provide information relating to its participation in any other existing tip reporting programs (TRAC, TRDA, or EmTRAC) with the IRS, including providing copies of tip reporting agreements, annual filing requirements, reports, tip rate reviews, and compliance reviews for the Requisite Prior Period. If participation in another tip reporting program has been for less than the full three-year Requisite Prior Period at the time the SITCA Application is submitted, the SITCA Applicant must provide the information described in this paragraph for the shorter period in which the tip reporting agreement was in effect. The SITCA Applicant must provide the information described in this paragraph for every subsequent calendar quarter during which its SITCA Application is pending for some or all of the quarter. This information must be provided by the last day of the second month after the end of each subsequent quarter, even if the SITCA Applicant receives a notice of acceptance before this deadline. (3) A SITCA Applicant must provide a statement of agreement signed by an individual authorized to sign on behalf of the SITCA Applicant that states, "On behalf of the SITCA applicant, I agree that the review of records and information under [Revenue Procedure XXXX-XX], including the instructions in the online application, and any subsequent applicable guidance does not constitute an inspection within the meaning of section 7605(b) of the Internal Revenue Code (Code) and will not preclude or impede (under section 7605(b) of the Code or any administrative provisions adopted by the Internal Revenue Service (IRS)) the IRS from later examining any return or inspecting any records of the SITCA Applicant or of the Service Industry Employer, should the SITCA Applicant be accepted into the SITCA program. I further agree that procedural restrictions, such as providing notice under section 7605(b) of the Code, do not apply to actions taken under [Revenue Procedure XXXX-XX], including the instructions in the online application, and any subsequent applicable guidance." (4) A SITCA Applicant must provide a penalties of perjury statement signed by an individual authorized to sign on behalf of the SITCA Applicant that states, "Under penalties of perjury, I declare that I have examined this submission, including accompanying documents, and, to the best of my knowledge and belief, the facts presented in support of this submission are true, correct, and complete." (5) If a SITCA Applicant utilizes the services of a third party to submit the SITCA Application, the SITCA Applicant must ensure that the third party has a valid Form 2848, Power of Attorney and Declaration of Representative, for the SITCA Applicant on file with the IRS..03 Participation of Covered Establishments. With its SITCA Application, the SITCA Applicant must provide information about each Covered Establishment it requests to participate in the SITCA program. (1) Covered Establishment identification number. Each Covered Establishment shall have a unique identification number that will be used in the SITCA Application and, if accepted, in the SITCA program. A Covered Establishment identification number shall be determined as follows: (A) The first nine digits shall be the Service Industry Employer's EIN. (B) The next digit shall identify the type of Covered Establishment, with the categories as follows: (i) The number "1" signifies a Large Food or Beverage Establishment (subject to section 6053(c) reporting requirements); and (ii) The number "2" signifies another type of Service Industry establishment, including a non-Large Food or Beverage Establishment. (C) The last five digits are to differentiate between multiple Covered Establishments sharing the same EIN. For this purpose, the SITCA Applicant shall assign each Covered Establishment a unique five-digit number. For example, each Covered Establishment could be assigned a number beginning with "00001" and progressing in numerical sequence (i.e., "00002", "00003", "00004" "00005") until each Covered Establishment has been assigned a number. (2) Submission of additional information. The SITCA Applicant must submit the information set forth in this paragraph (2) on behalf of each Covered Establishment for the Requisite Prior Period. Specifically, the SITCA Applicant must submit: (A) The name and address of each Covered Establishment, and verification that each Covered Establishment operates under the EIN of the Service Industry Employer; (B) A summary of the Covered Establishment's activities, including the sources of its receipts and the nature of its expenditures, as prescribed by the IRS in the SITCA Application; (C) A description of the Covered Establishment's Time and Attendance System and its tip reporting capabilities, as well as reports that include all Reported Tips by Service Industry Tipped Employees at that Covered Establishment; (D) A description of the Covered Establishment's POS System and reports that include all Sales Subject to Tipping and information describing what forms of payment (e.g. cash, credit card, debit card) are accepted in the POS System for tips and Sales Subject to Tipping at that Covered Establishment; (E) Payroll reports for all employees, including all Service Industry Tipped Employees, employed by the SITCA Applicant at that Covered Establishment; (F) A representation and supporting documents that establish that the Reported Tips for that Covered Establishment meet or exceed the Minimum Reported Tips Requirement needed to participate in the SITCA program under this revenue procedure and any subsequent applicable guidance..04 Time period to apply. A SITCA Applicant must complete and submit the SITCA Application during the time period determined by the IRS and provided in the instructions in the online application..05 Additional requirements for Large Food or Beverage Establishments. For SITCA Applications that include a Covered Establishment that is a Large Food or Beverage Establishment, the SITCA Applicant must also submit the Forms 8027, Employer's Annual Information Return of Tip Income and Allocated Tips, that were filed on behalf of that Large Food or Beverage Establishment for the Requisite Prior Period..06 Incomplete or inaccurate application. A SITCA Application must be complete and accurate. A SITCA Application is not complete or accurate if it is missing any item of information required by this revenue procedure, the instructions in the online application, and any subsequent applicable guidance. If an incomplete SITCA Application is submitted, the IRS generally will request from the SITCA Applicant the additional information needed for a completed SITCA Application. However, the IRS may deny an incomplete SITCA Application without requesting additional information..07 Additional information may be required. Even if a SITCA Application is complete, the IRS may request additional information or documentation if it determines that further information or documentation is necessary to evaluate a SITCA Applicant's or Covered Establishment's suitability to participate in the SITCA program. A SITCA Applicant should not send any additional information or documentation to the IRS unless the IRS requests the information. The IRS will not consider any unrequested information or documentation received from the SITCA Applicant if the SITCA Application is otherwise complete unless the information pertains to a material change as provided in sections 5.08 and 6.05 of this revenue procedure, with respect to the accuracy of the SITCA Application..08 SITCA Applicant must notify IRS of material changes relevant to its SITCA Application. Within 30 days of its occurrence, a SITCA Applicant must notify the IRS of any change that materially affects the continuing accuracy of any information that was previously provided to the IRS as part of its SITCA Application. Examples of material changes include, but are not limited to, any change in the SITCA Applicant's tax compliance, changes to the information provided about the Covered Establishments under section 5.03 of this revenue procedure, or discovery of significant errors or new facts relevant to information the SITCA Applicant provided to the IRS..09 SITCA Application may be withdrawn. A SITCA Application may be withdrawn only upon the request of the SITCA Applicant in the manner prescribed by the IRS. When a SITCA Application is withdrawn, the IRS may retain and use for tax administration the SITCA Application, all supporting documents, and the information submitted in connection with the withdrawn request..10 Denial of SITCA Application. The IRS may deny a SITCA Application when the SITCA Applicant fails to satisfy the requirements of this revenue procedure, the instructions accompanying the online application, and any subsequent applicable guidance. Denial of the SITCA Application means that no Covered Establishments that the SITCA Applicant has requested to participate have been approved to participate in the SITCA program. The IRS may also determine that a SITCA Applicant is not suitable for the SITCA program or that its participation is not warranted based on the facts and circumstances, including that its participation is not in the interest of sound tax administration. If the IRS denies a SITCA Application, it will issue electronically a notice of denial to the SITCA Applicant, which will provide further contact information for the SITCA Applicant, and the reason for the denial. The notice of denial will not include an opportunity for review. Denial of a SITCA Application does not preclude an employer from reapplying to participate in the SITCA program in accordance with the provisions of this revenue procedure, the instructions accompanying the online application, and any subsequent applicable guidance..11 Acceptance into SITCA program. The IRS may accept a SITCA Applicant to participate in the SITCA program as a Service Industry Employer if the SITCA Applicant satisfies the requirements of this revenue procedure, the instructions accompanying the online application, and any subsequent applicable guidance. Upon acceptance into the SITCA program, the IRS will electronically issue a notice of acceptance to the SITCA Applicant. The notice of acceptance will include a list of the specific Covered Establishments that have been approved to participate in the SITCA program. While participation in the SITCA program will typically begin on the first day of the calendar year following a Service Industry Employer's acceptance into the SITCA program, participation may begin on a different date as determined by the IRS and provided in the notice of acceptance. SECTION 6: MAINTAINING COMPLIANCE WITH THE SITCA PROGRAM.01 In general. To maintain compliance with the SITCA program for each calendar year, a Service Industry Employer and its Covered Establishments must continue to satisfy the eligibility requirements described in this section and sections 4.01 and 4.02 of this revenue procedure for the period that the Service Industry Employer participates in the SITCA program. This includes maintaining compliance with Federal, state, and local tax laws (taking into consideration any applicable IRS relief provisions). A Service Industry Employer that fails to satisfy this requirement will be considered to be in compliance if the failure to comply is determined to be due to reasonable cause and not due to willful neglect. The Service Industry Employer must also not have been assessed any fraud penalties by the IRS or a state or local tax authority during the period that a Service Industry Employer participates in the SITCA program..02 Method of Submission. Except as otherwise provided in this revenue procedure or other subsequent applicable guidance, the information and documents required in this section must be submitted electronically. A Service Industry Employer may utilize the services of a third party to submit the information and documents required under this section if the third party has a valid Form 2848, Power of Attorney and Declaration of Representative, for the Service Industry Employer on file with the IRS..03 Annual Report. The Service Industry Employer must electronically submit a properly completed and executed Annual Report for the calendar year with respect to each Covered Establishment participating in the SITCA program. The due date for submitting the Annual Report is March 31 following the end of the calendar year..04 Prescribed form. The Annual Report required by this revenue procedure shall be made in the manner and form prescribed by the IRS. The form required for the Annual Report and the accompanying instructions will be specified on www.irs.gov..05 Reporting of material changes. The Service Industry Employer must notify the IRS of any change that materially affects the continuing accuracy of any information provided to the IRS (material change) that is relevant to its compliance with the SITCA program, including both a modification to information that was previously provided as part of its SITCA Application and new information. The Service Industry Employer must notify the IRS of a material change no later than 30 days after the date of the material change. Material changes that must be reported in this section 6.05 include, but are not limited to: (1) Any change to the information previously provided by the Service Industry Employer as part of its initial SITCA Application or subsequent requests for Covered Establishments to participate in the SITCA program that relates to business name or organization, EIN, address, or background information; (2) Any change to the tax compliance information previously provided by the Service Industry Employer (1) as part of its initial SITCA Application, (2) for the period that a SITCA Application was pending, (3) for the period between acceptance into the SITCA program and the start of the next calendar year, and (4) for any year that the Service Industry Employer is a participant in the SITCA program, including the discovery of any failure by the Service Industry Employer to timely and accurately file Federal, state, and local tax and information returns (including Federal employment tax returns) or deposit and pay any applicable Federal, state, and local taxes (including any Federal employment taxes); (3) The assessment of fraud penalties by the IRS or a state or local tax authority against the Service Industry Employer for any year that the Service Industry Employer is a participant in the SITCA program, and during the Requisite Prior Period and the period in between acceptance into the SITCA program and the start of the next calendar year when a Service Industry Employer becomes a participant in the SITCA program; (4) The discovery by the Service Industry Employer of tax fraud or criminal activity in the Service Industry Employer's business that is in violation of Federal, state, or local laws; (5) The commencement of an active IRS criminal investigation of the Service Industry Employer, or an entity that is a member of a controlled group that includes the Service Industry Employer, or a responsible individual as described in § 301.7705-1(b)(13) (substituting Service Industry Employer for CPEO everywhere it appears in § 301.7705-1(b)(13)). For purposes of this revenue procedure, a controlled group has the meaning given to such term by sections 414(b) and (c), § 1.414(b)-1, and §§ 1.414(c)-1 through 1.414(c)-(6). Additionally, entities that, but for their status as disregarded entities would separately be members of a controlled group that includes the Service Industry Employer, are treated as members of a controlled group that includes the Service Industry Employer; and (6) The sale, transfer, or disposition of all or substantially all of the Service Industry Employer's business, or the reorganization, spinoff or similar division, liquidation, dissolution, or closure of the Service Industry Employer business entity, directly or indirectly, regardless of whether the event is taxable or tax free. SECTION 7: ANNUAL FILING REQUIREMENT FOR SERVICE INDUSTRY EMPLOYERS WITH LARGE FOOD OR BEVERAGE ESTABLISHMENTS Participation in the SITCA program does not change the reporting requirements described in section 6053(c). Namely, it does not change the requirement that an employer must file a separate information return for each calendar year with respect to each Large Food or Beverage Establishment for which the employer's employees perform services. Accordingly, a Service Industry Employer that has one or more Large Food or Beverage Establishments participating in the SITCA program must file a Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips (and Form 8027-T, Transmittal of Employer's Annual Information Return of Tip Income and Allocated Tips, if applicable) with respect to each of the Covered Establishments that is a Large Food or Beverage Establishment in order to remain in compliance with the SITCA program. SECTION 8: ADDING COVERED ESTABLISHMENTS AFTER ACCEPTANCE IN THE SITCA PROGRAM.01 In general. A Service Industry Employer may request that an additional Covered Establishment participate in the SITCA program after its SITCA Application has been approved. The request must be made electronically in the form prescribed by the IRS and in the time period specified on www.irs.gov..02 Approval. The IRS may approve a Covered Establishment's participation in the SITCA program through the Service Industry Employer if the Covered Establishment meets the requirements of section 4.02 of this revenue procedure, and any subsequent applicable guidance, and the IRS determines that the Covered Establishment's participation in the SITCA program is in the interest of sound tax administration. Upon approval of a Covered Establishment's participation in the SITCA program, the IRS will notify the Service Industry Employer electronically. A Covered Establishment's participation in the SITCA program will generally begin on the first day of the calendar year to which the approved request applies. If a Covered Establishment that is approved to participate in the SITCA program pursuant to this paragraph is subsequently removed for the same calendar year pursuant to section 9 of this revenue procedure, the provisions of section 9 will control when the removal will be effective for purposes of that Covered Establishment participating in the SITCA program..03 Requesting reinstatement after removal. A Service Industry Employer may request that a Covered Establishment that has been removed from the SITCA program pursuant to section 9.01 or 9.02 of this revenue procedure be reinstated after demonstrating compliance with section 4.02 of this revenue procedure, or any subsequent applicable guidance, for the three completed calendar years preceding the date of its request for reinstatement or another time frame as determined by the IRS. The IRS discretion under section 4.03 of this revenue procedure to determine whether the acceptance of a Covered Establishment into the SITCA program is in the interest of sound tax administration applies to any request to reinstate a Covered Establishment after removal from the SITCA program. The request for reinstatement shall be made electronically in the form prescribed by the IRS and specified on irs.gov. SECTION 9: REMOVAL OF COVERED ESTABLISHMENTS.01 Removal by Service Industry Employer. A Service Industry Employer may voluntarily remove a Covered Establishment from the SITCA program for any reason by providing an electronic notice of removal to the IRS in the form prescribed by the IRS and specified on irs.gov. The removal will be effective retroactive to the first day of the calendar year in which the notice of removal is received. A Covered Establishment that is removed by the Service Industry Employer may not participate in the SITCA program unless and until the Service Industry Employer requests to reinstate a Covered Establishment pursuant to section 8.03 of this revenue procedure, or any subsequent applicable guidance, and the IRS approves the request..02 Removal by IRS. The IRS will remove a Covered Establishment from the SITCA program if, for the calendar year, the Covered Establishment fails to meet the requirements of sections 4.02 or 6 of this revenue procedure or any subsequent applicable guidance, or the IRS determines that the Covered Establishment's continued participation in the SITCA program is no longer in the interest of sound tax administration. The IRS will notify the Service Industry Employer of the removal electronically. Determination of whether a Covered Establishment has met the requirements of section 4.02 of this revenue procedure for a calendar year will be made after the Service Industry Employer submits its Annual Report under section 6 of this revenue procedure for that calendar year. If a Service Industry Employer fails to submit its Annual Report under section 6 of this revenue procedure with respect to any Covered Establishment for the calendar year, the IRS may remove the Covered Establishment from the SITCA program at any time after the Annual Report was due without regard to whether the participation requirements of section 4.02 of this revenue procedure or any subsequent applicable guidance have been met. The removal will be effective retroactive to the first day of the calendar year to which the Annual Report applies or would have applied if no Annual Report is submitted. A Covered Establishment that is removed from the SITCA program by the IRS may not participate in the SITCA program unless and until the Service Industry Employer seeks to reinstate a Covered Establishment pursuant to section 8.03 of this revenue procedure, or any subsequent applicable guidance, and the IRS approves the request. SECTION 10: WITHDRAWING FROM OR TERMINATING PARTICIPATION IN THE SITCA PROGRAM.01. Withdrawal by Service Industry Employer. The Service Industry Employer may voluntarily withdraw from the SITCA program for any reason by providing an electronic notice of withdrawal to the IRS in the form prescribed by the IRS. The withdrawal will be effective on the first day of the calendar year in which the notice of withdrawal is received. Upon a Service Industry Employer's withdrawal from the SITCA program, all the Covered Establishments participating in the SITCA program through the withdrawn Service Industry Employer will also be removed from the SITCA program, effective on the same first day of the calendar year in which the notice of withdrawal is received..02 Termination by the IRS. The IRS may terminate a Service Industry Employer from the SITCA program if any of the following conditions are met: (1) The Service Industry Employer notifies the IRS pursuant to section 6.05 of this revenue procedure that it is going out of existence; (2) The IRS determines that the Service Industry Employer is no longer eligible under section 4 of this revenue procedure, or any subsequent applicable guidance; (3) The Service Industry Employer fails to submit the Annual Report for the calendar year required under section 6 of this revenue procedure, or any subsequent applicable guidance; (4) The Service Industry Employer utilizes a third-party payer to report and pay Federal employment taxes that is not a Covered Establishment and that treats itself as the employer for Federal employment tax purposes with respect to all or more than 50 percent of the Service Industry Employer's Service Industry Tipped Employees for a period in excess of 12 months; (5) All the Covered Establishments included in the SITCA program through the Service Industry Employer have been removed; (6) The Service Industry Employer otherwise fails to meet the requirements of this revenue procedure, or any subsequent applicable guidance; (7) The IRS determines that the Service Industry Employer's continuation in the SITCA program is no longer warranted by the facts and circumstances, or is no longer in the interest of sound tax administration; or (8) The IRS discontinues the SITCA program. SECTION 11: EMPLOYER PROTECTION FROM SECTION 3121(q) LIABILITY For a Service Industry Employer that satisfies sections 4 and 6 of this revenue procedure with respect to a Covered Establishment participating in the SITCA program, the IRS will not assert liability pursuant to section 3121(q) with respect to that Covered Establishment unless the liability is based on (1) tips received by a Service Industry Tipped Employee where the asserted liability is based upon the final results of an audit or agreement of the Service Industry Tipped Employee, or (2) the reporting of additional tip income by a Service Industry Tipped employee. The protection from section 3121(q) liability provided under this section applies only to Service Industry Employers with Covered Establishments for the periods for which they have been approved to participate in the SITCA program pursuant to section 5.11 or section 8.02 of this revenue procedure. It does not apply to Service Industry Employers to the extent they have Covered Establishments that have been removed from the SITCA program pursuant to section 9.01 or 9.02 of this revenue procedure, for the period of time between a Covered Establishment's removal and reinstatement (if applicable), or to the extent a Service Industry Employer has other business locations, either with tipped employees or without, that are not approved to participate in the SITCA program. SECTION 12. COMPLIANCE REVIEWS The IRS may conduct a Compliance Review to evaluate (1) a Covered Establishment's continued participation in the SITCA program through a Service Industry Employer, or (2) a Service Industry Employer's continued participation in the SITCA program. A Compliance Review may be conducted no more than once per calendar year. SECTION 13. EFFECT OF THIS REVENUE PROCEDURE ON OTHER TIP REPORTING PROGRAMS 01. Effect on TRAC, TRDA, and EmTRAC programs. This revenue procedure terminates the TRAC and TRDA programs by superseding Announcement 2001-1. This revenue procedure also terminates the EmTRAC program by superseding Notice 2001-1, which set forth the requirements for employers in the food and beverage industry to participate in the EmTRAC program..02 Transition period for employers with existing agreements. For employers with existing agreements in the TRAC, TRDA, and EmTRAC programs, there will be a transition period during which the existing agreements will remain in effect after the publication of this revenue procedure terminating those programs. The transition period is the period from the date of the publication of the final revenue procedure in the Internal Revenue Bulletin until the earliest of (1) the employer's acceptance into the SITCA program, (2) an IRS determination that the employer is noncompliant with the terms of the TRAC, TRDA, or EmTRAC agreement, or (3) the end of the first calendar year beginning after the date of the publication of the final revenue procedure in the Internal Revenue Bulletin. An employer's existing agreement in the TRAC, TRDA, or EmTRAC program is terminated for all periods after the end of its transition period..03 Continued employer protection for years covered by agreement. After the transition period described in section 13.02 has ended and an existing TRAC, TRDA, or EmTRAC agreement has terminated, employers with existing TRAC, TRDA, and EmTRAC agreements who are compliant with the terms of their agreements will continue to have protection from section 3121(q) liability for all prior return periods covered by their agreement (including during the transition period described in section 13.02 of this revenue procedure). No employer with an existing TRAC, TRDA, or EmTRAC agreement will have protection from section 3121(q) liability after the conclusion of the transition period described in section 13.02..04 Employee protection from tip income examination. After the transition period described in section 13.02 has ended and an existing TRAC, TRDA, or EmTRAC agreement has terminated, employees who have been receiving protection from tip income examination through their employer's participation in an existing TRAC, TRDA, or EmTRAC agreement will continue to receive that protection for the prior return periods covered by their employer's agreement (including during the transition period described in section 13.02 of this revenue procedure) to the extent their employers remain compliant with the terms of their agreement. No employee will have protection from tip income examination through their employer's participation in a TRAC, TRDA, or EmTRAC agreement after the conclusion of the transition period described in section 13.02. SECTION 14. EFFECTIVE DATE This revenue procedure is effective on the date of the publication of the final revenue procedure in the Internal Revenue Bulletin.

Internal Revenue Service - Information Release IR-2022-101 National Small Business Week: Making estimated tax payments electronically is fast and easy May 4, 2022 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 National Small Business Week: Making estimated tax payments electronically is fast and easy IRS YouTube Videos - Estimated Tax Payments | ASL IR-2022-101, May 4, 2022 WASHINGTON -- The Internal Revenue Service reminds all businesses, including self-employed and gig workers, to make estimated tax payments quarterly, and that making them electronically is fast, easy and safe. During National Small Business Week, May 1 to 7, the IRS is highlighting tax benefits and resources tied to the theme for this year's celebration: "Building a Better America through Entrepreneurship." Paying estimated tax payments quarterly throughout the year is important for business owners. Individuals and businesses alike are required to pay taxes as income is earned or received throughout the year, either through withholding or estimated tax payments. That's why those who are self-employed or in the gig economy usually need to make estimated tax payments. Estimated tax is used to pay not only income tax, but other taxes such as self-employment tax and alternative minimum tax. If a taxpayer doesn't pay enough tax through withholding and estimated tax payments, they may be charged a penalty. They also may be charged a penalty if estimated tax payments are late, even if the taxpayer is due a refund when they file their tax return. However, generally, paying quarterly estimated taxes will lessen or even eliminate any penalties. Estimated tax requirements are different for farmers, fishers and certain higher income taxpayers. In addition, special rules apply to some groups of taxpayers, such as casualty and disaster victims, those who recently became disabled, recent retirees and those who receive income unevenly during the year. Publication 505, Tax Withholding and Estimated Tax, provides more information about these special estimated tax rules. Who must pay estimated tax Individuals, including sole proprietors, partners, and S corporation shareholders, generally must make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. Corporations generally must make estimated tax payments if they expect to owe tax of $500 or more when their return is filed. Taxpayers may have to pay estimated tax for the current year if their tax was more than zero in the prior year. See the worksheet in Form 1040-ES, Estimated Tax for Individuals, or Form 1120-W, Estimated Tax for Corporations, for more details on who must pay estimated tax. Who does not have to pay estimated tax Self-employed people and gig workers who also receive salaries and wages from an employer can generally avoid having to pay estimated tax by asking their employer to withhold more tax from their paycheck. This usually requires the filing of a new Form W-4, Employee's Withholding Certificate, with the employer. A special line on Form W-4 allows a taxpayer to enter an additional amount to be withheld. Taxpayers receiving a paycheck can check the Tax Withholding Estimator on IRS.gov to determine if the right amount of tax is being withheld from their paycheck. Also, individuals don't have to pay estimated tax for the current year if they meet all three of the following conditions: - No tax liability for the prior year, - U.S. citizen or resident for the whole year and - The prior tax year covered a 12-month period. An individual has no tax liability for the prior year if their total tax was zero or they didn't have to file an income tax return. Additional information on how to figure estimated tax is available in Publication 505, Tax Withholding and Estimated Tax. How to figure estimated tax Individuals, including sole proprietors, partners and S corporation shareholders, generally use Form 1040-ES, Estimated Tax for Individuals, to figure estimated tax. To figure estimated tax, individuals must figure their expected adjusted gross income, taxable income, taxes, deductions and credits for the year. When figuring estimated tax for the current year, taxpayers will often find it helpful to use income, deductions and credits from the prior year as a starting point. Corporations generally use Form 1120-W, Estimated Tax for Corporations, to figure estimated tax. When and how to pay estimated tax For estimated tax purposes, the year is divided into four payment periods. However, some taxpayers may find it easier to pay estimated taxes weekly, bi-weekly or monthly. Alternative payment periods are allowed if enough tax is paid in by the end of the quarter. Using an electronic payment option available on IRS.gov/payment is the easiest way for individuals, small businesses, self-employed individuals and gig workers to pay federal taxes. It's fast, easy and secure. - Taxpayers can use the EFTPS for all their federal tax payments, including federal tax deposits, installment agreement payments and estimated tax payments. In addition, by using the EFTPS, taxpayers can access a history of their payments, so they know how much and when the payments were made. - Individual Taxpayers can create an IRS Online Account to make their estimated tax payments. Using their account, taxpayers can see their payment history, any pending payments and other useful tax information. - Individual taxpayers can also make an estimated tax payment by using IRS Direct Pay. - Individual and Business Taxpayers can also make an estimated tax payment by using debit, credit card or digital wallet. The 2022 Form 1040-ES, Estimated Tax for Individuals, can help taxpayers estimate their first quarterly tax payment. While electronic filing is strongly encouraged, taxpayers may also send estimated tax payments with Form 1040-ES by mail. Corporations must deposit payments using EFTPS. Additional information is available in Publication 542, Corporations. 24/7 help at IRS.gov Small business owners, self-employed individuals and gig workers will find valuable resources at IRS.gov available 24/7. The resources include publications, forms, tax products and tips to help small business owners avoid tax troubles and succeed. The IRS is also reaching out to taxpayers in other languages through online resources for small businesses and individuals. The IRS has posted translated tax resources in 20 languages on IRS.gov. For more information see We Speak Your Language. Resources: - Small Business Tax Workshop: Eight interactive lessons designed to help new small business owners learn their tax rights and responsibilities. (The workshop is available in English, Spanish, Chinese-Simplified, Chinese-Traditional, Korean, Russian, Vietnamese and Haitian Creole.) More information about the workshop is available on the IRS YouTube channel. - Self-Employed Individuals Tax Center: A resource for sole proprietors and others who are in business for themselves. This site has many useful tips and references to tax rules a self-employed person may need to know. (The Center is available in English, Spanish, Vietnamese, Chinese (Traditional), Chinese (Simplified), Korean, Russian and Haitian-Creole.) - Small Business and Self-Employed Tax Center: Features links to a variety of useful tools, a downloadable tax calendar and common forms with instructions. (The Center is available in English, Spanish, Vietnamese, Chinese (Simplified), Chinese (Traditional), Korean, Russian and Haitian Creole.) - E-News for Small Businesses: A free electronic mail service that offers tax information for small business owners and self-employed individuals, including reminders, tips and special announcements. - Gig Economy Tax Center: Helps people quickly find answers to tax questions, as well as helpful tips and tax forms for business taxpayers. (The Center is available in English, Spanish, Vietnamese, Chinese (Simplified), Chinese (Traditional), Korean, Russian and Haitian Creole.) - Social media channels: Information for small businesses is also available through various IRS social media channels, including tax tips and other resources.

Revenue Procedure 2023-41 Internal Revenue Service 2023-52 I.R.B. 1607 26 CFR 601.201: Rulings and determination letters. (Also: Part I, Sections 832, 846; 1.832-4, 1.846-1.) Rev. Proc. 2023-41 SECTION 1. PURPOSE This revenue procedure prescribes discount factors for the 2023 accident year for use by insurance companies in computing discounted unpaid losses under§ 846 of the Internal Revenue Code and discounted estimated salvage recoverable under§ 832. This revenue procedure also provides, for convenience, discount factors for losses incurred in the 2022 accident year and earlier accident years for use in taxable years beginning in 2023. The discount factors for accident years before 2023 were prescribed in earlier revenue procedures. See, e.g., Rev. Proc. 2023-10, 2023-3 I.R.B. 411. For background concerning the loss payment patterns and application of the discount factors, see Rev. Proc. 2023-10. SECTION 2. SCOPE This revenue procedure applies to any insurance company that is required to discount unpaid losses under§ 846 for a line of business using the discount factors published by the Secretary. This revenue procedure also applies to any insurance company that is required to discount estimated salvage recoverable under§ 832. SECTION 3. DISCOUNT FACTORS FOR THE 2023 ACCIDENT YEAR.01 The tables in this section 3 separately present for each line of business the discount factors for losses incurred in the 2023 accident year for use by insurance companies in computing discounted unpaid losses under§ 846 and estimated salvage recoverable under§ 832. The discount factors presented in this section are generally determined by using the applicable interest rate for 2023 under§ 846(c), which is 2.90 percent, determined using semiannual compounding. The exceptions are the discount factors for long-tail lines of business determined using the composite method described in section V of Notice 88-100, 1988-2 C.B. 439. These discount factors are to be used in taxable years beginning in 2033 for losses incurred in accident years not separately reported on the annual statement for 2033. For taxable years beginning after 2033, the discount factors to be used for losses incurred in the 2023 accident year will be those determined using the composite method for later accident years. These discount factors will be published in later years. All discount factors are determined by assuming that all loss payments occur in the middle of the calendar year..02 Section V of Notice 88-100 sets forth a composite method for computing discounted unpaid losses for accident years that are not separately reported on the annual statement. Tables 1 and 2 separately provide discount factors for insurance companies that have elected to use the composite method of Notice 88-100. See Rev. Proc. 2002-74, 2002-2 C.B. 980. The discount factors computed using the composite method are unrelated to the composite discount factors referred to in§ 1.846-1(b)(1)(ii) and (4) of the Income Tax Regulations, which apply to lines of business for which the Secretary has not published discount factors. The composite discount factors for use with respect to such lines of business are labelled "Short-Tail Composite" (in Table 1, part B) and "Long-Tail Composite" (in Table 2, part B). The "Miscellaneous Casualty" discount factors referenced in§ 1.846-1(b)(2) are not set forth in tables but are equivalent to the "Short-Tail Composite" discount factors. SECTION 4. DISCOUNT FACTORS FOR TAXABLE YEARS BEGINNING IN 2023.01 The tables in this section 4 present separately for each line of business discount factors for losses incurred in the 2023 accident year and earlier accident years for use by insurance companies in computing discounted unpaid losses under§ 846 and estimated salvage recoverable under§ 832 in taxable years beginning in 2023..02 Tables 3 and 4 separately provide discount factors for insurance companies that have elected to use the composite method of Notice 88-100. See Rev. Proc. 2002-74. The discount factors computed using the composite method are unrelated to the composite discount factors referred to in§ 1.846-1(b)(1)(ii) and (4), which apply to lines of business for which the Secretary has not published discount factors. The composite discount factors for use with respect to such lines of business are labelled "Short-Tail Composite" (in Table 3, part B) and "Long-Tail Composite" (in Table 4, part B). The "Miscellaneous Casualty" discount factors referenced in§ 1.846-1(b)(2) are not set forth in tables but are equivalent to the "Short-Tail Composite" discount factors. SECTION 5. DRAFTING INFORMATION The principal author of this revenue procedure is James G. Carpino of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure contact Mr. Carpino at (202) 317-6995 (not a toll-free number).

Private Letter Ruling Number: 202233009 Internal Revenue Service May 26, 2022 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202233009 Release Date: 8/19/2022 Index Number: 9100.02-03 [Third Party Communication: Date of Communication: Month DD, YYYY] Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:B06 PLR-124719-21 Date: May 26, 2022 In Re: Request for extension of time under §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations to file an election pursuant to § 59(e) of the Internal Revenue Code Dear ********: This letter responds to a letter dated December 2, 2021, and subsequent correspondence, submitted on behalf of Taxpayer, requesting an extension of time under §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations to make an election under § 59(e) of the Internal Revenue Code (Code) and § 1.59-1(b)(1) of the Income Tax Regulations to deduct ratably over a 10-year period Taxpayer's research and experimental (R&E) expenditures described in § 174(a) incurred in Tax Year. This letter is being issued electronically in accordance with Rev.Proc. 2020-29, 2020-21 I.R.B. 859. A paper copy will not be mailed to Taxpayer. FACTS Taxpayer represents that the facts are as follows: Taxpayer is the common parent of a consolidated group for federal income tax purposes. Taxpayer and its affiliated group of corporations file a consolidated federal income tax return on a fiscal year basis using the accrual method of accounting. Taxpayer intended to make an election under § 59(e) and § 1.59-1(b)(1) to deduct ratably over a 10-year period certain R&E expenditures for Tax Year. On its timely filed consolidated income tax return for Tax Year, Taxpayer capitalized and deducted ratably certain R&E expenditures incurred for Tax Year. Taxpayer has made representations explaining why the statement required to make the election under § 59(e) and § 1.59-1(b)(1) was not timely filed. Taxpayer represents that, in requesting an extension of time to make an election under § 59(e) for Tax Year, it acted reasonably and in good faith and, further, there is no prejudice to the interests of the government. RULING REQUESTED Taxpayer requests an extension of time under §§ 301.9100-1 and 301.9100-3 to make an election under § 59(e) to capitalize and deduct ratably certain R&E expenditures incurred during Tax Year. LAW AND ANALYSIS Section 59(e)(1) provides, in relevant part, that any qualified expenditure to which an election under § 59(e)(1) applies shall be allowed as a deduction ratably over the 10-year period beginning with the taxable year in which such expenditure was made. Section 59(e)(2)(B) includes in the definition of "qualified expenditure" any amount which, but for an election under § 59(e), would have been allowable as a deduction (determined without regard to § 291) for the taxable year in which paid or incurred under § 174(a) (relating to R&E expenditures). Section 59(e)(3) provides that except as provided in § 59(e), no deduction shall be allowed under any other section of the Code for any qualified expenditure to which an election under § 59(e) applies. Section 59(e)(4)(A) provides that an election may be made under § 59(e)(1) with respect to any portion of any qualified expenditure. Section 59(e)(4)(B) provides that any election under § 59(e) may be revoked only with the consent of the Secretary. Section 1.59-1(b)(1) provides that an election under § 59(e) shall only be made by attaching a statement to the taxpayer's income tax return (or amended return) for the taxable year in which the amortization of the qualified expenditures subject to the § 59(e) election begins. The statement must be filed no later than the date prescribed by law for filing the taxpayer's original income tax return (including any extensions of time) for the taxable year in which the amortization of the qualified expenditures subject to the § 59(e) election begins. Additionally, the statement must include the taxpayer's name, address, and taxpayer identification number, and the type and amount of qualified expenditures identified in § 59(e)(2) that the taxpayer elects to deduct ratably over the applicable period described in § 59(e)(1). Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Code except subtitles E, G, H, and I. Section 301.9100-1(b) provides the term "regulatory election" includes an election the due date of which is prescribed by a regulation published in the Federal Register. Sections 301.9100-1 through 301.9100-3 provide the standards used to determine whether to grant an extension of time to make a regulatory election. Section 301.9100-1(a). Section 301.9100-2 allows automatic extensions of time for making certain elections. Section 301.9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of § 301.9100-2. The Commissioner will grant requests for relief under § 301.9100-3 when the taxpayer provides the evidence (including affidavits described in § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the government. Section 301.9100-3(a). CONCLUSION Based solely on the information submitted and the representations made, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Accordingly, the Commissioner grants Taxpayer an extension of time of 120 days from the date of this letter to make an election under § 59(e) and § 1.59-1(b)(1) to deduct ratably over a 10-year period its R&E expenditures incurred for Tax Year. The § 59(e) election must comply with the manner-of-election requirements of § 1.59-1(b)(1). In making the election for Tax Year, Taxpayer must attach a copy of this letter ruling to its amended consolidated federal income tax return. Alternatively, if Taxpayer files its amended consolidated federal income tax return electronically, it may satisfy this requirement by attaching a statement to its amended return that provides the date and control number of the letter ruling. The ruling contained in this letter is based upon information and representations submitted by Taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for a ruling, it is subject to verification on examination. Except as specifically set forth above, we express no opinion concerning the federal tax consequences of the facts described above under any other provision of the Code and the regulations thereunder. Specifically, we express or imply no opinion concerning whether Taxpayer satisfies the requirements of §§ 59(e) or 174(a) or Taxpayer's proposal to amend its tax return for Tax Year. This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. In accordance with the power of attorney on file with this office, we are sending a copy of this letter to your authorized representative. Sincerely, Associate Chief Counsel (Passthroughs and Special Industries) By: _______________________________ Jennifer A. Records Senior Technician Reviewer, Branch 6 Office of the Associate Chief Counsel (Passthroughs and Special Industries) Enclosure Copy for § 6110 Purposes cc:

Private Letter Ruling Number: 202205023 Internal Revenue Service November 4, 2021 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202205023 Release Date: 2/4/2022 Index Number: 108.01-00, 108.01-04, 108.02-01 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:ITA:B04 PLR-128073-19 Date: November 04, 2021 Dear ********: This letter responds to your request for a private letter ruling granting an extension of time under section 301.9100-3 of the Procedure and Administration Regulations to make an election under section 108(c)(3)(C) of the Internal Revenue Code to exclude from income the discharge of qualified real property business indebtedness for tax year Year 1. Your authorized representatives have provided additional information and participated in an adverse conference, as provided in Revenue Procedure 2021-1. As set forth below, we have denied your request. FACTS Based on the representations of Taxpayers and the information provided by your authorized representative, the facts are as follows. Taxpayers together indirectly own a Percentage 1 interest Entity 1, a limited liability company formed in State, through their Percentage 2 ownership interest in Entity 2, a limited liability company for federal tax purposes. Taxpayers also own a Percentage 2 interest in Entity 3, a limited liability company for federal tax purposes. Entity 1, formed in Year 2, is in the business of Business Activities and was the sole owner of real property located at Property. Pursuant to a Loan dated Date 1, the Property was encumbered by a loan payable to Bank. On Date 2, the total outstanding loan balance was Amount 1. On Date 2, Entity 1 sold the Property to Entity 3 for Amount 2. Entity 1 paid Amount 3 to Bank on the outstanding loan balance, and Bank discharged the remaining loan balance, amounting to Amount 4. For tax year Year 1, Entity 1 reported a loss of Amount 5 under section 1231 of the Internal Revenue Code and cancellation of debt (COD) income of Amount 6. Taxpayers engaged Advisor, a qualified tax professional, to prepare their tax returns for tax year Year 1. Taxpayers and Advisor state that (1) Advisor did not advise Taxpayers on the availability of the section 108(c)(3)(C) election, (2) the failure to make the election was due to inadvertence and not tax planning, and (3) that Taxpayers would have made the election if its availability had been known. For tax year Year 1, Entity 1 reported no taxable income as its 1231 loss exceeded income. Advisor provided contemporaneous Year 1 return documents, including a Document, showing computations related to the 1231 loss and COD income resulting in Entity 1's 1231 loss being only partially offset by the COD income. Advisor, during discussions with us, stated that at the time he prepared Entity 1's and Taxpayers' returns there was no benefit to making the § 108(c)(3)(C) election because of the large 1231 loss. As such, the COD income was reported and recognized in Year 1 and Advisor did not advise to elect to exclude the COD income and reduce tax attributes. The State Tax Entity examined Entity 1's state tax return for tax year Year 1 and disallowed the section 1231 loss pursuant to I.R.C. section 707(b)(1)(B) 1. The State Tax Entity determined that the sale of the Property by Entity 1 to Entity 3 constituted a sale or exchange of property, directly or indirectly, between two partnerships in which the same persons own, directly or indirectly, more than 50% of the capital interest or profits interests. The state tax matter is currently under appeal pending the resolution of this private letter ruling request. The Service did not examine Taxpayers' Year 1 Federal income tax return, and the claimed 1231 loss, prior to the expiration of the statute of limitations and has no ability to now do so. ******** 1 State's tax law conforms to federal tax law with modification. ******** On Date 3, more than six years after a timely election was required to be made, Taxpayers submitted this request for an extension of time under §§ 301.9100-1 and 301.9100-3 to make an election under section 108(c)(3)(C) for tax year Year 1. The representations and facts provided establish that allowing the late election would require amended returns for closed tax years Year 1-Year 3 (and possibly beyond) that would affect each years' computations and amount of tax due; however, Taxpayers concede that the statute of limitation is closed for those years so that Taxpayers may not request a refund and the Service may not examine the returns and/or assess additional tax. On Date 4, we informed your representative that we were tentatively adverse. We subsequently held an adverse conference of right and follow-up telephonic conferences. In addition, your representative provided additional information and documents. On Date 5, we informed your authorized representative that we had made a final adverse determination. LAW Section 108(a)(1)(D) provides that gross income does not include the amount which (but for § 108(a)) would be includible in gross income by reason of the discharge of indebtedness of the taxpayer if in the case of a taxpayer other than a C Corporation, the indebtedness discharged is qualified real property indebtedness. Section 108(c)(1) provides that the amount excluded from income under § 108(a)(1)(D) shall be applied to reduce basis of the depreciable real property of the taxpayer. Section 108(c)(3) provides that the term "qualified real property business indebtedness" means indebtedness that: (A) was incurred or assumed by the taxpayer in connection with real property used in a trade or business and is secured by such real property; (B) was incurred or assumed before January 1, 1993; and (C) with respect to which such taxpayer makes an election to have § 108(c)(3) apply. Section 108(d)(6) provides that in the case of a partnership, § 108(a) and (c) apply at the partner level. Section 108(d)(9)(A) provides that an election under § 108(c)(3)(C) shall be made on the taxpayer's return for the taxable year in which the discharge occurs or at such other times as may be permitted in regulations prescribed by the Secretary. Section 108(d)(9)(C) provides that an election referred to in § 108(d)(9)(A) shall be made in such manner as the Secretary may by regulations prescribe. Section 1.108-5 of the Income Tax Regulations, which is effective December 27, 1993, provides that the election to treat indebtedness as qualified real property business indebtedness under § 108(c)(3) is to be made on Form 982 and attached to a timelyfiled return for the taxable year in which the taxpayer has discharge of indebtedness income that is excludible under section 108(a). Section 301.9100-1(c) provides that the Commissioner has the discretion to grant a reasonable extension of time to make a regulatory election. Section 301.9100-1(b) defines the term "regulatory election" as including any election the due date for which is prescribed by a regulation. Because the due date of the section 108(c)(3)(C) election is prescribed in § 1.108-5, that election is a regulatory election. Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make the election. Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of § 301.9100-2. Section 301.9100-3(a) provides that requests for relief subject to § 301.9100-3 will be granted when the taxpayer provides evidence, including affidavits described in § 301.9100-3(e), to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and the grant of the relief will not prejudice the interests of the Government. Section 301.9100-3(b)(3)(iii) provides that a taxpayer is considered to have not acted reasonably and in good faith if the taxpayer uses hindsight in requesting relief. If specific facts have changed since the original deadline that make the election advantageous to the taxpayer, the Service will not ordinarily grant relief. Section 301.9100-3(c)(1) provides that the Service will grant a reasonable extension of time to make a regulatory election only when the interests of the Government will not be prejudiced by the granting of the relief. Section 301.9100-3(c)(1)(i) provides that the interests of the Government are prejudiced if granting relief would result in a taxpayer having a lower tax liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made. Under § 301.9100-3(c)(1)(ii), the interests of the Government are ordinarily prejudiced if the taxable year in which the regulatory election should have been made, or any taxable year affected by the election had it been timely made, are closed by the period of limitations on assessment under § 6501(a) before the taxpayer's receipt of a ruling granting relief under § 301.9100-3. However, the IRS may condition a grant of relief on the taxpayer providing the IRS with a statement from an independent auditor (other than an auditor providing an affidavit pursuant to paragraph (e)(3) of this section) certifying that the interests of the Government are not prejudiced by means of subsection (c)(1)(i). Section 5.03(2) of Revenue Procedure 2021-1 (and its predecessors) provides that the Service ordinarily will not issue a § 301.9100 ruling if the period of limitation on assessment under § 6501(a) for the taxable year in which an election should have been made, or for any taxable years that would have been affected by the election had it been timely made, will expire before receipt of a § 301.9100 letter ruling. However, the Service may issue the letter ruling if the taxpayer consents to extend the period of limitation on assessment under § 6501(c)(4) for the taxable year in which the election should have been made and for any taxable years that would have been affected by the election had it been timely made. DISCUSSION Based on the facts provided and representations made, we deny Taxpayers' request for relief under § 301.9100-3. We find that Taxpayers did not act reasonably and in good faith because the request is based on hindsight and we find the interests of the Government would be prejudiced by granting the requested relief because the statute of limitations is closed for Year 1 and subsequent years affected by the late election. In addition, we find that the requested six-year extension is not a reasonable extension of time because the Taxpayers' should have discovered the missed election before the statute of limitations expired and/or the state tax authority disallowed the 1231 loss. Lastly, we find that granting relief would not be in the interest of sound tax administration because the expired statute of limitations prevents the Service from examining Entity 1's and Taxpayers' Year 1 return, as well as subsequent affected returns. Each of the reasons described herein independently support our denial. Under § 301.9100-3(b)(3), a taxpayer is considered to have not acted reasonably and in good faith if the taxpayer uses hindsight in requesting relief. The representations and statements provided establish that at the time the Year 1 return was prepared, Advisor was aware of the § 108 election, the election provided no benefit to Taxpayers, and Taxpayers have no explanation as to why they would have made the election if informed of its availability. We find Taxpayers' statement that they would have made the election to be self-serving and unsupported by the facts. The sole reason provided for seeking relief to make the election is to affect the outcome of a subsequent state tax proceeding. The state tax proceeding is a change of facts after the original deadline that makes the election advantageous to the Taxpayers and, as such, establishes that Taxpayers request is due to hindsight. Under § 301.9100-3(c)(1)(ii), the interests of the Government are ordinarily prejudiced if the taxable year in which the regulatory election should have been made, or any taxable year affected by the election had it been timely made, are closed by the period of limitations on assessment under § 6501(a). Tax year Year 1, for which Taxpayers are seeking to make the late section 108(c)(3)(C), is closed. Subsequent tax years, years in which Taxpayers did not reduce basis of depreciable real property as required by section 108(c)(1) but rather took depreciation deductions, are closed as well. The Service may condition a grant of relief on the taxpayer providing a statement from an independent auditor certifying that the taxpayer will not have a lower tax liability should the late election be allowed. Taxpayers offered to provide a certification after we notified them that we were tentatively adverse; however, an independent audit and certification is insufficient as it assumes the propriety of the § 1231 loss, the eligibility for the § 108 election, and that other positions and computations on the returns are proper, which the Service is not permitted to examine. For this reason, and other legal and administrative considerations, § 5.03(2) of Revenue Procedure 2021-1 provides that the Service ordinarily will not issue a § 301.9100 ruling if the period of limitation on assessment under § 6501(a) has expired for the taxable year in which an election should have been made, or for any taxable years that would have been affected by the election had it been timely made. CONCLUSION Based on the facts and representations provided, and for the reasons discussed, Taxpayers are not granted an extension of time under § 301.9100-3 to make a late § 108(c)(3)(C) election because Taxpayers did not act reasonably and in good faith, the interests of the Government would be prejudiced, the amount of time requested is not reasonable, and granting the extension would not be in the best interests of tax administration. This letter is being issued electronically in accordance with Rev. Proc. 2020-29, 2020-21 I.R.B. 859. A paper copy will not be mailed to the taxpayer. Pursuant to the Form 2848, Power of Attorney and Declaration of Representation, on file, we are sending a copy of this letter to your authorized representatives. Sincerely, Ronald J. Goldstein Senior Technician Reviewer, Branch 4 (Income Tax & Accounting) cc:

Private Letter Ruling Number: 202335008 Internal Revenue Service May 23, 2023 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202335008 Release Date: 9/1/2023 Index Number: 7872.05-00, 9100.00-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:FIP:B02 PLR-123113-22 Date: May 23, 2023 Dear ******: This ruling responds to a letter dated November 21, 2022, and subsequent correspondence, submitted on behalf of Taxpayer. Taxpayer requests an extension of time under sections 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations to make a written representation under section 1.7872-15(d)(2) of the Income Tax Regulations to elect to treat otherwise noncontingent payments on split-dollar loans that are nonrecourse to the borrower as noncontingent. FACTS Taxpayer is an employee of Employer, a non-profit healthcare corporation that is a tax-exempt organization under section 501(c)(3) of the Internal Revenue Code (the "Code"). In Year, Employer met with a consulting team from Company to consult on matters relating to employee recognition and retention. Company recommended and assisted with implementing a split-dollar life insurance plan ("SDP") for key employees of Employer. Neither Employer nor Taxpayer had prior experience with or knowledge of SDPs. Employer contracted Company to serve as the SDP third-party administrator in Month 1. Company was responsible for administering, implementing, and providing ongoing guidance related to the SDP and the loans thereunder. These responsibilities included set-up of the SDP, document preparation, and advising on document execution. Taxpayer represents that both Employer and Taxpayer reasonably relied on Company's expertise regarding the SDP including all information, representations, conclusions, and assistance, and that Company was aware of this reliance. Company intended for the SDP to be subject to the regulations under section 1.7872-15 ("Split-Dollar Regulations") and designed the plan to utilize nonrecourse premium loans to the employee participants secured by life insurance policies owned by each employee (the "SDP Loans"). Taxpayer is an employee participant in the SDP and in Year, Taxpayer received Taxpayer's first SDP Loan. Taxpayer represents that each of Taxpayer's SDP Loans has stated interest equal to the applicable federal rate and is not a "below-market split-dollar loan" under the Split-Dollar Regulations. Company projected that the proceeds of the insurance policies securing each SDP Loan are sufficient to pay all interest and principal due on that SDP Loan. Taxpayer also represents that a reasonable person would expect that all payments under each of Taxpayer's SDP Loans will be made. The due date for making Taxpayer's written representation was Date. In Month 2, Company advised Employer that the parties to a SDP Loan were required to make a written representation pursuant to section 1.7872-15(d)(2)(i) and (ii) and file a copy of the representation with their tax returns for the years SDP Loans were made to avoid having the payments treated as contingent payments for purposes of the Split-Dollar Regulations. Taxpayer represents that they were informed of this requirement by Employer. However, in the process of providing the initial SDP execution documents, Company and Employer inadvertently failed to provide Taxpayer with the written representation for execution. In Month 3, Company provided executed documents under the SDP to Employer counsel for review. During the review, it was discovered that Company had inadvertently failed to provide Taxpayer and Employer with the written representation necessary to make the section 1.7872-15(d)(2) election for Taxpayer's SDP Loans. The written representation was subsequently prepared by Employer counsel and executed by both Taxpayer and Employer in Month 4. Taxpayer represents that Taxpayer has been accounting for the SDP Loans as though the written representation was timely made. 1 ******** 1 Employer has also requested relief under sections 301.9100-1 and 301.9100-3. ******** Taxpayer makes the following additional representations: 1. Granting the relief will not result in Taxpayer having a lower tax liability in the aggregate for all years to which the regulatory election applies than Taxpayer would have had if the election had been timely made (taking into account the time value of money). 2. Taxpayer is not seeking to alter a return position for which an accuracy related penalty has been or could have been imposed under section 6662 at the time Taxpayer requested relief and the new position requires or permits a regulatory election for which relief is requested. 3. Being fully informed of the required regulatory election and related tax consequences, the Taxpayer did not choose to not make the election. 4. Taxpayer is not using hindsight in requesting relief. No facts have changed between the time the election should have been made and the time this request for relief was filed that would make the election advantageous to Taxpayer. 5. The request for relief was filed before the failure to make the regulatory election was discovered by the Service. 6. Although the period of limitations on assessment under section 6501(a) of the Code has expired for the taxable year at issue, an affidavit from an independent auditor certifying that the interests of the Government are not prejudiced under the standards of section 301.9100-3(c)(1)(i) by a ruling granting relief has been provided. Affidavits on behalf of Taxpayer have been provided as required by section 301.9100-3(e). LAW AND ANALYSIS Section 1.7872-15(d)(1) provides that, except as provided in section 1.7872-15(d)(2), if a payment on a split-dollar loan is nonrecourse to the borrower, the payment is a contingent payment for purposes of section 1.7872-15. Section 1.7872-15(d)(2)(i) provides that an otherwise noncontingent payment on a split-dollar loan that is nonrecourse to the borrower is not a contingent payment under section 1.7872-15 if the parties to the split-dollar life insurance arrangement represent in writing that a reasonable person would expect that all payments under the loan will be made. Section 1.7872-15(d)(2)(ii) describes the time and manner requirements for providing the written representation required by section 1.7872-15(d)(2)(i). Section 1.7872-15(d)(2)(ii) provides, in part, that the written representation must be signed by both the borrower and lender not later than the last day (including extensions) for filing the Federal income tax return of the borrower or lender, whichever is earlier, for the taxable year in which the lender makes the first split-dollar loan under the split-dollar life insurance arrangement. This representation must include the names, addresses, and taxpayer identification numbers of the borrower, lender, and any indirect participants. Unless otherwise stated therein, this representation applies to all subsequent split-dollar loans made pursuant to the split-dollar life insurance arrangement. Each party should retain an original of the representation as part of its books and records and should attach a copy of the representation to its Federal income tax return for any taxable year in which the lender makes a loan to which the representation applies. Section 301.9100-1(b) defines "election" to include an application for relief in respect of tax; a request to adopt, change, or retain an accounting method or accounting period. The term does not include an application for an extension of time for filing a return under section 6081. "Regulatory election" is defined as an election whose due date is prescribed by regulations or by a revenue ruling, a revenue procedure, a notice, or an announcement published in the Internal Revenue Bulletin. Section 301.9100-1(c) provides that the Commissioner has discretion to grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than 6 months except in the case of a taxpayer who is abroad), under all subtitles of the Code except subtitles E, G, H, and I. Section 301.9100-3(a) through (c)(1) sets forth rules that the Service generally will use to determine whether, under the particular facts and circumstances of each situation, the Commissioner will grant an extension of time for regulatory elections that do not meet the requirements of section 301.9100-2. Section 301.9100-3(a) provides that requests for relief subject to section 301.9100-3 will be granted when the taxpayer provides the evidence (including affidavits described in section 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government. Section 301.9100-3(b) provides that a taxpayer generally is deemed to have acted reasonably and in good faith if the taxpayer (i) requests relief under section 301.9100-3 before the failure to make the regulatory election is discovered by the Service; (ii) failed to make the election because of intervening events beyond the taxpayer's control; (iii) failed to make the election because, after exercising reasonable diligence (taking into account the taxpayer's experience and the complexity of the return or issue), the taxpayer was unaware of the necessity for the election; (iv) reasonably relied on the written advice of the Service; or (v) reasonably relied on a qualified tax professional, including a tax professional employed by the taxpayer, and the tax professional failed to make, or advise the taxpayer to make, the election. A taxpayer will be deemed to have not acted reasonably and in good faith, however, if the taxpayer (i) seeks to alter a return position for which an accuracy-related penalty has been or could be imposed under section 6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested; (ii) was informed in all material respects of the required election and related tax consequences, but chose not to file the election; or (iii) uses hindsight in requesting relief. Section 301.9100-3(c)(1) provides that a reasonable extension of time to make a regulatory election will be granted only when the interests of the Government will not be prejudiced by the granting of relief. Section 301.9100-3(c)(1)(i) provides that the interests of the Government are prejudiced if granting relief would result in the taxpayer having a lower tax liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made (taking into account the time value of money). Similarly, if the tax consequences of more than one taxpayer are affected by the election, the Government's interests are prejudiced if extending the time for making the election may result in the affected taxpayers, in the aggregate, having a lower tax liability than if the election had been timely made. Section 301.9100-3(c)(1)(ii) provides that the interests of the Government are ordinarily prejudiced if the taxable year in which the regulatory election should have been made or any taxable years that would have been affected by the election had it been timely made are closed by the period of limitations on assessment under section 6501(a) before the taxpayer's receipt of a ruling granting relief under section 301.9100-3. The Service may condition a grant of relief on the taxpayer providing the Service with a statement from an independent auditor (other than an auditor providing an affidavit pursuant to section 301.9100-3(e)) certifying that the interests of the Government are not prejudiced under the standards set forth in section 301.9100-3(c)(1)(i). CONCLUSION Based on the information submitted and representations made, we conclude that Taxpayer has satisfied the requirements for granting a reasonable extension of time to make the written representation under section 1.7872-15(d)(2). Accordingly, the fully executed written representation made in Month 4 will be deemed to have been timely made. Provided that a copy of the fully executed written representation is attached to Taxpayer's Federal income tax return for the taxable year in which this letter is received, the written representation will be deemed effective beginning in Year. In accordance with section 1.7872-15(d)(2)(ii), a copy of the written representation should be attached to Taxpayer's tax return for any subsequent taxable year in which Employer makes a SDP Loan to Taxpayer to which the written representation applies. This ruling is limited to the timeliness of making a written representation under section 1.7872-15(d)(2). This ruling's application is limited to the facts, representations, and Code and regulation sections cited herein. Except as provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Specifically, no opinion is expressed with regard to whether Taxpayer satisfied the other requirements under section 1.7872-15(d)(2)(i) and (ii), the loan treatment requirements under section 1.7872-15(a)(2), or whether payments under each SDP Loan are otherwise noncontingent payments for purposes of section 1.7872-15. No opinion is expressed with regard to whether the SDP Loans are below-market loans for purposes of section 7872 of the Code and section 1.7872-15 of the Regulations. No opinion is expressed with regard to whether the tax liability of Taxpayer is not lower in the aggregate for all years to which the election applies than such tax liability would have been if the election had been timely made (taking into account the time value of money). Upon audit of the Federal income tax returns involved, the director's office will determine such tax liability for the years involved. If the director's office determines that such tax liability is lower, that office will determine the Federal income tax effect. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative. Sincerely, Andrea M. Hoffenson Branch Chief, Branch 2 Office of the Associate Chief Counsel (Financial Institutions and Products) cc:

Internal Revenue Service - Information Release IR-2022-203 Get Ready now to file your 2022 federal income tax return November 22, 2022 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 Get Ready now to file your 2022 federal income tax return IR-2022-203, November 22, 2022 WASHINGTON -- The Internal Revenue Service today encouraged taxpayers to take simple steps before the end of the year to make filing their 2022 federal tax return easier. With a little advance preparation, a preview of tax changes and convenient online tools, taxpayers can approach the upcoming tax season with confidence. Filers can visit the Get Ready webpage to find guidance on what's new and what to consider when filing a 2022 tax return. They can also find helpful information on organizing tax records and a list of online tools and resources. Get Ready by gathering tax records When filers have all their tax documentation gathered and organized, they're in the best position to file an accurate return and avoid processing or refund delays or receiving IRS letters. Now's a good time for taxpayers to consider financial transactions that occurred in 2022, if they're taxable and how they should be reported. The IRS encourages taxpayers to develop an electronic or paper recordkeeping system to store tax-related information in one place for easy access. Taxpayers should keep copies of filed tax returns and their supporting documents for at least three years. Before January, taxpayers should confirm that their employer, bank and other payers have their current mailing address and email address to ensure they receive their year-end financial statements. Typically, year-end forms start arriving by mail or are available online in mid-to-late January. Taxpayers should carefully review each income statement for accuracy and contact the issuer to correct information that needs to be updated. Get Ready for what's new for Tax Year 2022 With the end of the year approaching, time is running out to take advantage of the Tax Withholding Estimator. This online tool is designed to help taxpayers determine the right amount of tax to have withheld from their paycheck. Some people may have life changes like getting married or divorced, welcoming a child or taking on a second job. Other taxpayers may need to consider estimated tax payments due to non-wage income from unemployment, self-employment, annuity income or even digital assets. The last quarterly payment for 2022 is due on January 17, 2023. The Tax Withholding Estimator can help wage earners determine if there is a need to adjust their withholding, consider additional tax payments, or submit a new W-4 form to their employer to avoid an unexpected tax bill when they file. As taxpayers gather tax records, they should remember that most income is taxable. This includes unemployment income, refund interest and income from the gig economy and digital assets. Taxpayers should report the income they earned, including from part-time work, side jobs or the sale of goods. The American Rescue Plan Act of 2021 lowered the reporting threshold for third-party networks that process payments for those doing business. Prior to 2022, Form 1099-K was issued for third-party payment network transactions only if the total number of transactions exceeded 200 for the year and the aggregate amount of these transactions exceeded $20,000. Now a single transaction exceeding $600 can trigger a 1099-K. The lower information reporting threshold and the summary of income on Form 1099-K enables taxpayers to more easily track the amounts received. Remember, money received through third-party payment applications from friends and relatives as personal gifts or reimbursements for personal expenses is not taxable. Those who receive a 1099-K reflecting income they didn't earn should call the issuer. The IRS cannot correct it. Credit amounts also change each year like the Child Tax Credit (CTC), Earned Income Tax Credit (EITC) and Dependent Care Credit. Taxpayers can use the Interactive Tax Assistant on IRS.gov to determine their eligibility for tax credits. Some taxpayers may qualify this year for the expanded eligibility for the Premium Tax Credit, while others may qualify for a Clean Vehicle Credit through the Inflation Reduction Act of 2022. Refunds may be smaller in 2023. Taxpayers will not receive an additional stimulus payment with a 2023 tax refund because there were no Economic Impact Payments for 2022. In addition, taxpayers who don't itemize and take the standard deduction, won't be able to deduct their charitable contributions. The IRS cautions taxpayers not to rely on receiving a 2022 federal tax refund by a certain date, especially when making major purchases or paying bills. Some returns may require additional review and may take longer. For example, the IRS and its partners in the tax industry, continue to strengthen security reviews to protect against identity theft. Additionally, refunds for people claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) can't be issued before mid-February. The law requires the IRS to hold the entire refund - not just the portion associated with EITC or ACTC. This law helps ensure taxpayers receive the refund they're due by giving the IRS time to detect and prevent fraud. For taxpayers who are still waiting for confirmation that last year's tax return processed, or for a tax year 2021 refund or stimulus payment to process, their patience is appreciated. As of November 11, 2022, the IRS had 3.7 million unprocessed individual returns received this year. These include tax year 2021 returns and late filed prior year returns. Of these, 1.7 million returns require error correction or other special handling, and 2 million are paper returns waiting to be reviewed and processed. They also had 900,000 unprocessed Forms 1040-X for amended tax returns. The IRS is processing these amended returns in the order received and the current timeframe can be more than 20 weeks. Taxpayers should continue to check Where's My Amended Return? for the most up-to-date processing status available. Renew expiring tax ID numbers Taxpayers should ensure their Individual Tax Identification Number (ITIN) hasn't expired before filing a 2022 tax return. Those who need to file a tax return, should submit a Form W-7, Application for IRS Individual Taxpayer Identification Number now, to renew their ITIN. Taxpayers who fail to renew an ITIN before filing a tax return next year could face a delayed refund and may be ineligible for certain tax credits. Applying now will help avoid the rush as well as refund and processing delays in 2023. Bookmark the following tools on IRS.gov Online tools are easy to use and available to taxpayers 24 hours a day. They provide key information about tax accounts and a convenient way to pay taxes. IRS.gov provides information in many languages and enhanced services for people with disabilities, including the Accessibility Helpline. Taxpayers who need accessibility assistance may call 833-690-0598. Taxpayers should use IRS.gov as their first and primary resource for accurate tax information. - Let Us Help You page. The Let Us Help You page on IRS.gov has links to information and resources on a wide range of topics. - Online Account. An IRS online account lets taxpayers securely access their personal tax information, including tax return transcripts, payment history, certain notices, prior year adjusted gross income and power of attorney information. Filers can log in to verify if their name and address is correct. They should notify IRS if their address has changed. They must notify the Social Security Administration of a legal name change to avoid a delay in processing their tax return. - IRS Free File. Almost everyone can file electronically for free on IRS.gov/freefile or with the IRS2Go app. The IRS Free File program, available only through IRS.gov, offers brand-name tax preparation software packages at no cost. The software does all the work of finding deductions, credits and exemptions for filers. It's free for those who qualify. Some Free File packages offer free state tax return preparation. Those who are comfortable preparing their own taxes can use Free File Fillable Forms, regardless of their income, to file their tax return either online or by mail. - Find a tax professional. The Choosing a Tax Professional page on IRS.gov has a wealth of information to help filers choose a tax professional. In addition, the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications can help taxpayers find preparers in their area who hold professional credentials recognized by the IRS, or who hold an Annual Filing Season Program Record of Completion. - Interactive Tax Assistant. The Interactive Tax Assistant is a tool that provides answers to many tax questions. It can determine if a type of income is taxable and eligibility to claim certain credits or deductions. It also provides answers for general questions, such as determining filing requirement, filing status or eligibility to claim a dependent. - Where's My Refund ? Taxpayers can use the Where's My Refund? tool to check the status of their refund. Current year refund information is typically available online within 24 hours after the IRS receives an e-filed tax return. A paper return status can take up to four weeks to appear after it is mailed. The Where's My Refund? tool updates once every 24 hours, usually overnight, so filers only need to check once a day. - Volunteer Income Tax Assistance. The Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs offer free basic tax return preparation to qualified individuals. Get refunds fast with Direct Deposit Taxpayers should prepare to file electronically and choose Direct Deposit for their tax refund - it's the fastest and safest way to file and get a refund. Even when filing a paper return, choosing a direct deposit refund can save time. For those who do not have a bank account, the FDIC website offers information to help people open an account online. Taxpayers can download Publication 5349, Tax Preparation is for Everyone PDF, for more information to help them get ready to file.

Private Letter Ruling Number: 202052050 Internal Revenue Service May 7, 2020 DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE 1100 Commerce Street, MC 4920DAL Dallas, TX 75242 TAX EXEMPT AND GOVERNMENT ENTITIES DIVISION Number: 202052050 Release Date: 12/24/2020 UIL: 501.03-00 Date: May 7, 2020 Taxpayer ID Number: Form: Tax Period(s) ended: Person to Contact: Identification Number: Telephone Number: Fax Number: CERTIFIED MAIL -- Return Receipt Requested LAST DAY FOR FILING A PETITION WITH THE TAXCOURT: Dear *******: This is a final determination that you do not qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3), effective November 1, 20XX. Your determination letter dated August 30, 20XX is revoked. Our adverse determination as to your exempt status was made for the following reasons: You have not established that you are organized and operated exclusively for an exempt purpose or that you have been engaged primarily in activities that accomplish one or more exempt purposes within the meaning of IRC Section 501(c)(3). As such, you failed to meet the requirements of IRC Section 501(c)(3) and Treasury Regulations Section 1.501(c)(3)-1(c), in that you have not established that you were operated exclusively for exempt purposes. We previously provided you a report of examination explaining the proposed revocation of your tax-exempt status. At that time, we informed you of your right to contact the Taxpayer Advocate, as well as your appeal rights. On *******, you signed Form 6018, Consent to Proposed Action -- Section 7428, in which you agreed to the revocation of your tax exempt status as described under IRC Section 501(c)(3). This is a final determination letter with regards to your federal tax-exempt status under Section 501(a). Contributions to your organization are no longer deductible under IRC Section 170. Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns and pay tax, where applicable. For further instructions, forms, and information please visit www.irs.gov. If you decide to contest this determination, you may file an action for declaratory judgment under the provisions of IRC Section 7428 in one of the following three venues: 1) United States Tax Court, 2) the United States Court of Federal Claims, or 3) the United States District Court for the District of Columbia. A petition or complaint in one of these three courts must be filed within 90 days from the date this determination was mailed to you. Please contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions for declaratory judgment by referring to the enclosed Publication 892. You may write to the courts at the following addresses: United States Tax Court 400 Second Street, NW Washington, DC 20217 U.S. Court of Federal Claims 717 Madison Place, NW Washington, DC 20005 U.S. District Court for the District of Columbia 333 Constitution Ave., NW Washington, DC 20001 Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory judgment under IRC Section 7428. We'll notify the appropriate state officials (as permitted by law) of our determination that you aren't an organization described in IRC Section 501(c)(3). You may be eligible for help from the Taxpayer Advocate Service (TAS). TAS is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778. Taxpayer Advocate assistance can't be used as substitute for established IRS procedures, formal appeals processes, etc. The Taxpayer Advocate is not able to reverse legal or technically correct tax determination, nor extend the time fixed by law that you have to file a petition in Court. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling. You can get any of the forms or publications mentioned in this letter by calling 800-TAX-FORM (800-829-3676) or visiting our website at www.irs.gov/forms-pubs. If you have any questions about this letter, please contact the person whose name and telephone number are shown in the heading of this letter. Sincerely, Maria D. Hooke Director, EO Examinations Enclosures: Publication 892 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Exempt Organizations Examinations Date: November 5, 2019 Taxpayer Identification Number: Form: Tax Year(s) Ended: Person to Contact: Employee ID: Telephone: Fax: Manager's Contact Information: Employee ID: Telephone: Response Due Date: CERTIFIED MAIL -- Return Receipt Requested Dear *******: Why you're receiving this letter We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to revoke your tax-exempt status as an organization described in Internal Revenue Code (IRC) Section 501(c)(3). If you agree If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. We'll issue a final adverse letter determining that you aren't an organization described in IRC Section 501(c)(3) for the periods above. After we issue the final adverse determination letter, we'll announce that your organization is no longer eligible to receive tax deductible contributions under IRC Section 170. If you disagree 1. Request a meeting or telephone conference with the manager shown at the top of this letter. 2. Send any information you want us to consider. 3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information. The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For your protest to be valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't apply now that we've issued this letter. 4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the IRS. If you're considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals. If we don't hear from you If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final adverse determination letter. Contacting the Taxpayer Advocate Office is a taxpayer right The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778. For additional information You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person shown at the top of this letter. Sincerely, For Maria Hooke Director, Exempt Organizations Examinations Enclosures: Form 886-A Form 6018 Form 4621-A Pub 892 Pub 3498-A Form 1023-EZ Letter 5436 Date of Notice: November 5, 20XX ISSUE Should the tax-exempt status of ******* (hereinafter known as the organization) under Internal Revenue Code (IRC) § 501(c)(3) be revoked effective November 1, 20XX because it is not organized exclusively for exempt purposes within the meaning of IRC § 501(c)(3)? FACTS ******* applied for tax-exempt status by filing the Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, on August 24, 20XX, and was granted tax-exempt status as a 501(c)(3) on August 30, 20XX, with an effective date of August 24, 20XX. A copy of these documents is being provided to the organization with this report. The organization attested on Form 1023-EZ, part II, box 2 that they have the organizing document necessary for their organizational structure. Section 501(c)(3) requires that an organizing document must limit their purposes to one or more exempt purposes within section 501(c)(3). The organization attested that their organizing document contains this limitation. The organization attested that their organizing document does not expressly empower them to engage, otherwise than as an insubstantial part of their activities, in activities that in themselves are not in furtherance of one or more exempt purposes. The organization attested that their organizing document contains the dissolution provision required under section 501(c)(3) or that they did not need an express dissolution provision in their organizing document because they rely on the operation of state law in the state in which they are formed for their dissolution provision. ******* is not a cy pres state. The organization provided our office with "Registration Statement for Charitable Organizations" and a letter from ******* explaining the Certificate of Incorporation was filed with the State of ******. The Registration Statement for Charitable Organizations state the organization was formed on a stock basis, with 0 shares of par value stock and a value of $.00 per share. In the Information Document Request dated October 4, 20XX, our office asked the organization to provide articles of organization with an adequate purpose clause and a dissolution clause. Additionally, we advised the organization to either reorganize as a nonstock corporation or amend their articles to restrict the transfer of stock and prohibit payments of dividends. The organization failed to provide our office with their articles of organization. Per Form 990-EZ Schedule O, the organization's primary tax-exempt purpose is to promote teddy bear artists and raise funds for endangered species programs. The ****** is an annual *******. Participants pay a registration fee and other fees for optional excursions. The fees are paid directly to the organization. Participants can pay by either check or credit card. During the annual event, artists set up tables to sell their artwork. Each artist creates one diorama according to the theme of the event. The artists determine the sales price. A percentage of the sale is donated to "*******". The amount of the donation is determined according to the date the artists' registration form is received by the organization. If the artist registers early, only 0% of their sales are donated. The amount is increased to 0% if they register up to ******* weeks before the invitational and 0% for artists who register within ****** weeks of the event. LAW Internal Revenue Code (IRC) §501(c)(3) of the Code provides that an organization organized and operated exclusively for charitable or educational purposes is exempt from Federal income tax, provided no part of its net earnings inures to the benefit of any private shareholder or individual. Treasury Regulations (Regulation) 1.501(c)(3)-1 In order to be exempt under §501(c)(3) the organization must be both organized and operated exclusively for one or more of the purposes specified in the section. (religious, charitable, scientific, testing for public safety, literary or educational). Regulation §1.501(c)(3)-1(a)(1) of the regulations states that in order to be exempt as an organization described in section 501(c)(3), an organization must be both organized and operated exclusively for one or more of the purposes specified in such section. If an organization fails to meet either the organizational test or the operational test, it is not exempt. Regulation §1.501(c)(3)-1(b)(1)(i) An organization is organized exclusively for one or more exempt purposes only if its articles of organization (a) Limit the purposes of such organization to one or more exempt purposes; and (b) Do not expressly empower the organization to engage, otherwise than as an insubstantial part of its activities, in activities which in themselves are not in furtherance of one or more exempt purposes. Regulation 1.501(c)(3)-1(b)(4) An organization is not organized exclusively for one or more exempt purposes unless its assets are dedicated to an exempt purpose. An organization's assets will be considered dedicated to an exempt purpose, for example, if, upon dissolution, such assets would, by reason of a provision in the organization's articles or by operation of law, be distributed for one or more exempt purposes, or to the Federal Government, or to a State or local government, for a public purpose, or would be distributed by a court to another organization to be used in such manner as in the judgment of the court will best accomplish the general purposes for which the dissolved organization was organized. However, an organization does not meet the organizational test if its articles or the law of the State in which it was created provide that its assets would, upon dissolution, be distributed to its members or shareholders. Revenue Ruling 76-152 refers to a nonprofit organization formed by artists which selects pieces to exhibit, exhibits the artwork, and sells the artwork of local artists. As its sole activity, the organization selects modern art works of local artists for exhibit at its gallery and for possible sale. The Internal Revenue Service determined the artists were directly benefited by the exhibition and sale of their art pieces, with the result that a major activity of the organization is serving the private interests of those artists whose works are displayed for sale. Consequently, the nonprofit organization was not operated exclusively for tax-exempt purposes and did not qualify for tax exemption under 501(c)(3). ORGANIZATION'S POSITION October 23, 20XX: TCO ******* spoke with the organization's president, ******. ****** stated she misunderstood the requirements of Internal Revenue Code § 501(c)(3) when she initially filed Form 1023-EZ. ******* stated she agrees with the revocation. GOVERNMENT'S POSITION The tax-exempt status of ******* under Internal Revenue Code (IRC) § 501(c)(3) should be revoked effective November 1, 20XX as it is not organized or operated exclusively for exempt purposes within the meaning of IRC § 501(c)(3). In order to be exempt as an organization described in section 501(c)(3), an organization must be both organized and operated exclusively for one or more tax-exempt purposes specified in IRC § 501(c)(3). If an organization fails to meet either the organizational test or the operational test, it is not exempt. The organization failed to establish that it was organized and operated exclusively for one or more tax-exempt purposes per IRC § 501(c)(3). The organization failed to provide our office with their organizing documents; consequently, they failed the organizational test and cannot be exempt. Using the logic of Revenue Ruling 76-152, because the artists were directly benefited by the exhibition and sale of their art pieces, the organization served the private interests of those artists whose works were displayed for sale. The organization failed to establish they operated exclusively for tax-exempt purposes; consequently, they failed the operational test and cannot be exempt. The organization failed the organizational test and the operational test; therefore, the organization's tax-exempt status should be revoked effective November 1, 20XX. CONCLUSION: Based on the foregoing reasons, it is the IRS's position that the organization failed to establish that it meets the organizational test and operational test as required IRC §§ 501(c)(3) for it to be exempt from federal income tax under IRC § 501(c)(3). Accordingly, the organization's exempt status is revoked effective November 1, 20XX. Form 1120, U.S. Corporation Income Tax Return, should be filed for the tax periods after November 1, 20XX.

Internal Revenue Service - Information Release IR-2024-90 IRS reminder to taxpayers affected by terrorist attacks in Israel: 2023 returns and payments are now due Oct. 7; other relief available April 3, 2024 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 IRS reminder to taxpayers affected by terrorist attacks in Israel: 2023 returns and payments are now due Oct. 7; other relief available IR-2024-90, April 3, 2024 WASHINGTON -- The Internal Revenue Service today reminded individuals and businesses affected by the terrorist attacks in the State of Israel that they have until Oct. 7, 2024, to file various federal returns, make tax payments and perform other time-sensitive tax-related actions. In Notice 2023-71, posted Oct. 13, 2023, on IRS.gov, the IRS provided relief to taxpayers who, due to the terrorist attacks, may be unable to meet a tax-filing or tax-payment obligation, or may be unable to perform other time-sensitive tax-related actions. Filing and payment relief The notice postpones various tax filing and payment deadlines that occurred or will occur during the period from Oct. 7, 2023, through Oct. 7, 2024, (postponement period). As a result, affected individuals and businesses have until Oct. 7, 2024, to file returns and pay any taxes that were originally due during this period. Among other things, this includes: - 2023 individual and business returns and payments normally due on March 15 and April 15, 2024. These individuals and businesses have both more time to file and more time to pay. - Quarterly estimated income tax payments normally due on Jan. 16, April 15, June 17 and Sept. 16, 2024. - Quarterly payroll and excise tax returns normally due on Oct. 31, 2023, and Jan. 31, April 30 and July 31, 2024. - For eligible taxpayers, 2023 contributions to IRAs and health savings accounts. - Other retirement plan contributions and rollovers. Other tax-related deadlines are postponed as well. Among other things, this includes individuals, corporations and tax-exempt organizations that had valid extensions to file their 2022 federal income tax returns, though payments for these returns do not get the extra time because they were due before the attacks occurred. See Notice 2023-71 and Rev. Proc. 2018-58 for details. Who qualifies for relief? - Any individual whose principal residence is in Israel, the West Bank or Gaza (the covered area), as well as any business entity or sole proprietor whose principal place of business is in the covered area. Any taxpayer with an address of record in Israel, Gaza or the West Bank does not need to contact the IRS to get relief. That's because the IRS has automatically identified and provided relief to these taxpayers, based on addresses shown on previously filed returns. - Any individual, business or sole proprietor, or estate or trust whose books, records or tax preparer is located in the covered area. - Anyone killed, injured, or taken hostage due to the terrorist attacks. - Any individual affiliated with a recognized government or philanthropic organization and who is assisting in the covered area, such as a relief worker. Eligible taxpayers, or their representatives, whose filing address is outside the covered area can obtain relief by calling the IRS disaster hotline at 866-562-5227. Alternatively, international callers may call 267-941-1000. If an affected taxpayer receives a late filing or late payment penalty notice from the IRS for the postponement period, the taxpayer should call the number on the notice to have the penalty abated. Reminder about tax-preparation assistance Any individual or family whose adjusted gross income (AGI) was $79,000 or less in 2023 can use IRS Free File's Guided Tax Software at no cost. There are products in English and Spanish. Another Free File option is Free File Fillable Forms. These are electronic federal tax forms, equivalent to a paper 1040, and are designed for taxpayers who are comfortable filling out IRS tax forms. Anyone, regardless of income, can use this option. Members of the military also have another option. MilTax, a Department of Defense program, offers free return preparation software and electronic filing for federal tax returns and up to three state income tax returns. It's available for all military members and some veterans, with no income limit.

Private Letter Ruling Number: 202409021 Internal Revenue Service October 18, 2023 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Release Number: 202409021 Release Date: 3/1/2024 UIL Code: 501.03-08 Date: 10/18/2023 Taxpayer ID number (last 4 digits): Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: Last day to file petition with United States Tax Court: 1/16/2024 CERTIFIED MAIL - Return Receipt Requested Dear ******: Why we are sending you this letter This is a final determination that you don't qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3), effective ****** Your determination letter dated ******, ******, is revoked. Our adverse determination as to your exempt status was made for the following reasons: Organizations described in IRC Section 501(c)(3) and exempt under IRC Section 501(a) must be both organized and operated exclusively for charitable, educational, or other exempt purposes within the meaning of IRC Section 501(c)(3). You have failed to produce documents to establish that you are operated exclusively for exempt purposes within the meaning of IRC Section 501(c)(3), and that no part of your net earnings inure to the benefit of private shareholders or individuals. You failed to respond to repeated reasonable requests to allow the Internal Revenue Service to examine your records regarding your receipts, expenditures or activities as required by IRC Sections 6001 and 6033(a)(1) as well as Rev.Rul. 59-95, 1959-1 C.B. 627. Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns and pay tax, where applicable. For further instructions, forms and information please visit IRS.gov. Contributions to your organization are no longer deductible under IRC Section 170. What you must do if you disagree with this determination If you want to contest our final determination, you have 90 days from the date this determination letter was mailed to you to file a petition or complaint in one of the three federal courts listed below. How to file your action for declaratory judgment If you decide to contest this determination, you can file an action for declaratory judgment under the provisions of Section 7428 of the Code in either: - The United States Tax Court, - The United States Court of Federal Claims, or - The United States District Court for the District of Columbia You must file a petition or complaint in one of these three courts within 90 days from the date we mailed this determination letter to you. You can download a fillable petition or complaint form and get information about filing at each respective court's website listed below or by contacting the Office of the Clerk of the Court at one of the addresses below. Be sure to include a copy of this letter and any attachments and the applicable filing fee with the petition or complaint. You can eFile your completed U.S. Tax Court petition by following the instructions and user guides available on the Tax Court website at ustaxcourt.gov/dawson.html. You will need to register for a DAWSON account to do so. You may also file your petition at the address below: United States Tax Court 400 Second Street, NW Washington, DC 20217 ustaxcourt.gov The websites of the U.S. Court of Federal Claims and the U.S. District Court for the District of Columbia contain instructions about how to file your completed complaint electronically. You may also file your complaint at one of the addresses below: US Court of Federal Claims 717 Madison Place, NW Washington, DC 20439 uscfc.uscourts.gov US District Court for the District of Columbia 333 Constitution Avenue, NW Washington, DC 20001 dcd.uscourts.gov Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition rot declaratory judgment under IRC Section 7428. We'll notify the appropriate state officials (as permitted by law) of our determination that you aren't an organization described in IRC Section 501(c)(3). Information about the IRS Taxpayer Advocate Service The IRS office whose phone number appears at the top of the notice can best address and access your tax information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Contact your local Taxpayer Advocate Office at: Internal Revenue Service Taxpayer Advocate Office Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights, go to taxpayeradvocate.IRS.gov. Do not send your federal court pleading to the TAS address listed above. Use the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time to file an action for declaratory judgment. Where you can find more information Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for more comprehensive information. Find tax forms or publications by visiting IRS.gov/forms or calling 800-TAX-FORM (800-829-3676). If you have questions, you can call the person shown at the top of this letter If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best time to call, and a copy of this letter. You may fax your documents to the fax number shown above, using either a fax machine or online fax service. Protect yourself when sending digital data by understanding the fax service's privacy and security policies. Keep the original letter for your records. Sincerely, Lynn A. Brinkley Director, Exempt Organizations Examinations Enclosures: Publication 1 Publication 594 Publication 892 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Exempt Organizations Examinations Date: 05/31/2023 Taxpayer ID number: Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: Address: Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Division Exempt Organizations Examinations Manager's contact information: Name: ID number: Telephone: Response due date: 06/29/2023 CERTIFIED MAIL - Return Receipt Requested Dear ******: Why you're receiving this letter If you agree If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. We'll issue a final adverse letter determining that you aren't an organization described in IRC Section 501(c)(3) for the periods above. If you disagree 1. Request a meeting or telephone conference with the manager shown at the top of this letter. 2. Send any information you want us to consider. 3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information. The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For your protest to be valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't apply now that we've issued this letter. 4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the IRS. If you're considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals. If we don't hear from you If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final adverse determination letter. Contacting the Taxpayer Advocate Office is a taxpayer right The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778. Additional information You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person shown at the top of this letter Sincerely, John A Matias, Supervisory, Internal Revenue Agent for Lynn A. Brinkley Director, Exempt Organizations Examinations Enclosures: Form 886-A Form 6018 Issue: Whether ****** qualifies for exemption under Section 501(c)(3) of the internal Revenue Code. Facts: The EO was granted tax-exempt status on ******, ******, under Internal Revenue Code Section § 501(a) as an organization described in § 501(c)(3). The organization conducted its operations out of ******, ******. According to its determination application dated ******, ****** the purposes of the EO are as follows. To instill within ****** the confidence to be themselves, but at a ******, through mentoring, education, and other support. The organization filed Form year ended ****** on ******. We began an examination in ******. Spoke with the former secretary ****** and ****** explained that in ****** left the organization due to disagreement. The founder/president applied for ****** Loan (******) under the secretary's name with ****** consent, but ****** realized that false information was provided in the application. The incident report # ****** that ****** filed at ****** County ****** Department on ******, ******, when ****** received the initial letter from us on ******. ****** COUNTY ****** DEPARTMENT SUMMARY INCIDENT REPORT REPORT NUMBER: REPORT NUMBER: The secretary decided to withdraw the funding and issued ****** $ ******. ****** money orders and returned the funding back to ****** (******). On ******, ******, the founder/president ****** booth updated corporation statement of information through the ****** Secretary of State and listing the secretary as a director with ****** old address at ******, ****** as the EO new address. The founder/president submitted Form ****** with signature dated ******, ******, and the agency received the form on ******, ******. The founder on ******, ******, updated the EO address with secretary new address at ******, ****** in the IRS data base. We spoke with founder/president, ****** was uncooperative and stated ****** has not worked at the organization for *** years but Form ****** indicated ****** was the president that signed the documents. Left a messaged ******, ******, requesting address to send the information document request (IDR) and ****** did not respond. We were able to locate an address in ****** and issued a request for information on ******, ******. The request was for financial and organizational for the year under examination. Mailed as certified mail and the information was due back to us by ******, ******. The organization failed to respond to the request. We issued delinquency notice on ******, ****** and mailed certified mail. The information was due back to us by ******, ******. On ******, ******, we received returned certified mail ****** that was mailed on ******, ******. We summons bank accounts on ******, ****** and received email for the summon on ******, ******. To date, we have not received financials, organizational information, meeting minutes, board director lists, and other documents requested on ******. Law: IRC § 501(c)(3) exempts from Federal income tax corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office. IRC § 6001 states that every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe. Whenever in the judgment of the Secretary it is necessary, he may require any person, by notice served upon such person or by regulations, to make such returns, render such statements, or keep such records, as the Secretary deems sufficient to show whether or not such person is liable for tax under this title. The only records which an employer shall be required to keep under this section in connection with charged tips shall be charge receipts, records necessary to comply with section 6053(c), and copies of statements furnished by employees under section 6053(a). Treas. Reg. § 1.6001-1(c) states that in addition to such permanent books and records as are required by paragraph (a) of this section with respect to the tax imposed by section 511 on unrelated business income of certain exempt organizations, every organization exempt from tax under section 501(a) shall keep such permanent books of account or records, including inventories, as are sufficient to show specifically the items of gross income, receipts, and disbursements. Such organizations shall also keep such books and records as are required to substantiate the information required by section 6033 See section 6033 and §§1 6033-1 through - 3. Treas.Reg. § 1.6001-1(e) states that the books or records required by this section shall be kept at all times available for inspection by authorized Internal Revenue Service officers or employees and shall be retained as long as the contents thereof may be material in the administration of any Internal Revenue law. In accordance with the above cited provisions of the Code and Regulations under IRC § 6001 and 6033, organizations recognized as exempt from federal income tax must meet certain reporting requirements. These requirements relate to the filing of a complete and accurate annual information (and other required federal tax forms) and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status. Government's Position: Failure to Meet the Operational Test The EO has failed to show us that they meet the operational test for a § 501(c)(3) organization for the year under examination. In order to meet the operational test, they must show that they engage primarily in activities which accomplish one or more of such exempt purposes specified in section § 501(c)(3). We will not regard an organization as having met this test if more than an insubstantial part of its activities is not in furtherance of an exempt purpose. The evidence of their failure to operate for exempt purposes, we reviewed the Form ****** filings and found little or no support for exempt operations. The filed Form ****** for ****** does not show that they spent the $ ****** of expenses on their exempt function program services. In fact, they explicitly stated in Part ****** that ($ ******) of their expenses were for program services. The return that they submitted Form ****** and the subsequent year returns also submitted Form ******. Clearly, they have not been performing exempt purpose activities for ******, which is required for a § 501(c)(3) organization to keep their tax-exempt status. We are proposing revocation because they do not operate for exempt purposes. Failure to Provide Records The EO has failed to provide records as is required in Code § 6033(a)(1) and Regulation § 1.6033-1(h)(2). They failed to provide any organizational or financial information that we requested during the examination. We attempted to obtain these records numerous times by mail and phone. Without the EO's records, we cannot verify that they are operating according to their exempt purpose. Our position is that the organization not operating for exempt purposes. Taxpayer's Position: The taxpayer's position is unknown at this time. Conclusion: By not complying with the Code and Regulations, the organization has jeopardized its exempt status. The ****** tax year filing that organization provided us failed to show that they are operating for exempt purposes. They have also failed to provide required documentation, thereby failing to be complaint with the Code, and failing to show any evidence of their exempt activities. We have no reason to believe that the EO is operating for exempt purposes. As a result of the examination, we have determined that the EO is not operating for exempt purposes as a §501(c)(3) organization. They have not provided any information to the disagree, since the organization failed to operate primarily for exempt purposes, we are proposing revocation of their tax-exempt status, effective ******, ******. Since the organization will no longer have tax-exempt status beginning ******, they are liable for filing Form 1120, U.S. Corporation Income Tax Return, as of that date.

Revenue Procedure 2024-22 Internal Revenue Service 2024-22 I.R.B. 1332 26 CFR 1.501(c)(3)-1: Organizations organized and operated for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or for the prevention of cruelty to children or animals. Rev. Proc. 2024-22 SECTION 1. PURPOSE This revenue procedure obsoletes Rev. Proc. 82-2, 1982-1 C.B. 367, which identified the State laws and circumstances that the Internal Revenue Service (IRS) previously concluded would permit an organization to satisfy the requirements of§ 1.501(c)(3)-1(b)(4) of the Income Tax Regulations. 1 Many of the State laws identified in Rev. Proc. 82-2 have materially changed, and a revenue procedure cannot be relied upon to the extent it is predicated on State law and that State law has materially changed. See Rev. Proc. 89-14, 1989-1 C.B. 814. 1 Unless otherwise specified, all "section" or "§" references are to sections of the Internal Revenue Code or the Income Tax Regulations (26 CFR part 1). SECTION 2. BACKGROUND.01 To be organized exclusively for one or more exempt purposes described in§ 501(c)(3), an organization's assets must be dedicated to an exempt purpose. See§ 1.501(c)(3)-1(b)(4)..02 Section 1.501(c)(3)-1(b)(4) provides, in part, that: An organization's assets will be considered dedicated to an exempt purpose, for example, if, upon dissolution, such assets would, by reason of a provision in the organization's articles or by operation of law, be distributed for one or more exempt purposes, or to the Federal Government, or to a State or local government, for a public purpose, or would be distributed by a court to another organization to be used in such manner as in the judgment of the court will best accomplish the general purposes for which the dissolved organization was organized. However, an organization does not meet the organizational test if its articles or the law of the State in which it was created provide that its assets would, upon dissolution, be distributed to its members or shareholders..03 Section 1.501(c)(3)-1(b)(2) states that, for purposes of that section, the term "articles of organization" or "articles" (collectively, Articles) includes "the trust instrument, the corporate charter, the articles of association, or any other written instrument by which an organization is created.".04 Accordingly, to be treated as described in§ 501(c)(3), an organization must satisfy the requirements of§ 1.501(c)(3)-1(b)(4) by including an adequate dissolution provision in its Articles or, in the absence of such a provision, by operation of State law. An organization created in a State the laws of which satisfy the distribution of assets on dissolution requirements of§ 1.501(c)(3)-1(b)(4) does not need to include an express dissolution provision in its Articles..05 Rev. Proc. 82-2 identified the States and circumstances in which an organization could satisfy the distribution of assets upon dissolution requirements of§ 1.501(c)(3)-1(b)(4) by operation of State law. The conclusions in Rev. Proc. 82-2 were based on State laws in effect at the time of its publication. Rev. Proc. 82-2 also provided a sample of an acceptable dissolution provision for organizations that are required to include in their Articles an express provision for the distribution of assets upon dissolution..06 Section 7.01(5) of Rev. Proc. 89-14 cautions taxpayers, IRS personnel, and others concerned to determine whether a revenue procedure on which they seek to rely has been revoked, modified, declared obsolete, distinguished, clarified, or otherwise affected by subsequent legislation, treaties, regulations, revenue rulings, revenue procedures, or court decisions. S ection 7.01(6) of Rev. Proc. 89-14 provides that if the conclusion of a revenue procedure is predicated upon a certain provision or interpretation of law other than Federal tax law, taxpayers, IRS personnel, and others generally must determine whether such relevant non-Federal tax law has changed materially from that used in the revenue procedure on which they seek to rely. Therefore, under section 7.01(5) and (6) of Rev. Proc. 89-14, a revenue procedure cannot be relied upon to the extent that it is predicated on State law and that State law has materially changed..07 Many of the State laws considered in Rev. Proc. 82-2 have since been amended, repealed, or replaced. Rev. Proc. 82-2 therefore no longer provides an accurate list of the jurisdictions with laws that operate to ensure the distribution of assets for exempt purposes upon dissolution of an organization for purposes of satisfying§ 1.501(c)(3)-1(b)(4). Accordingly, this revenue procedure is being published to obsolete Rev. Proc. 82-2..08 An organization is responsible for verifying whether the requirements of§ 1.501(c)(3)-1(b)(4) are satisfied by applicable State law if its Articles do not provide for the distribution of its assets upon dissolution. An organization can ensure that it satisfies the requirements of§ 1.501(c)(3)-1(b)(4) by including an acceptable dissolution provision in its Articles. Publication 557, Tax-Exempt Status for Your Organization (currently available at: https://www.irs.gov/pub/irs-pdf/p557.pdf), provides sample Articles with a dissolution provision that satisfies the requirements of§ 1.501(c)(3)-1(b)(4). Sample dissolution provisions are also provided in the Instructions for Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code and the Instructions for Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. These sample dissolution provisions are substantively similar to the sample dissolution provision provided in Rev. Proc. 82-2. SECTION 3. EFFECT ON OTHER DOCUMENTS Rev. Proc. 82-2, 1982-1 C.B. 367, is obsoleted as of May 24, 2024. SECTION 4. DRAFTING INFORMATION The principal author of this revenue procedure is Christopher Hyde of the Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). For further information regarding this revenue procedure, contact Mr. Hyde at (202) 317-5800 (not a toll-free number).

Private Letter Ruling Number: 202228008 Internal Revenue Service April 12, 2022 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202228008 Release Date: 7/15/2022 Index Number: 2601.00-00, 2518.00-00, 2501.00-00, 2041.00-00, 2038.00-00, 2037.00-00, 2036.00-00, 1001.00-00, 61.00-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:B04 PLR-121268-21 Date: April 12, 2022 Dear ********: This letter responds to your authorized representative's letter dated September 28, 2021, and subsequent correspondence, requesting federal tax rulings on certain proposed transactions involving Trust. The facts and representations submitted are summarized as follows: On Date 1, Settlor and Settlor's Spouse (collectively, the "Settlors") created an irrevocable trust, Trust, for the benefit of Son (generally referred to in the trust instrument as the "Beneficiary"). Date 1 is a date prior to October 21, 1942. Trust is governed by the laws of State. Article III, Section 1 of Trust provides that the Beneficiary has no right to the corpus of Trust and does not have a right to partition, divide, or dissolve Trust. The Beneficiary has no right with respect to Trust other than to receive distributions of net earnings awarded him by the trustee with the consent of Trust's Advisory Board and the right to distribution of the trust estate made by the trustee at the termination of Trust. Article III, Section 2 provides that the death, insolvency or bankruptcy of the Beneficiary hereunder, or the transfer of his interest in any manner, or by descent or otherwise, during the continuance of Trust, shall not operate as a dissolution of, nor terminate Trust, nor shall it have any effect whatever upon the trust estate, its operation or mode of business, nor shall it entitle his heirs or assigns or representatives to take any action in the courts of law or equity against the estate, its trustees or property or its business operations of any kind, all of which shall remain intact and undistributed thereby; but shall succeed only to the rights of the original Beneficiary. Article III, Section 3 provides that at the time of the death of the Beneficiary, his equitable interest in the trust estate, unless disposed of otherwise by said Beneficiary, shall pass to and vest in his heirs in accordance with the laws of descent and distribution then in force, applicable to the equitable interest of such Beneficiary in the trust estate. Section 3 further provides that the term "Beneficiary" applies not only to Son but to all of his successors to beneficial interests under Trust. Article IV, Section 3 provides that Trust will continue until the death of Son, and for twenty-one years after Son's death. At the expiration of that period, the trustee is to distribute the trust corpus among the then existing beneficiaries. Article IV, Section 4 provides that the Beneficiary may receive from time to time a portion of the net profits accruing from time to time to the trust estate, as the trustee, acting with the advice and consent of the Advisory Board, may see fit to pay over and deliver to the Beneficiary. No duty is imposed upon the trustee to make distributions of net profits, but the power is conferred upon the trustee, acting with the advice and consent of the Advisory Board. In exercising this discretion, the trustee and Advisory Board will give full consideration to the interest of both the Beneficiary and the trust estate. By order dated Date 2 (Date 2 Order), Court modified the terms of Trust and approved a completely restated trust agreement. In the Date 2 Order, Court made several significant findings and holdings with respect to Trust. Specifically, Court found that Trust expressly provides that the term "Beneficiary" applies not only to Son but to all his successors to beneficial interests under Trust. The Court further found that the heirs of Son who succeed to his equitable interest in Trust will be referred to as "Successor Beneficiaries." In addition, Court found that, (i) upon Son's death, Son's equitable interest in Trust will pass to and vest in Son's heirs in accordance with the laws of descent and distribution of State then in force, applicable to his equitable interest in Trust; (ii) upon Son's death, Trust will be divided into separate shares for each of his heirs; if Son's Spouse survives him, one-third of Trust will be allocated to a share for Son's Spouse and the other two-thirds will be divided into shares for the children and descendants of Son, in accordance with the laws of descent and distribution of State then in force; and (iii) each such share for Son's heirs will be separate, and the Successor Beneficiaries of Trust will not become common beneficiaries of an undivided trust. Consequently, the interests and powers of a Successor Beneficiary with respect to his or her share extend only to that Successor Beneficiary's respective share and not to any share held for any other Successor Beneficiary. Trust is administered by Trustee and a three-person Advisory Board. An individual serving as a trustee is also a member of the Advisory Board. In the event Trustee should fail or cease to serve, the remaining members of the Advisory Board will appoint a new member to fill the vacancy on the board. Then the Advisory Board will appoint one of its members or a Qualified Family Trust Company to serve as trustee. The Beneficiary and individuals related and subordinate to the Beneficiary within the meaning of § 672(c) of the Internal Revenue Code (Code) may serve on the Advisory Board but may not serve as a trustee. Currently, Son is married to Son's Spouse and they have five children (Grandchildren 1 through 5), sixteen Grandchildren (Great Grandchildren 1 through 16), and thirty-two Great Grandchildren (Great-Great Grandchildren 1 through 32). Under Article III, Section 3, as construed by Court (discussed below), Son is determined to possess a testamentary general power of appointment over Trust. Son intends to allow his power of appointment over Trust to lapse at his death. Further, one or more of the Successor Beneficiaries plans to irrevocably and unqualifiedly disclaim, in accordance with State Statute 1 and § 2518 of the Code, in a writing delivered to Trustee, all or an undivided portion of his or her beneficial interest in Trust no later than nine months after Son's death. A Successor Beneficiary disclaiming his or her interest in Trust will not (i) accept an interest in or any benefits from the property subject to the disclaimer; or (ii) voluntarily assign, convey, encumber, pledge or transfer the interest in property subject to the disclaimer or contract to do any of the foregoing. As a result of the disclaimer, the disclaimed interest will pass without any direction from the Successor Beneficiary disclaiming his or her interest in Trust, and the interest will pass to someone other than the Successor Beneficiary disclaiming his or her interest in Trust. Finally, a Successor Beneficiary disclaiming his or her interest in Trust will not serve on the Advisory Board or as a trustee of Trust. On Date 3, Trustee filed in Court a petition for construction and modification of terms of Trust. Trustee proposes to make certain modifications to Trust in order to facilitate the administration of Trust after the death of Son. Trust currently provides that Trust will terminate twenty-one years after Son's death and will then be distributed outright to the Successor Beneficiaries. It is represented that the amounts distributed upon termination of Trust will be substantial, and that if a Successor Beneficiary is under the age of x, it would not be in his or her best interest to receive his or her share outright. Son and the Successor Beneficiaries have consented to the proposed modifications. State Statute 1 provides that if an interest in property passes because of the death of a decedent, a disclaimer of the interest takes effect as of the time of the decedent's death, and relates back for all purposes to the time of the decedent's death. State Statute 2 provides that on the petition of a trustee or a beneficiary, a court may order that the terms of the trust be modified if, because of circumstances not known to or anticipated by the settlor, the order will further the purposes of the trust. State Statute 3 provides that the court may not take the action permitted by State Statute 2 unless all beneficiaries of the trust have consented to the order or are deemed to have consented to the order. Further, a minor, incapacitated, unborn, or unascertained beneficiary is deemed to have consented if a person representing the beneficiary's interest has consented or if a guardian ad litem appointed to represent the beneficiary's interest consents on the beneficiary's behalf. State Statute 4 provides that when distributing trust property or dividing or terminating a trust, a trustee may make distributions in divided or undivided interests, and allocate particular assets in proportionate or disproportionate shares. On Date 4, Court issued an order ("Court Order") approving the following construction and modification of Trust ("Trust Construction and Modification"), subject to a favorable private letter ruling from the Internal Revenue Service. Trust Construction In Court Order, Court ruled as follows: (1) Upon Son's death, Trust shall be divided into separate trusts (hereinafter, "Successor Trusts") for each Successor Beneficiary, and that upon the subsequent death of a Successor Beneficiary during the twenty-one year term following Son's death, the Successor Trusts of which the deceased Successor Beneficiary was an income beneficiary shall be similarly divided into separate Successor Trusts. (2) Trust grants Son a general power of appointment with respect to Trust and Successor Beneficiaries hold the same general power of appointment with respect to his or her Successor Trust. (3) After Son's death, each Successor Beneficiary will have three separate beneficial interests in his or her Successor Trust: (i) a discretionary income interest for twenty-one years after Son's death; (ii) a remainder interest which vests in possession twenty-one years after Son's death; and (iii) a general power of appointment. Each of the beneficial interests may be disclaimed independently of the others. (4) The class of a disclaiming Successor Beneficiary's descendants who are heirs of Son shall remain open to new members born to such disclaiming Successor Beneficiary during the twenty-one years after the death of Son, including descendants born to a disclaiming Successor Beneficiary who has no children or other descendants living on the death of Son. (5) Upon a Successor Beneficiary's disclaimer of a beneficial interest in his or her Successor Trust, the following will apply: (i) If a Successor Beneficiary disclaims an interest in Trust and survives Son, the disclaimed interest will pass, at Son's death, to Son's heirs (which would exclude a Successor Beneficiary's spouse) determined as though the disclaiming beneficiary did not survive Son ( i.e., to the beneficiary's descendants who survive Son). (ii) If a Successor Beneficiary disclaims an interest in Trust, survives Son but dies within twenty-one years after Son's death, the disclaimed interest will not be affected by the Successor Beneficiary's death. (iii) If a Successor Beneficiary survives Son but dies within twenty-one years after Son's death, the Successor Beneficiary's retained interest in Trust will pass to Successor Beneficiary's heirs at law, which include Successor Beneficiary's spouse. (6) Successor Trust shall be divided and funded in the following manner: (i) Where no disclaimers are made, the separate trusts created for Successor Beneficiaries will hold equal percentages of income and remainder interests and the undistributed income produced by a particular portion will be added to principal of that particular portion. (ii) Where a Successor Beneficiary disclaims an equal portion of his or her income and remainder interests, the retained and disclaimed interests would be administered similarly, and the undistributed income produced by a particular portion will be added to principal of that particular portion. (iii) Where a Successor Beneficiary disclaims a greater percentage of the remainder interest than an income interest, at least two trusts will be created for the disclaimant. Under one trust, the disclaimant will be both the income and remainder beneficiary of the trust. Under the second trust, the disclaimant will have an income interest in the trust but no remainder interest. The remainder interest in the second trust will belong to the heirs of the beneficiary immediately preceding the disclaimant in interest (that is, the "prior beneficiary") who are descendants of the disclaiming beneficiary, determined as if the disclaiming beneficiary predeceased the prior beneficiary. (7) When Trustee divides Trust into separate trusts after Son's death, or after the death of one of the Successor Beneficiaries, Trustee shall create the least number of trusts under each family branch of a particular child of Son (Grandchild 1 through 5) that can be established with only one income beneficiary of each trust. (8) If an income beneficiary of a separate trust dies within twenty-one years after Son's death with an heir at law who is already an income beneficiary of a separate trust, then such heir's share of the deceased income beneficiary's trust shall be added to his or her existing trust of which he or she is the income beneficiary in conformance with the general rule in Construction #7. (9) If, during the twenty-one year term after Son's death, a new beneficiary is born into the class of beneficiaries who are lineal descendants of the disclaimant (the "Disclaimant Class") and a trust or trusts are in existence with members of the Disclaimant Class as income beneficiaries, a new trust is created for the new beneficiary. (10) The terms "net earnings" and "net profits" as they appear in Trust are construed to mean trust "income" under State Trust Code and State law. Trust Modification In Court Order, Court modified Trust as follows: (1) A new Section 6 of Article IV of Trust is added to provide that when Trust terminates twenty-one years after the death of Son, any share distributable to a beneficiary who is then under the age of x (a "Continuing Beneficiary") shall be held in a trust (a "Continuing Trust") until such Continuing Beneficiary attains the age of x. If the Continuing Beneficiary survives Son but dies before reaching the age of x, he or she shall have a general testamentary power of appointment over his or her Continuing Trust. Any Continuing Trust shall terminate when the Continuing Beneficiary attains x years of age or dies, whichever event occurs first. At that time, the trustee shall deliver all remaining property in Continuing Trust to the Continuing Beneficiary, or if not living, as the Continuing Beneficiary may appoint by will (including to the Continuing Beneficiary's estate or the creditors of the Continuing Beneficiary or the creditors of the Continuing Beneficiary's estate). If the Continuing Beneficiary dies before reaching age x and does not exercise his or her general testamentary power of appointment, the Continuing Trust is distributed to the Continuing Beneficiary's estate. Equitable title to the property held in the Continuing Beneficiary's Continuing Trust shall be vested in the Continuing Beneficiary and shall be alienable. No power shall be exercised so as to violate any rule against perpetuities or rule against restraint against alienation. (Modification #1) (2) A new Section 7 of Article IV of Trust is added governing the succession of trustees with respect to each Continuing Trust as described under new Section 6. A Continuing Beneficiary will have the power to remove the trustee of his or her Continuing Trust and replace the trustee with a trustee of his or her choosing, other than the Continuing Beneficiary. Until a Continuing Beneficiary attains the age of eighteen, the Continuing Beneficiary's parent or legal guardian will hold this power. (Modification #2) (3) Section 10 of Article I of Trust provides that as near as possible after the close of each calendar year, Trust must have the books and records of Trust audited by a certified public accountant (the "Audit Requirement"). After Son's death, the trust estate will be divided into several Successor Trusts and the Audit Requirement will be burdensome and costly given the number of separate trusts subject to the Audit Requirement. Accordingly, Section 10 of Article I of Trust is modified to eliminate the Audit Requirement for separate trusts with assets under $A and make the Audit Requirement optional for trusts whose beneficiaries were not an adult party to the petition filed on Date 3 and with assets under $A. (Modification #3) It is represented that no actual or constructive additions within the meaning of § 26.2601-1(b) of the Generation-Skipping Transfer Tax Regulations have been made to Trust after September 25, 1985. You have requested the following rulings: 1. Trust is exempt from chapter 13 pursuant to § 2601. 2. Trust grants Son and each Successor Beneficiary of Trust a power of appointment that is a general power of appointment created before October 21, 1942, under §§ 2041(a)(1) and 2514(a), so that the lapse or complete release of the power of appointment will not subject any portion of Trust to federal estate, gift, or generation-skipping transfer (GST) tax. 3. The proposed disclaimer by any one or more of the Successor Beneficiaries of Trust will (a) be a qualified disclaimer under § 2518; (b) not result in a taxable gift by any of Successor Beneficiaries disclaiming his or her interest in Trust, and will not subject any portion of Trust to federal estate tax in the gross estate of a Successor Beneficiary disclaiming his or her interest; and (c) not result in a loss of GST exempt status with respect to any portion of Trust. 4. The assets of a Continuing Trust created pursuant to Modification #1 after Son's death will be includible in the gross estate of any Continuing Beneficiary of such Continuing Trust under § 2041(a)(2) if the Continuing Beneficiary dies before the Continuing Trust terminates. 5. Trust Construction and Modification will not cause Trust or any Successor Trust to be subject to GST tax pursuant to chapter 13. 6. Trust Construction and Modification will not result in any Successor Beneficiary of Trust making a taxable gift. 7. Trust Construction and Modification will not result in inclusion of any asset of, or interest in Trust or any Successor Trusts in the gross estate of any Successor Beneficiary whose death occurs prior to the termination of Trust under § 2036, 2037 or 2038. 8. The non-pro rata distribution of assets from Trust to one or more Successor Trusts created for the benefit of any Successor Beneficiaries will not be treated as a pro rata distribution of assets followed by a taxable sale and exchange of assets between the Successor Trusts. LAW AND ANALYSIS Ruling #1 Section 2601 imposes a tax on every generation-skipping transfer (GST) which is defined under § 2611 as a taxable distribution, taxable termination, and a direct skip. Section 1433(b)(2)(A) of the Tax Reform Act of 1986 (Act) and § 26.2601-1(b)(1) of the Generation-Skipping Transfer Tax Regulations provide that the GST tax shall not apply to any GST under a trust that was irrevocable on September 25, 1985, but shall apply to the extent that the transfer is not made out of corpus added to the trust after September 25, 1985 (or out of income attributable to corpus so added). Section 26.2601-1(b)(1)(i) provides that a trust qualifies for transitional rule relief from the provisions of chapter 13 if the trust was irrevocable on September 25, 1985, and no addition (actual or constructive) was made to the trust after that date. Section 26.2601-1(b)(1)(iv) provides that an addition made after September 25, 1985, to an irrevocable trust will subject to the provisions of chapter 13 a proportionate amount of distributions from, and terminations of interest in, property held in the trust. In this case, Trust was in existence and irrevocable prior to September 25, 1985. Additionally, it is represented that no actual or constructive additions within the meaning of § 26.2601-1(b) have been made to Trust after September 25, 1985. Therefore, based upon the facts submitted and representations made, we conclude that Trust is exempt from the application of chapter 13 pursuant to § 2601. Ruling #2 Section 2041(a)(1) provides, in part, that the value of the gross estate includes the value of all property to the extent of any property with respect to which a general power of appointment created on or before October 21, 1942, is exercised by the decedent by will; but the failure to exercise such a power or the complete release of such a power is not deemed an exercise thereof. See § 20.2041-2(d) of the Estate Tax Regulations. Section 2041(b)(1) provides that, for purposes of § 2041(a), the term "general power of appointment" means a power which is exercisable in favor of the decedent, his estate, his creditors, or the creditors of his estate. Section 20.2041-1(b) provides that a power of appointment includes all powers that are in substance and effect powers of appointment, regardless of the nomenclature used in creating the power. Section 20.2041-1(e) provides that a power of appointment created by an inter vivos instrument is considered created on the date the instrument takes effect. The power is not treated as created at a future date merely because the power is not exercisable on the date the instrument takes effect or because the identity of the powerholder is not ascertainable until a later date. Example 3 of § 20.2041-1(e) provides an illustration of the above rule. In the example, F creates an irrevocable inter vivos trust created before October 21, 1942, providing for payment of income to G for life with the remainder as G appoints by will, but in default of G's appointment, the trust will pass with income to H for life and the remainder as H shall appoint by will. If G dies after October 2, 1942, without exercising the power of appointment, H's power is considered a power created on or before October 21, 1942, even though H's power of appointment was only a contingent interest until G's death. Section 20.2041-2(d) provides that a failure to exercise a general power of appointment created on or before October 21, 1942, or a complete release of the power is not an exercise of the power. The phrase "a complete release" means a release of all powers over all or a portion of the property subject to the power of appointment, as distinguished from a reduction of a power of appointment to a lesser power. Thus, if the decedent completely relinquished all powers over one-half of the property subject to a power of appointment, the power is completely released as to that one-half. Section 2514(a) provides that an exercise of a general power of appointment created on or before October 21, 1942, is deemed a transfer of the property by the individual possessing such power for gift tax purposes, but the failure to exercise such power or the complete release of such power is not deemed an exercise thereof. Section 25.2514-2(c) of the Gift Tax Regulations provides that a failure to exercise a general power of appointment created on or before October 21, 1942, or a complete release of such power is not considered to be an exercise of a general power of appointment. The phrase "complete release" means a release of all powers over all or a portion of the property subject to the power of appointment, as distinguished from the reduction of a power of appointment to a lesser power. Thus, if the possessor completely relinquished all powers over one-half of the property subject to a power of appointment, the power is completely released as to that one-half. Section 26.2601-1(b)(1)(v)(A) provides that where any portion of a trust remains in trust after the post-September 25, 1985, release, exercise, or lapse of a power of appointment over that portion of the trust, and the release, exercise, or lapse is treated to any extent as a taxable transfer under chapter 11 or chapter 12, the value of the entire portion of the trust subject to the power that was released, exercised, or lapsed will be treated as if that portion had been withdrawn and immediately retransferred to the trust at the time of the release, exercise, or lapse. In this case, Trust was executed on a date prior to October 21, 1942. Article III, Section 3 of Trust provides that at the time of the death of the Beneficiary, his equitable interest in Trust, unless disposed of otherwise by such Beneficiary, shall pass to and vest in his heirs in accordance with the laws of descent and distribution then in force, applicable to the equitable interest of such Beneficiary in the trust estate. The language of Trust indicates that Settlors intended for Son to have the power to dispose of his equitable interest, without limitation. Further, Trust indicates that the Settlors intended each Successor Beneficiary to have the same rights with respect to his or her share of Trust as Son, including a general power of appointment over such Successor Beneficiary's interest in his or her Successor Trust. In the Court order, Court construed Trust as granting Son and Successor Beneficiaries a testamentary power of appointment to appoint such beneficiary's interest in Trust to any appointee. Trust was executed prior to October 21, 1942, hence Son's power of appointment is a power created before October 21, 1942. Successor Beneficiaries of Trust possess a general power of appointment that is contingent on surviving Son's death. As in the case of Example 3 of § 20.2041-1(e), the power of appointment held by Successor Beneficiaries is considered a power created before October 21, 1942. Accordingly, based upon the facts submitted and representations made, we conclude that Son and each Successor Beneficiary possess a general power of appointment created before October 21, 1942. Son proposes to allow his testamentary general power of appointment to lapse. Under §§ 2041(a)(1) and 2514(a), the lapse or complete release of Son's general power of appointment will not cause Son to be treated as making a taxable gift or cause any portion of Trust to be included in Son's gross estate for federal estate tax purposes. Therefore, based upon the facts submitted and representations made, we conclude that the lapse (or complete release) of Son's general power of appointment will not subject any portion of Trust to federal estate or gift tax under §§ 2041(a)(1) and 2514(a). If one or more Successor Beneficiaries allow his or her power to lapse or completely releases his or her power of appointment, under §§ 2041(a)(1) and 2514(a), the lapse or complete release of a Successor Beneficiary's general power of appointment will not cause a Successor Beneficiary to be treated as making a taxable gift or cause any portion of Trust to be included in a Successor Beneficiary's gross estate for federal estate tax purposes. Therefore, based upon the facts submitted and representations made, we conclude that the lapse (or complete release) of a Successor Beneficiary's general power of appointment will not subject any portion of Trust to federal estate or gift tax under §§ 2041(a)(1) and 2514(a). Finally, in this case, Trust was irrevocable prior to September 25, 1985. It is represented that there have been no additions (actual or constructive) to Trust after September 25, 1985. The lapse or complete release of a general power of appointment by Son or a Successor Beneficiary will not be a taxable lapse or release of a general power of appointment because the power of appointment was created prior to October 21, 1942. Therefore, based upon the facts submitted and the representations made, we conclude that the lapse or complete release of a general power of appointment by Son or a Successor Beneficiary will not be treated as a constructive addition to Trust and will not result in a loss of GST exempt status with respect to any portion of the trust over which such powers lapsed or were released. Ruling #3 Section 2046 provides that for estate tax purposes, disclaimers of property interests passing upon death are treated as provided in § 2518. Section 2518(a) provides that if a person makes a qualified disclaimer with respect to any interest in property, subtitle B shall apply with respect to such interest as if the interest had never been transferred to such person. Section 2518(b) provides that the term "qualified disclaimer" means an irrevocable and unqualified refusal by a person to accept an interest in property but only if (1) the refusal is in writing; (2) the writing is received by the transferor of the interest, his legal representative, or the holder of the legal title to the property to which the interest relates not later than the date that is nine months after the later of (A) the date on which the transfer creating the interest in the person is made, or (B) the day on which the person attains age 21; (3) the person has not accepted the interest or any of its benefits; and (4) as a result of such refusal, the interest passes without any direction on the part of the person making the disclaimer and passes either (A) to the spouse of the decedent, or (B) to a person other than the person making the disclaimer. Section 2518(c)(1) provides that a disclaimer with respect to an undivided portion of an interest which meets the requirements of § 2518(b) shall be treated as a qualified disclaimer of such portion of the interest. Section 2518(c)(2) provides that a power over property is to be treated as an interest in that property. Section 25.2518-1(b) provides, in relevant part, that if a person makes a qualified disclaimer as described in § 2518(b) and § 25.2518-2, for purposes of the federal estate, gift, and GST provisions, the disclaimed interest in property is treated as if it had never been transferred to the person making the qualified disclaimer. Instead, it is considered as passing directly from the transferor of the property to the person entitled to receive the property as a result of the disclaimer. Accordingly, a person making a qualified disclaimer is not treated as making a gift. Similarly, the value of a decedent's gross estate for purposes of the federal estate tax does not include the value of property with respect to which the decedent, or the decedent's executor or administrator on behalf of the decedent, has made a qualified disclaimer. Section 25.2518-2(c)(3) provides, in relevant part, that the nine-month period for making a disclaimer generally is to be determined with reference to the transfer creating the interests in the disclaimant. With respect to inter vivos transfers, a transfer creating an interest occurs when there is a completed gift for federal gift tax purposes regardless of whether a gift tax is imposed on the completed gift. With respect to transfers made by a decedent at death or transfers that become irrevocable at death, the transfer creating the interest occurs on the date of the decedent's death, even if an estate tax is not imposed on the transfer. Section 25.2518-2(c)(3) further provides that if a person to whom an interest in property passes by reason of the exercise, release, or lapse of a general power of appointment desires to make a qualified disclaimer, the disclaimer must be made within a nine-month period after the exercise, release, or lapse regardless of whether the exercise, release, or lapse is subject to estate or gift tax. A person who receives an interest in property as the result of a qualified disclaimer of the interest must disclaim the previously disclaimed interest no later than nine months after the date of the transfer creating the interest in the preceding disclaimant. Thus, if A were to make a qualified disclaimer of a specific bequest and as a result of the qualified disclaimer the property passed as part of the residue, the beneficiary of the residue could make a qualified disclaimer no later than nine months after the date of the testator's death. Section 25.2518-3(a)(1)(i) provides that if the requirements of the section are satisfied, the disclaimer of all or an undivided portion of any separate interest in property may be a qualified disclaimer, even if the disclaimant has another interest in the same property. Under 25.2518-3(a)(1)(iii), a power of appointment with respect to property is treated as a separate interest in such property and such power of appointment with respect to all or an undivided portion of such property may be disclaimed independently from any other interests separately created by the transferor in the property. Further, a disclaimer of a power of appointment with respect to property is a qualified disclaimer only if any right to direct the beneficial enjoyment of the property which is retained by the disclaimant is limited by an ascertainable standard. Section 25.2518-3(a)(2) provides that a disclaimer of an undivided portion of an interest in a trust may be a qualified disclaimer. Under § 25.2518-3(b), the disclaimer of an undivided portion of a disclaimant's separate interest in property will be a qualified disclaimer if the undivided portion consists of a fraction or percentage of each and every substantial interest or right owned by the disclaimant in the property and extends over the entire term of the disclaimant's interest in the property. A disclaimer of some specific rights while retaining other rights with respect to an interest in property is not a qualified disclaimer of an undivided portion of the disclaimant's interest in the property. In this case, as construed by Court, Son's power of appointment under Trust was created before October 21, 1942, and is a general power of appointment as described in §§ 2041(a)(1) and 2514(a). Under the terms of Trust, Son's heirs cannot succeed to any interests in Trust until Son's death. If Son lets his power lapse at his death, as proposed, the lapse will create various interests, including a testamentary general power of appointment, in Trust for Successor Beneficiaries. See § 2518(c)(2). For purposes of § 2518, these powers will be considered as created on the date of Son's death, the date when Son's general power of appointment lapses. One or more of the Successor Beneficiaries propose to disclaim an undivided portion of or all of the interest in Trust to which he or she may be entitled to at Son's death. A disclaiming Successor Beneficiary will not accept an interest in or any benefit from the property subject to the disclaimer or voluntarily assign, convey, encumber, pledge, or transfer the interest or property subject to the disclaimer. Further, each disclaimer will be irrevocable and in writing delivered to the trustee. As a result, the proposed disclaimer will pass without any direction from the disclaiming Successor Beneficiary and the interest will pass to someone other than the disclaiming Successor Beneficiary. Finally, a disclaiming Successor Beneficiary will be prohibited from serving on the Advisory Board of Trust or as a trustee of Trust. Accordingly, based on the facts submitted and representations made, we conclude that the proposed disclaimer by any one or more Successor Beneficiary will not result in a taxable gift by the disclaimant and will not subject any portion of Trust to estate tax in the gross estate of the disclaimant. Under § 25.2518-1(b), the disclaimed interest in property is treated as if it had never been transferred to the person making the qualified disclaimer. Instead, it is considered as passing directly from the transferor of the property to the person entitled to receive the property as a result of the disclaimer. Therefore, the disclaimant is not a transferor, as defined in § 2652 and is not treated as making a constructive addition to Trust. Accordingly, we conclude that a proposed disclaimer by any one or more Successor Beneficiary will not result in Trust losing GST exempt status. Ruling #4 Section 2041(a)(2) provides that to the extent of any property with respect to which the decedent has at the time of his death a general power of appointment created after October 21, 1942, or with respect to which the decedent has at any time exercised or released such a power of appointment by a disposition which is of such nature that if it were a transfer of property owned by the decedent, such property would be includible in the decedent's gross estate under §§ 2035 to 2038, inclusive. Trust currently provides for outright distribution to the Successor Beneficiaries on Trust's termination. Under Modification #1, any share upon Trust's termination distributable to a Successor Beneficiary under the age of x is to be held in a Continuing Trust until that Continuing Beneficiary reaches the age of x. If the Continuing Beneficiary survives Son but dies before reaching age x, Continuing Trust grants the Continuing Beneficiary a general power of appointment to appoint the assets of his or her Continuing Trust to any appointee, including the Continuing Beneficiary's estate or the creditors of the Continuing Beneficiary or the creditors of the Continuing Beneficiary's estate. Thus, if the Continuing Beneficiary survives the twenty-one year term following Son's death but dies before the termination of Continuing Trust, the remaining assets in the Continuing Trust are includible in the gross estate of the Continuing Beneficiary under § 2041(a)(2). Based upon the facts submitted and representations made, we conclude that the assets of a Continuing Trust created pursuant to Modification #1 after Son's death will be includible in the gross estate for federal estate tax purposes of any Continuing Beneficiary of such Continuing Trust under § 2041(a)(2) if the Continuing Beneficiary dies before the Continuing Trust terminates. Ruling #5 Section 26.2601-1(b)(4) provides rules for determining when a modification, judicial construction, settlement agreement, or trustee action with respect to a trust that is exempt from GST tax under § 26.2601-1(b)(1), (2), or (3) will not cause the trust to lose its exempt status. The rules in § 26.2601-1(b)(4) are applicable only for purposes of determining whether an exempt trust retains its exempt status for GST purposes. The rules do not apply, for example, in determining whether the transaction results in a gift subject to gift tax, or may cause the trust to be included in the gross estate of a beneficiary, or may result in the realization of gain for purposes of § 1001. Section 26.2601-1(b)(4)(i)(C) provides that judicial construction of a governing instrument to resolve an ambiguity in the terms of the instrument will not cause an exempt trust to be subject to the provisions of chapter 13 if the judicial action involves a bona fide issue and the construction is consistent with applicable state law that would be applied by the highest court of the state. Section 26.2601-1(b)(4)(i)(D)(1) provides that a modification of the governing instrument of an exempt trust by judicial reformation, or nonjudicial reformation that is valid under applicable state law, will not cause an exempt trust to be subject to the provisions of chapter 13, if the modification does not shift a beneficial interest in the trust to any beneficiary who occupies a lower generation (as defined in § 2651) than the person or persons who held the beneficial interest prior to the modification, and the modification does not extent the time for vesting of any beneficial interest in the trust beyond the period provided for in the original trust. Section 26.2601-1(b)(4)(i)(D)(2) provides that a modification of an exempt trust will result in a shift in a beneficial interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a GST transfer or the creation of a new GST transfer. To determine whether a modification of an irrevocable trust will shift a beneficial interest in a trust to a beneficiary who occupies a lower generation, the effect of the instrument on the date of the modification is measured against the effect of the instrument in existence immediately before the modification. If the effect of the modification cannot be immediately determined, it is deemed to shi ft a beneficial interest in the trust to a beneficiary who occupies a lower generation (as defined in § 2651) than the person or persons who held the beneficial interest prior to the modification. A modification that is administrative in nature that only indirectly increases the amount transferred (for example, by lowering administrative costs or income taxes) will not be considered to shift a beneficial interest in the trust. Section 26.2601-1(b)(4)(i)(E), Example 10 considers the following situation. In 1980, Grantor established an irrevocable trust for the benefit of Grantor's issue, naming a bank and five other individuals as trustees. In 2002, the appropriate local court approves a modification of the trust that decreases the number of trustees which results in lower administrative costs. The modification pertains to the administration of the trust and does not shift a beneficial interest in the trust to any beneficiary who occupies a lower generation (as defined in § 2651) than the person or persons who held the beneficial interest prior to the modification. In addition, the modification does not extend the time for vesting of any beneficial interest in the trust beyond the period provided for in the original trust. Therefore, the trust will not be subject to the provisions of chapter 13. In this case, Trust Construction by Court resolves ambiguities in the terms of the trust instrument. The judicial action involved bona fide issues regarding whether Son and the Successor Beneficiaries possess general powers of appointment and whether such powers were created before October 21, 1942. Trust Construction is consistent with applicable state law that would be applied by the highest court of the state. Further, Modification #1 grants each beneficiary of a Continuing Trust a general power of appointment which will cause the assets of a Continuing Trust to be includible in the gross estate of such beneficiary under § 2041(a)(2). Therefore, Modification #1 does not shift a beneficial interest in the trust to any beneficiary who occupies a lower generation (as defined in § 2651) than the person or persons who held the beneficial interest prior to the modification, and the modification does not extend the time for vesting of any beneficial interest in the trust beyond the period provided for in the original trust. Modification #2 and #3 relate to the appointment and replacement of successor trustees in Continuing Trust and the application of the Audit Requirement after Trust is divided into separate trusts. Modifications #2 and #3 are administrative in nature and under § 26.2601-1(b)(4)(i)(D)(2), will not be considered to shift a beneficial interest to a lower generation in the trust or extend the time for vesting of any beneficial interest in the trust beyond the period provided for in Trust. See Example 10 of § 26.2601-1(b)(4)(i)(E). Therefore, based upon the facts submitted and representations made, we conclude that Trust Construction and Modification by Court will not cause Trust or any Successor Trusts to be subject to GST tax pursuant to chapter 13. Ruling #6 Section 2501 provides that a tax is imposed for each calendar year on the transfer of property by gift during such calendar year by any individual, resident or nonresident. Section 2511(a) provides that the tax imposed by § 2501 will apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible on intangible. Section 25.2511-1(c) provides that any transaction in which an interest in property is gratuitously passed or conferred upon another, regardless of the means or device employed, constitutes a gift subject to tax. Section 2512(a) provides that if the gift is made in property, the value thereof at the date of the gift is considered the amount of the gift. Section 2512(b) provides that where property is transferred for less than adequate and full consideration in money or money's worth, then the amount by which the value of the property exceeded the value of the consideration is deemed to be a gift and is included in computing the amount of gifts made during the calendar year. In this case, Trust Construction and Modification by Court do not change the beneficial interests in Trust. Accordingly, based upon the facts submitted and representations made, we conclude that the Trust Construction and Modification will not cause Son or any of the Successor Beneficiaries to have made a taxable gift for purposes of § 2501. Ruling #7 Section 2036(a) provides that the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death: (1) the possession or enjoyment of, or the right to the income from, the property, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom. Section 2037(a) provides that the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, if: (1) possession or enjoyment of the property can, through ownership of such interest, be obtained only by surviving the decedent, and (2) the decedent has retained a reversionary interest in the property, and the value of such reversionary interest immediately before the death of the decedent exceeds five percent of the value of such property. Section 2038(a)(1) provides that the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (without regard to when or from what source the decedent acquired such power), to alter, amend, revoke, or terminate, or where any such power is relinquished during the 3-year period ending on the date of the decedent's death. In order for §§ 2036, 2037 and 2038 to apply, a decedent must have made a transfer of property of any interest therein (except in case of a bona fide sale for adequate and full consideration in money or money's worth) under which the decedent retained an interest in, or power over, the income or corpus of the transferred property. In this case, Trust Construction and Modification do not constitute transfers within the meaning of §§ 2036, 2037 and 2038. Accordingly, based upon the facts submitted and representations made, we conclude that Trust Construction and Modification by Court will not result in inclusion of any asset of, or interest in Trust or any Successor Trusts in the gross estate of any beneficiary whose death occurs prior to the termination of Trust under § 2036, 2037 or 2038. Ruling #8 Section 61(a) defines gross income as "all income from whatever source derived." Under section 61(a)(3), gross income includes "[g]ains derived from dealings in property." Section 1001(a) provides that the gain from the sale or other disposition of property is the excess of the amount realized over the adjusted basis provided in § 1011 for determining gain, and the loss is the excess of the adjusted basis provided in § 1011 for determining loss over the amount realized. Under § 1001(c), the entire amount of gain or loss must be recognized, except as otherwise provided. Section 1.1001-1(a) of the Income Tax Regulations provides that, except as otherwise provided in subtitle A of the Code, the gain or loss realized from the exchange of property for other property differing materially either in kind or in extent is treated as income or as loss sustained. Under § 1.1001-1(h), the severance of a trust, occurring on or after August 2, 2007, is not an exchange of property for other property differing materially either in kind or in extent, if (i) an applicable state statute or the governing instrument authorizes or d irects the trustee to sever the trust; and (ii) any non-pro rata funding of the separate trusts resulting from the severance, whether mandatory or in the discretion of the trustee, is authorized by an applicable state statute or the governing instrument. In the present case, the Trust will be severed into multiple trusts, Successor Trusts, on a non-pro rata basis. Trustees represent that the contemplated trust severance is authorized by the agreement governing Trust. Trustee further represents that the nonpro rata funding of Successor Trusts is authorized under State Statute 4 which allows a trustee to make distributions in divided or undivided interest and to allocate assets in proportionate or disproportionate shares. The proposed transaction is consistent with the criteria set forth in § 1.1001-1(h)(1). Accordingly, based upon the facts submitted and representations made, we conclude that the severance of the Trust and non-pro rata funding of the Successor Trusts should not be treated as pro rata distributions followed by a taxable sale and exchange of assets between the Successor Trusts and, therefore, will not be subject to recognition of gain or loss from a sale or other disposition of property under § 1001. In accordance with the Powers of Attorney on file with this office, we have sent copies of this letter to your representatives. Except as expressly provided herein, we neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. The rulings contained in this letter are based upon information and representations submitted by the taxpayers accompanied by penalty of perjury statements executed by the appropriate parties. While this office has not verified the material submitted in support of the request for rulings, it is subject to verification on examination. This ruling is directed only to the taxpayer requesting it. Section 6100(k)(3) provides that it may not be used as precedent. Sincerely, Leslie H. Finlow _______________________________ Leslie H. Finlow Senior Technician Reviewer, Branch 4 Office of Associate Chief Counsel (Passthroughs & Special Industries) Enclosure Copy for § 6110 purposes cc:

Action on Decision Number 2022-001 Internal Revenue Service February 7, 2022 IRB 2022-6 February 7, 2022 THIS DOCUMENT IS NOT TO BE RELIED UPON OR OTHERWISE CITED AS PRECEDENT BY TAXPAYERS ACTION ON DECISION Subject: Matter of Quezada v. IRS, 982 F.3d 931 (5th Cir. 2020), rev'g In re Quezada, 124 A.F.T.R.2d 2019-6250 (W. D. Tex. 2019) ( aff'g In re Quezada, 122 A.F.T.R.2d 2018-5764 (Bankr. W.D. Tex. 2018)) Issue: Did the period of limitations on assessing a taxpayer's backup withholding liability begin to run when the taxpayer filed a Form 1040, U.S. Individual Income Tax Return, and filed information returns (Forms 1099-MISC, Miscellaneous Income) that omitted payee taxpayer identification numbers (TINs)? Discussion: Taxpayer was required to withhold and pay over backup withholding because he failed to obtain the TIN of each laborer whom he paid as part of his business. For the tax years 2005 through 2008, taxpayer failed to file Form 945, Annual Return of Withheld Federal Income Tax, which is the return prescribed by Treasury regulation for reporting backup withholding liability. Treas. Reg.§ 31.6011(a)-4(b). Because taxpayer failed to file the Forms 945, the Service asserted that the period of limitations on assessing backup withholding liability did not begin to run. "In the case of failure to file a return, the tax may be assessed... at any time." I.R.C.§ 6501(c)(3). The Fifth Circuit held that Quezada's Form 945 was not required to be filed to trigger the running of the limitations period for assessing his backup withholding liability. Instead, the Fifth Circuit held that the limitations period began to run upon Quezada's filing of his Form 1040 and the Form 1099-MISC information returns that omitted payee TINs. The court reached this conclusion because it held, incorrectly, that the Forms 1099-MISC contained data sufficient (1) to show that Quezada was liable for backup withholding taxes and (2) to calculate the extent of this liability. The omission of a payee's TIN on a Form 1099-MISC does not conclusively establish the payor's liability for backup withholding. Instead, backup withholding liability arises from the failure to obtain a payee's TIN, which is not evident on the face of the Form 1099-MISC. I.R.C.§ 3406(a)(1)(A); Treas. Reg.§ 31.3406(a)-1(b)(1)(i). If, when he made payments, taxpayer had in his records the correct TINs for the payees, and he mistakenly omitted the information on Forms 1099-MISC, he would not have had backup withholding liability. Further, the Service could not calculate the extent of backup withholding liability simply by looking at the Forms 1099-MISC. The Service could not know from looking at the face of the Forms 1099-MISC the reason for a missing TIN: whether the TIN was omitted because the payee did not provide the TIN to the payor (in which case backup withholding is indicated), or whether the payee did provide the TIN and the TIN was omitted due to filer error or for some other reason (in which case backup withholding may not be required). Thus, the Form 1099-MISC with missing TINs by itself was not sufficient to establish the withholding tax liability. Additionally, Supreme Court precedent holds that the Service may require, for the period of limitations on assessment to begin to run, that a taxpayer provide tax information "with such uniformity, completeness, and arrangement that the physical task of handling and verifying returns may be readily accomplished." Commissioner v. Lane-Wells Co., 321 U.S. 219, 223 (1944). Under Lane-Wells, it is inappropriate to treat a payor's Form 1099-MISC information returns reporting payments to payees, in combination with the payor's individual income tax return, as "the return" that triggers the running of the period of limitations for assessing backup withholding liability. This is because: (1) the Forms 1040 and 1099-MISC are separate returns that neither reference nor rely upon each other for either return to be complete; (2) neither the Form 1040 nor the Form 1099-MISC requires reporting backup withholding liability; and (3) the Service has prescribed a separate Form 945 for a payor to report backup withholding liability and that is the form to which it looks in determining whether such liability exists. Although the Service disagrees with the decision of the Fifth Circuit in Quezada, the Service recognizes the precedential effect of the decision to cases appealable to this circuit. Therefore, the Service will follow it in cases within the Fifth Circuit if the opinion cannot be meaningfully distinguished. The Service does not, however, acquiesce to the opinion and will continue to litigate its position in cases in other circuits. Recommendation: Nonacquiescence /s/___________________________ Alexander Wu Attorney (Procedure and Administration) Reviewers: AEG, APT Approved: Drita Tonuzi Deputy Chief Counsel (Operations) Internal Revenue Service By: _________________________ Kathryn A. Zuba Associate Chief Counsel (Procedure and Administration) THIS DOCUMENT IS NOT TO BE RELIED UPON OR OTHERWISE CITED AS PRECEDENT BY TAXPAYERS

Notice 2024-35 Internal Revenue Service 2024-19 I.R.B. 1051 Certain Required Minimum Distributions for 2024 Notice 2024-35 I. PURPOSE This notice provides guidance relating to certain specified required minimum distributions (RMDs) for 2024. In addition, this notice announces that the final regulations that the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) intend to issue related to RMDs will apply for purposes of determining RMDs for calendar years beginning on or after January 1, 2025. II. BACKGROUND A. Section 401(a)(9) Section 401(a)(9) of the Code requires a stock bonus, pension, or profit-sharing plan described in § 401(a) (or an annuity contract described in § 403(a)) to make minimum distributions starting by the required beginning date (as well as minimum distributions to beneficiaries if the employee dies before the required beginning date). Individual retirement accounts and individual retirement annuities (IRAs) described in § 408(a) and (b), annuity contracts, custodial accounts, and retirement income accounts described in § 403(b) (§ 403(b) plans), and eligible deferred compensation plans under § 457(b) are also subject to the rules of § 401(a)(9) pursuant to §§ 408(a)(6) and (b)(3), 403(b)(10), and 457(d)(2), respectively, and the regulations under those sections. B. RMD Distribution Period Section 401(a)(9) provides rules for RMDs from a qualified plan during the life of the employee in § 401(a)(9)(A) and after the death of the employee in § 401(a)(9)(B). In addition to setting forth a required beginning date for distributions, these rules identify the period over which the employee's entire interest must be distributed. Specifically, § 401(a)(9)(A)(ii) provides that the entire interest of an employee in a qualified plan must be distributed, beginning not later than the employee's required beginning date, in accordance with regulations, over the life of the employee or over the lives of the employee and a designated beneficiary (or over a period not extending beyond the life expectancy of the employee and a designated beneficiary). Section 401(a)(9)(B)(i) provides that, if the employee dies after distributions have begun, the employee's remaining interest must be distributed at least as rapidly as under the method of distributions being used by the employee under section 401(a)(9)(A)(ii) as of the date of the employee's death. Section 401(a)(9)(B)(ii) and (iii) provides that, if the employee dies before RMDs have begun, the employee's interest must either be: (1) distributed within 5 years after the death of the employee (5-year rule), or (2) distributed (in accordance with regulations) over the life or life expectancy of the designated beneficiary with the distributions beginning no later than 1 year after the date of the employee's death (subject to an exception in § 401(a)(9)(B)(iv) if the designated beneficiary is the employee's surviving spouse). The rules of § 401(a)(9) are incorporated by reference in § 408(a)(6) and (b)(3) for IRAs, § 403(b)(10) for § 403(b) plans, and § 457(d) for eligible deferred compensation plans. C. Section 401(a)(9)(H) as added by the SECURE Act 1. Ten-year rule Section 401(a)(9) of the Code was amended by § 401(a)(1) of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), enacted on December 20, 2019, as Division O of the Further Consolidated Appropriations Act, 2020, Pub. L. 116-94, 133 Stat. 2534 (2019), to add § 401(a)(9)(H) to the Code. Generally, pursuant to § 401(a)(9)(H)(i), if an employee in a defined contribution plan has a designated beneficiary, the 5-year period under the 5-year rule is lengthened to 10 years (10-year rule) and the 10-year rule applies regardless of whether the employee dies before the required beginning date. In addition, pursuant to § 401(a)(9)(H)(ii), the § 401(a)(9)(B)(iii) exception to the 10-year rule (under which the 10-year rule is treated as satisfied if distributions are paid over the designated beneficiary's lifetime or life expectancy) applies only if the designated beneficiary is an eligible designated beneficiary, as that term is defined in § 401(a)(9)(E)(ii). Section 401(a)(9)(H)(iii) provides that when an eligible designated beneficiary dies before that individual's portion of the employee's interest in the plan has been entirely distributed, the beneficiary of the eligible designated beneficiary will be subject to a requirement that the remainder of that individual's portion be distributed within 10 years of the eligible designated beneficiary's death. In addition, § 401(a)(9)(E)(iii) provides that when an eligible designated beneficiary who is a minor child of the employee reaches the age of majority, that child will no longer be considered an eligible designated beneficiary and the remainder of that child's portion of the employee's interest in the plan must be distributed within 10 years of that date. 2. Section 401(a)(9)(H) effective date Section 401(b)(1) of the SECURE Act provides that, generally, the amendments made to § 401(a)(9)(H) of the Code apply to distributions with respect to employees who die after December 31, 2019. Pursuant to § 401(b)(2) and (3) of the SECURE Act, later effective dates apply for certain collectively bargained plans and governmental plans (as defined in § 414(d) of the Code). Section 401(b)(4) of the SECURE Act provides that § 401(a)(9)(H) of the Code does not apply to payments under certain annuity contracts under which payment commenced (or the manner of payments was fixed) before December 20, 2019. Section 401(b)(5) of the SECURE Act provides that if an employee who participated in a plan died before § 401(a)(9)(H) of the Code became effective with respect to the plan, and the employee's designated beneficiary died after that effective date, then that designated beneficiary is treated as an eligible designated beneficiary and § 401(a)(9)(H) applies to any beneficiary of that designated beneficiary. D. Excise tax under § 4974(a) Section 4974(a) provides that if the amount distributed during a year to a payee under any qualified retirement plan (as defined in § 4974(c)) or any eligible deferred compensation plan (as defined in § 457(b)) is less than that year's minimum required distribution (as defined in § 4974(b)), then an excise tax is imposed on the payee. Pursuant to § 302 of the SECURE 2.0 Act of 2022, enacted on December 29, 2022, as Division T of the Consolidated Appropriations Act, 2023, Pub. L. 117-328, 136 Stat. 4459 (2022), for taxable years beginning after December 29, 2022, this excise tax is equal to 25 percent of the amount by which the minimum required distribution for a year exceeds the amount actually distributed in that year. If a failure to take a minimum required distribution is corrected by the end of the correction window (generally, the end of the second year that begins after the year of the missed minimum required distribution), the excise tax is reduced from 25 percent to 10 percent. E. Section 401(a)(9) proposed regulations The Treasury Department and the IRS published proposed regulations regarding RMDs under § 401(a)(9) of the Code and related provisions in the Federal Register on February 24, 2022 (87 FR 10504), which provided that the regulations, when finalized, would apply beginning with the 2022 calendar year. Along with other matters, the proposed regulations address issues relating to the 10-year rule in § 401(a)(9)(H). Specifically, Prop. Reg. § 1.401(a)(9)-5(d)(1)(i) requires that, in the case of an employee who dies on or after the employee's required beginning date, distributions to the employee's beneficiaries for calendar years after the calendar year of the employee's death must satisfy § 401(a)(9)(B)(i). In addition, distributions to the employee's beneficiaries must also satisfy § 401(a)(9)(B)(ii) (or if applicable, § 401(a)(9)(B)(iii)), taking into account § 401(a)(9)(E)(iii), (H)(ii), and (H)(iii). In order to satisfy § 401(a)(9)(B)(i), the beneficiary of an employee who died after the employee's required beginning date must take an annual RMD beginning in the first calendar year after the calendar year of the employee's death. In order to satisfy § 401(a)(9)(B)(ii) (applied by substituting "10 years" for "5 years"), the remaining account balance must be distributed by the 10 th calendar year after the calendar year of the employee's death (subject to an exception under § 401(a)(9)(B)(iii), if applicable). In order to satisfy both of those requirements, the proposed regulations generally provide that, in the case of an employee who dies after the employee's required beginning date with a designated beneficiary who is not an eligible designated beneficiary (and for whom the § 401(a)(9)(B)(iii) alternative to the 10-year rule is not applicable), annual RMDs must continue to be taken after the death of the employee, with a full distribution required by the end of the 10 th calendar year following the calendar year of the employee's death. In the case of a designated beneficiary who is an eligible designated beneficiary, the proposed regulations include an alternative to the 10-year rule under which annual lifetime or life expectancy payments would be made to the beneficiary beginning in the year following the year of the employee's death, in accordance with § 401(a)(9)(B)(iii). Under the proposed regulations, if an eligible designated beneficiary of an employee is using the lifetime or life expectancy payment alternative to the 10-year rule, then the eligible designated beneficiary (and, after the death of the eligible designated beneficiary, the beneficiary of the eligible designated beneficiary) would need to continue to take annual RMDs after the death of the employee (with the employee's entire interest distributed by no later than the 10 th year after the year of the eligible designated beneficiary's death). The proposed regulations provide for similar treatment (that is, continued annual RMDs with a requirement that the employee's entire interest be distributed no later than the 10 th year after a specified event) in the case of a designated beneficiary who is a minor child of the employee (with the specified event being the child reaching the age of majority). F. Comments received by the Treasury Department and the IRS The Treasury Department and the IRS provided a 90-day comment period for the proposed regulations. Some individuals who are owners of inherited IRAs or are beneficiaries under defined contribution plans submitted comments indicating that they thought the new 10-year rule would apply differently than it would under the proposed regulations. Specifically, these commenters expected that, regardless of when an employee died, the 10-year rule would operate like the 5-year rule, such that there would not be any RMD due for a calendar year until the last year of the 5- or 10-year period following the specified event (the death of the employee, the death of the eligible designated beneficiary, or the attainment of the age of majority for the employee's child who is an eligible designated beneficiary). Commenters who are heirs or beneficiaries of individuals who died in 2020 explained that they did not take an RMD in 2021 and were unsure of whether they would be required to take an RMD in 2022. Commenters asserted that, if final regulations adopt the interpretation of the 10-year rule set forth in the proposed regulations, the Treasury Department and the IRS should provide transition relief for failure to take distributions that are RMDs due in 2021 or 2022 pursuant to § 401(a)(9)(H) in the case of the death of an employee (or designated beneficiary) in 2020 or 2021. In response to the comments received on the proposed regulations, the Treasury Department and the IRS issued Notice 2022-53, 2022-45 IRB 437. Notice 2022-53 announced that the final regulations will apply no earlier than the 2023 distribution calendar year and provided guidance regarding certain amounts that were not paid in 2021 or 2022. Specifically, Notice 2022-53 provided that a defined contribution plan will not fail to be qualified for failing to make a specified RMD (as defined in section IV.C of that notice) in 2021 or 2022 and the taxpayer who did not take a specified RMD will not be subject to the excise tax under § 4974 for failing to take the specified RMD. Subsequently, the Treasury Department and the IRS issued Notice 2023-54, 2023-31 IRB 382, which extended the relief in Notice 2022-53 to specified RMDs for 2023, and announced that the final regulations will apply no earlier than the 2024 distribution calendar year. III. APPLICABILITY DATE OF FINAL REGULATIONS Final regulations regarding RMDsunder § 401(a)(9) and related provisions are anticipated to apply for determining RMDs for calendar years beginning on or after January 1, 2025. IV. GUIDANCE FOR SPECIFIED RMDs FOR 2024 A. Guidance for defined contribution plans that did not make a specified RMD. A defined contribution plan that failed to make a specified RMD (as defined in sec-tion IV.C of this notice) will not be treated as having failed to satisfy § 401(a)(9) merely because it did not make that distribution. B. Guidance for certain taxpayers who did not take a specified RMD. To the extent a taxpayer did not take a specified RMD (as defined in section IV.C of this notice), the IRS will not assert that an excise tax is due under § 4974. C. Definition of specified RMD. For purposes of this notice, a specified RMD is any distribution that, under the interpretation included in the proposed regulations, would be required to be made pursuant to § 401(a)(9) in 2024 under a defined contribution plan or IRA that is subject to the rules of § 401(a)(9)(H) for the year in which the employee (or designated beneficiary) died if that payment would be required to be made to: - a designated beneficiary of an employee under the plan (or IRA owner) if: (1) the employee (or IRA owner) died in 2020, 2021, 2022, or 2023, and on or after the employee's (or IRA owner's) required beginning date, and (2) the designated beneficiary is not using the lifetime or life expectancy payments exception under § 401(a)(9)(B)(iii); or - a beneficiary of an eligible designated beneficiary (including a designated beneficiary who is treated as an eligible designated beneficiary pursuant to § 401(b)(5) of the SECURE Act) if: (1) the eligible designated beneficiary died in 2020, 2021, 2022, or 2023, and (2) that eligible designated beneficiary was using the lifetime or life expectancy payments exception under § 401(a)(9)(B)(iii) of the Code. V. DRAFTING INFORMATION The principal author of this notice is Jessica Weinberger of the Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). For further information regarding this notice, contact Jessica Weinberger at (202) 317-6349 (not a toll-free number).

Revenue Ruling 2022-22 Internal Revenue Service 2022-49 I.R.B. 500 Section 1274.--Determination of Issue Price in the Case of Certain Debt Instruments Issued for Property (Also Sections 42, 280G, 382, 467, 468, 482, 483, 1288, 7520, 7872.) Rev. Rul. 2022-22 This revenue ruling provides various prescribed rates for federal income tax purposes for December 2022 (the current month). Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(1) for buildings placed in service during the current month. However, under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July 30, 2008, shall not be less than 9%. Finally, Table 5 contains the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520.

Private Letter Ruling Number: 202204005 Internal Revenue Service November 1, 2021 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202204005 Release Date: 1/28/2022 Index Number: 2010.04-00, 9100.35-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:B04 PLR-113473-21 Date: November 01, 2021 Dear *******: This letter responds to your representative's letter dated June 1, 2021, submitted on behalf of Decedent's estate, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make an election. Decedent's estate is requesting to make an election under § 2010(c)(5)(A) of the Internal Revenue Code (a "portability" election) to allow a decedent's surviving spouse to take into account that decedent's deceased spousal unused exclusion (DSUE) amount. The information submitted for consideration is summarized below. Decedent died on Date, survived by Spouse. It is represented that based on the value of Decedent's gross estate and taking into account any taxable gifts, Decedent's estate is not required under § 6018(a) to file an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return). It is further represented that there is an unused portion of Decedent's applicable exclusion amount and that a portability election is required to allow Spouse to take into account that amount (the "DSUE" amount). A portability election is made upon the timely filing of a complete and properly prepared estate tax return, unless the requirements for opting out are satisfied. See § 20.2010-2(a)(2) of the Estate Tax Regulations. For various reasons, an estate tax return was not timely filed and a portability election was not made. After discovery of this, Decedent's estate submitted this request for an extension of time under § 301.9100-3 to make a portability election. LAW AND ANALYSIS Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. Section 2010(a) provides that a credit of the applicable credit amount shall be allowed to the estate of every decedent against the tax imposed by § 2001. Section 2010(c)(1) provides that the applicable credit amount is the amount of the tentative tax that would be determined under § 2001(c) if the amount with respect to which such tentative tax is to be computed were equal to the applicable exclusion amount. On December 17, 2010, Congress amended § 2010(c), effective for estates of decedents dying and gifts made after December 31, 2010, to allow portability of a decedent's unused applicable exclusion amount between spouses. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111-312, § 303, 124 Stat. 3296, 3302 (2010). Section 2010(c)(2) provides that the applicable exclusion amount is the sum of the basic exclusion amount, and, in the case of a surviving spouse, the DSUE amount. Section 2010(c)(3) provides the basic exclusion amount available to the estate of every decedent, an amount to be adjusted for inflation annually after calendar year 2011. Section 2010(c)(4) defines the DSUE amount to mean the lesser of (A) the basic exclusion amount, or (B) the excess of -- (i) the applicable exclusion amount of the last deceased spouse of the surviving spouse, over (ii) the amount with respect to which the tentative tax is determined under § 2001(b)(1) on the estate of such deceased spouse. Section 2010(c)(5)(A) provides that a DSUE amount may not be taken into account by a surviving spouse under § 2010(c)(2) unless the executor of the estate of the deceased spouse files an estate tax return on which such amount is computed and makes an election on such return that such amount may be so taken into account. The election, once made, shall be irrevocable. No election may be made if such return is filed after the time prescribed by law (including extensions) for filing such return. Section 20.2010-2(a)(1) provides that the due date of an estate tax return required to elect portability is nine months after the decedent's date of death or the last day of the period covered by an extension (if an extension of time for filing has been obtained). Under § 20.2010-2(a)(1), an extension of time under § 301.9100-3 to make a portability election may be granted in the case of an estate that is not required to file an estate tax return under § 6018(a), as determined solely based on the value of the gross estate and any adjusted taxable gifts (and without regard to § 20.2010-2(a)). Under § 301.9100-1(c), the Commissioner has discretion to grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time to make an election whose due date is prescribed by a regulation (and not expressly provided by statute). Requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. In this case, based on the representation as to the value of the gross estate and any adjusted taxable gifts, the time for filing the portability election is fixed by the regulations. Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Decedent's estate to elect portability, provided Decedent's estate establishes it acted reasonably and in good faith, the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government. Information, affidavits, and representations submitted on behalf of Decedent's estate explain the circumstances that resulted in the failure to timely file a valid election. Based solely on the information submitted and the representations made, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Therefore, we grant an extension of time of 120 days from the date of this letter in which to make the portability election. The election should be made by filing a complete and properly prepared Form 706 and a copy of this letter, within 120 days from the date of this letter, at the following address: Department of the Treasury, Internal Revenue Service Center, Kansas City, MO 64999. For purposes of electing portability, a Form 706 filed by Decedent's estate within 120 days from the date of this letter will be considered to be timely filed. If it is later determined that, based on the value of the gross estate and taking into account any taxable gifts, Decedent's estate is required to file an estate tax return pursuant to § 6018(a), the Commissioner is without authority under § 301.9100-3 to grant an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void. See § 20.2010-2(a)(1). We neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In particular, we express no opinion as to the DSUE amount to be potentially taken into account by Spouse. Any claimed DSUE amount will be included in the applicable exclusion amount of Spouse only to the extent that Spouse can substantiate such amount and will be subject to determination by the Director's office upon audit of relevant Federal gift or estate tax returns. See § 20.2010-3(c)(1) and (d). The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative. Sincerely, Associate Chief Counsel (Passthroughs and Special Industries) Lorraine E. Gardner ________________________________ By: Lorraine E. Gardner Senior Counsel, Branch 4 Office of the Associate Chief Counsel (Passthroughs and Special Industries) Enclosure Copy for § 6110 purposes cc:

Internal Revenue Service - Information Release IR-2023-119 National Taxpayer Advocate issues midyear report to Congress; highlights filing season challenges and focuses on strategic priorities June 21, 2023 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 National Taxpayer Advocate issues midyear report to Congress; highlights filing season challenges and focuses on strategic priorities IR-2023-119, June 21, 2023 WASHINGTON -- National Taxpayer Advocate Erin M. Collins today released her statutorily mandated midyear report to Congress. The report says the tax-return filing season generally ran smoothly this year, urges the Internal Revenue Service to prioritize a broad array of technology upgrades and sets forth key objectives of the Office of the Taxpayer Advocate for the upcoming fiscal year. The filing season The report analyzes the IRS's effectiveness in processing original returns, amended returns, taxpayer correspondence and answering taxpayer telephone calls. "What a difference a year makes!" Collins wrote in her preface to the report. Reflecting on the challenges taxpayers experienced in recent filing seasons due to the COVID-19 pandemic, she said, "In submitting this report, I'm finally able to deliver some good news: The taxpayer experience vastly improved during the 2023 filing season. The IRS caught up in processing paper-filed original Forms 1040 and various business returns; refunds were generally issued quickly; and taxpayers calling the IRS were much more likely to get through - and with substantially shorter wait times. Overall, the difference between the 2022 filing season and the 2023 filing season was like night and day." Despite these improvements, the report says the IRS is still behind in processing amended tax returns and taxpayer correspondence. Typically, employees in the IRS's Accounts Management function perform two roles - they answer telephone calls, and they process taxpayer correspondence, amended returns and other cases. The report says the IRS was much more effective in answering taxpayer calls this year, "but [that] could only be accomplished by prioritizing the phones over other IRS operations, and it resulted in greater delays in the processing of paper correspondence." Processing of original tax returns. Figure 1 shows that the IRS reduced its backlog of unprocessed paper-filed original tax returns from 13.3 million at the end of the 2022 filing season to 2.6 million at the end of the 2023 filing season. That represents a reduction of 80% and marks a return to pre-pandemic levels. Figure 1: Status of Unprocessed Paper-Filed Original Tax Returns Comparing Weeks Ending April 22, 2022, and April 22, 2023 Filing Season Individual Business Not Specified Total 2022 6,200,000 5,200,000 2,000,000 13,300,000 2023 1,200,000 500,000 900,000 2,600,000 As of June 3, however, the inventory of unprocessed paper-filed original returns had grown to 4.1 million, consisting of about half individual returns and half business returns. Processing of amended tax returns. In contrast to the 80% reduction in the backlog of paper-filed original tax returns, Figure 2 shows that the inventory of amended returns was 3.6 million in April 2022 and 3.4 million in April 2023, a reduction of only six percent between the two periods. Figure 2: Status of Unprocessed Amended Tax Returns Comparing Weeks Ending April 22, 2022, and April 22, 2023 Filing Season Individual Business Total 2022 2,600,000 1,100,000 3,600,000 2023 1,700,000 1,700,000 3,400,000 For individual amended returns (Forms 1040-X), the IRS's processing time was about seven months as of the end of the 2023 filing season. On the business side, a large portion of the delay in processing amended returns is attributable to Employee Retention Credit (ERC) claims. The ERC is a refundable tax credit that Congress authorized to encourage employers to retain employees during the COVID-19 pandemic. Employers may receive up to $26,000 per employee if they meet certain conditions. Many ERC claims are legitimate, but the IRS has also received a large number of fraudulent claims and has placed promoter claims involving the ERC on its "Dirty Dozen" list of tax scams. "The influx of fraudulent claims has put the IRS between a rock and a hard place," Collins wrote. "If the IRS pays out claims quickly without taking the time to review them individually, it will be making some payments to individuals potentially engaged in fraud. If it takes the time to review claims individually, legitimate businesses who need the funds Congress authorized to help them stay afloat may not receive them in time." Processing of taxpayer correspondence and other Accounts Management (AM) cases. In addition to answering telephone calls and processing amended tax returns, AM employees process taxpayer responses to IRS notices and many types of taxpayer requests, such as applications for Employer Identification Numbers, a high percentage of Identity Theft Victim Assistance cases, and tax return preparer authorizations. The IRS has not made notable progress in reducing its paper AM inventories over the past year. The inventory is just six percent lower than at the same time last year. In April, it was taking the IRS 130 days to process its adjustments cases. That represents a substantial improvement from the 214 days it was taking last year, but it is still well above the IRS's standard processing time of 45 days. Figure 3 compares the AM inventory, excluding amended tax returns, at the close of the 2022 and 2023 filing seasons. Figure 3: Status of Unprocessed Taxpayer Correspondence and AM Cases Comparing Weeks Ending April 22, 2022, and April 22, 2023 Filing Season Individual Business Not Specified Total 2022 2,200,000 1,000,000 2,100,000 5,300,000 2023 1,900,000 900,000 2,200,000 5,000,000 For victims of identity theft, the delays have been particularly long and frustrating. The average cycle time for Identity Theft Victim Assistance cases closed in April 2023 was 436 days - nearly 15 months. That is about three months longer than the 362-day cycle time for cases closed in April 2022. Telephone service. The IRS made considerable progress in improving its telephone service this filing season. It answered more calls, answered a substantially higher percentage of calls and significantly reduced wait times, as shown in Figure 4. Figure 4: IRS Enterprise Telephone Results Comparing Weeks Ending April 23, 2022, and April 22, 2023 Filing Season Calls Received Number of Calls Answered by an IRS Employee Percentage of Calls Answered by an IRS Employee Time on Hold 2022 73 million 7.5 million 10% 29 minutes 2023 32 million 11.0 million 35% 8 minutes The IRS reached the Treasury Department's goal of an 85% "Level of Service" (LOS) on the AM telephone lines. However, IRS employees only answered 35% of all calls received. As the report details, the LOS measure does not account for the significant majority of taxpayer calls and is not the best measure of overall service levels. The report also points out that calls to certain telephone lines, including the collection lines and the installment agreement/balance due line, were answered at lower rates. "Despite these areas of relative weakness," the report says, "the big picture shows taxpayers had a much easier time reaching the IRS this filing season, reducing the need for repeat calls and lengthy wait times - a welcome relief for millions of taxpayers." Inflation Reduction Act funding and IRS strategic priorities The report addresses the IRS's Strategic Operating Plan to utilize funding the agency received under the Inflation Reduction Act (IRA). Of the roughly $79 billion in IRA funding the IRS received, only $3.2 billion was allocated for Taxpayer Services and only $4.8 billion was allocated for Business Systems Modernization (BSM) (The Fiscal Responsibility Act of 2023 and a related side agreement have reduced the IRA funding level to about $58 billion). The report says the Taxpayer Advocate Service (TAS) will continue to advocate for adequate funding for Taxpayer Services, BSM, and the operational overhead that supports those programs. The report urges the IRS to prioritize information technology (IT) upgrades that will improve the taxpayer experience. It says that although the COVID-19 pandemic was an unexpected development, the refund delays and service challenges taxpayers experienced over the past three years would have been substantially less severe if the IRS had better technology. Highlighting the agency's IT deficiencies, Collins wrote: [T]o achieve and sustain transformational improvement over the longer term, the IRS must focus like a laser beam on IT. The IRS must give taxpayers robust online accounts that are comparable to accounts provided by banks and other financial institutions. It must make it possible for all taxpayers to e-file their tax returns. It must limit the number of rejected electronic tax returns. It must provide faster relief for victims of identity theft. It must make it possible for taxpayers to receive and submit responses to information requests electronically in all interactions with the agency. For taxpayers who prefer to submit returns or correspondence by mail, it must digitize all paper upon receipt. It must replace its 60 discrete case management systems that currently have limited ability to communicate with each other with an integrated, agency-wide system. And it must complete the modernization of its Individual Master File and Business Master File, which were originally deployed in the 1960s and are the repository for official taxpayer records. It must transform the way it performs its tax administration mission and become a responsive and trusted agency. Improved IT is imperative to achieving that goal. Collins expressed optimism that the IRS will be able to make major strides in the near future. "[W]ith adequate funding, leadership prioritization, and appropriate oversight from Congress, I believe the IRS will make considerable progress in the next three to five years in helping taxpayers comply with their tax obligations as painlessly as possible," she wrote. Taxpayer Advocate Service objectives for Fiscal Year 2024 As required by law, the report identifies TAS's key objectives for the upcoming fiscal year. The report describes 17 systemic advocacy objectives, four case advocacy and other business objectives and five research objectives. In light of the challenges taxpayers have been facing over the last three years, Collins wrote that TAS will be placing heavy emphasis on working with the IRS to improve the processing of tax returns and taxpayer service generally. Among the objectives the report identifies are the following: - Protect taxpayer rights as the IRS implements its Strategic Operating Plan. The IRS's Strategic Operating Plan proposes compliance initiatives designed to quickly resolve taxpayer issues and improve tax compliance, particularly among high-income taxpayers, large businesses and pass-through entities. Depending on how tax compliance initiatives are structured and administered, they have the potential to undermine taxpayer rights. During FY 2024, TAS will monitor the implementation of compliance initiatives and advocate for the protection of taxpayer rights. - Improve correspondence audit processes, taxpayer participation, and agreement and default rates. The IRS conducts most of its audits by correspondence. Taxpayers often have difficulty navigating the correspondence audit process, including difficulty understanding the notices, gathering and providing documentation to substantiate their return positions, responding within prescribed deadlines and having limited options to communicate with an IRS employee. Substantially all Earned Income Tax Credit audits are conducted by mail. During 2022, correspondence audits resulted in a 41.6% no-response rate, only a 20.8% agreement rate and a 20.4% default rate. During FY 2024, TAS plans to continue working on cross-functional teams with other IRS business units to improve the correspondence examination process. - Implement systemic first-time penalty abatement but allow substitution of reasonable cause. Under existing procedures, the IRS will provide a first-time abatement (FTA) of penalties for failure to file, failure to pay and failure to deposit required tax if a taxpayer is otherwise compliant and has not used FTA within the prior three years. However, FTA is generally provided only if a taxpayer requests FTA or reasonable cause relief. In 2021, the IRS granted FTA to about 200,000 taxpayers requesting relief from these penalties, but there were about 4.3 million taxpayers eligible for relief from these penalties who did not receive it. The result was that a relatively small percentage of sophisticated taxpayers or taxpayers who paid for professional assistance received penalty abatements just for asking while the overwhelming majority of taxpayers who do not know the IRS is willing to abate these penalties did not. Relatedly, TAS believes taxpayers who qualify for "reasonable cause" penalty relief should receive it and not be forced to use their once-in-three-years FTA waiver. During FY 2024, TAS plans to continue working with the IRS to ensure that similarly situated taxpayers receive equitable treatment in the abatement of these penalties. IRS responses to National Taxpayer Advocate administrative recommendations The National Taxpayer Advocate is required by statute to submit a year-end report to Congress that, among other things, makes administrative recommendations to resolve taxpayer problems. Section 7803(c)(3) of the Internal Revenue Code authorizes the National Taxpayer Advocate to submit the administrative recommendations to the commissioner and requires the IRS to respond within three months. The National Taxpayer Advocate made 46 administrative recommendations in her 2022 year-end report and then submitted them to the commissioner for response. The IRS has agreed to implement 38 (or 83%) of the recommendations in full or in part. The IRS's responses are published on the TAS website at TAS Administrative Recommendations. The National Taxpayer Advocate is required by statute to submit two annual reports to the House Committee on Ways and Means and the Senate Committee on Finance. The statute requires the reports to be submitted directly to the Committees without any prior review or comment from the Commissioner of Internal Revenue, the Secretary of the Treasury, the IRS Oversight Board, any other officer or employee of the Department of the Treasury or the Office of Management and Budget. The first report must identify the objectives of the Office of the Taxpayer Advocate for the fiscal year beginning in that calendar year. The second report must include a discussion of the ten most serious problems encountered by taxpayers, identify the ten tax issues most frequently litigated in the courts and make administrative and legislative recommendations to resolve taxpayer problems. The National Taxpayer Advocate blogs about key issues in tax administration. Individuals may subscribe to the blog and read past blogs. For media inquiries, please contact TAS Media Relations at tas.media@irs.gov or call the media line at 202-317-6802. About the Taxpayer Advocate Service The Taxpayer Advocate Service is an independent organization within the IRS. TAS helps taxpayers resolve problems with the IRS, makes administrative and legislative recommendations to prevent or correct the problems and protects taxpayer rights. To contact TAS, visit Contact Us; check your local directory; or call TAS toll-free at 877-777-4778. To get help any time with general tax topics or to learn more about the Taxpayer Bill of Rights, visit Taxpayer Advocate Service. Get updates on tax topics at Facebook: Your voice at the IRS PDF, Twitter: Your voice at the IRS, and YouTube: TASNTA.

Internal Revenue Service - Fact Sheet FS-2023-29 IRS updates frequently asked questions related to new, previously-owned and qualified commercial clean vehicle credits December 2023 Internal Revenue Service Media Relations Office Washington, D.C. Media Contact: 202.317.4000 Public Contact: 800.829.1040 www.IRS.gov/newsroom IRS updates frequently asked questions related to new, previously-owned and qualified commercial clean vehicle credits FS-2023-29, December 2023 Note: These FAQs supersede earlier FAQs that were posted in FS-2022-42 on December 29, 2022, and updated in FS-2023-04 and FS-2023-08 on February 3, 2023 and March 31, 2023, respectively. This Fact Sheet updates frequently asked questions related to new, previously owned, and qualified commercial clean vehicles. The FAQs revisions are as follows: - Topic A: Eligibility Rules for the New Clean Vehicle Credit: added questions 13 and 14 These FAQs are being issued to provide general information to taxpayers and tax professionals as expeditiously as possible. Accordingly, these FAQs may not address any particular taxpayer's specific facts and circumstances, and they may be updated or modified upon further review. Because these FAQs have not been published in the Internal Revenue Bulletin, they will not be relied on or used by the IRS to resolve a case. Similarly, if an FAQ turns out to be an inaccurate statement of the law as applied to a particular taxpayer's case, the law will control the taxpayer's tax liability. Nonetheless, a taxpayer who reasonably and in good faith relies on these FAQs will not be subject to a penalty that provides a reasonable cause standard for relief, including a negligence penalty or other accuracy-related penalty, to the extent that reliance results in an underpayment of tax. Any later updates or modifications to these FAQs will be dated to enable taxpayers to confirm the date on which any changes to the FAQs were made. Additionally, prior versions of these FAQs will be maintained on IRS.gov to ensure that taxpayers, who may have relied on a prior version, can locate that version if they later need to do so. More information about reliance is available. These FAQs were announced in IR-2023-251. New clean vehicle credit, previously-owned vehicle credit and qualified commercial clean vehicles credit frequently asked questions Background The Inflation Reduction Act of 2022 (IRA) made several changes to the tax credit provided in § 30D of the Internal Revenue Code (Code) for qualified plug-in electric drive motor vehicles, including adding fuel cell vehicles to the § 30D tax credit (new clean vehicle credit). The IRA also added new credits for previously-owned clean vehicles under § 25E of the Code (previously-owned clean vehicle credit) and for commercial clean vehicles under § 45W of the Code (qualified commercial clean vehicles credit). These FAQs provide details on how the IRA revises the credit available for new clean vehicles for individuals and businesses, and information on the credit available for previously-owned clean vehicles for individuals, and the new credit for qualified commercial clean vehicles. - Topic A: Eligibility Rules for the New Clean Vehicle Credit - Topic B: Income and Price Limitations for the New Clean Vehicle Credit - Topic C: When the New Requirements Apply to the New Clean Vehicle Credit - Topic D: Eligibility Rules for the Previously-Owned Clean Vehicles Credit - Topic E: Income and Price Limitations Previously-Owned Clean Vehicles - Topic F: Claiming the Previously Owned Clean Vehicles Credit - Topic G: Qualified Commercial Clean Vehicles Credit - Topic H: Transfer of New Clean Vehicle Credit and Previously-Owned Clean Vehicle Credit - Topic I: Registering a Dealer/Seller for Seller Reporting and Clean Vehicle Tax Credit Transfers - Topic J: Seller Report Information for Buyers of New and Previously-Owned Clean Vehicle Tax Credits Beginning in 2024 Topic A: Eligibility Rules for the New Clean Vehicle Credit under § 30D effective 1/1/2023 Q1. What is a new clean vehicle for purposes of the new clean vehicle credit? (updated October 6, 2023) A1. For purposes of the new clean vehicle credit, a new clean vehicle is a clean vehicle placed in service on or after January 1, 2023, that is acquired by a taxpayer for original use. In addition, to qualify for the credit, the vehicle: - Cannot be acquired for resale; - Must be manufactured by a qualified manufacturer; - Must meet the definition of a motor vehicle under Title II of the Clean Air Act (that is, any vehicle manufactured primarily for use on public streets, roads, and highways. It must also have at least four wheels); - Must have a gross vehicle weight rating of less than 14,000 pounds; - Must be powered to a significant extent by an electric motor with a battery capacity of 7 kilowatt hours or more and must be capable of being recharged from an external source of electricity; and - Must have final assembly in North America. To find a list of eligible vehicles visit fueleconomy.gov/newtaxcredit. See Topic A FAQ 2 for additional detail. Moreover, for a taxpayer to claim the credit, the seller of a new clean vehicle must provide a report containing taxpayer and vehicle information to the taxpayer and to the IRS. See Topic B FAQs 7-9 for additional detail. Fuel cell vehicles are also new clean vehicles if (1) the original use begins with the taxpayer, (2) the final assembly is in North America, and (3) the seller of the vehicle provides a report to the taxpayer and the IRS. Q2. Is there a list of vehicles that qualify for the new clean vehicle credit? (updated October 6, 2023) A2. Yes. The Department of Energy hosts a purchaser-friendly version of IRS's list of eligible clean vehicles, including battery electric, plug-in hybrid, and fuel cell vehicles, that qualified manufacturers have indicated to the IRS meet the requirements to claim the new clean vehicle credit on FuelEconomy.gov. This list will be promptly updated as additional vehicle eligibility requirements take effect and as manufacturers provide updated information. That list is available here: fueleconomy.gov/newtaxcredit. Verifying the manufacturer's suggested retail price, final assembly, or that a specific vehicle is eligible may be necessary for certain makes and models, see Topic B FAQs 3 and 4. Final confirmation of vehicle qualification should be done at time of purchase. The seller must provide you with a report about a vehicle's eligibility at the time of sale. Q3. How can I confirm the final assembly of a new clean vehicle is in North America? (updated March 31, 2023) A3. There is a clean vehicle credit requirement that vehicles be assembled in North America. The list of eligible vehicles on FuelEconomy.gov includes information about a vehicle's final assembly. The final assembly point will be listed on the vehicle information label attached to each vehicle on a dealer's premises. North America includes the United States (defined, for this purpose to mean the 50 states, the District of Columbia, and Puerto Rico), Canada, and Mexico for purposes of determining the location of final assembly. The VIN Decoder website for the National Highway Traffic Safety Administration (NHTSA) also provides final assembly location information. The website, including instructions, can be found at VIN Decoder. Q4. How will I know what the vehicle identification number (VIN) is? (updated October 6, 2023) A4. The vehicle identification number (VIN) is a 17-character number that uniquely identifies a vehicle. It is permanently attached to a vehicle in several locations, appearing on the dashboard for most passenger vehicles and on the label located on the driver's door frame. The VIN is also located on the window sticker of new vehicles and often appears on the vehicle listing on dealers' websites or can be obtained by calling a dealership. Once the VIN is known, the VIN can be used to confirm final assembly. See FAQ 3. Q5. If I order a new clean vehicle in one year and don't receive it until a subsequent year, when do I claim the credit? (added December 29, 2022) A5. The new clean vehicle credit is claimed in the tax year that the vehicle is placed in service, meaning the tax year that includes the date the taxpayer takes delivery of the vehicle. See also Topic C FAQs 5 and 8. Q6. What is the amount of the new clean vehicle credit? (updated March 31, 2023) A6. Beginning January 1, 2023, eligible vehicles may qualify for a tax credit of up to $7,500. The amount of the credit depends on when the eligible new clean vehicle is placed in service and whether the vehicle meets certain requirements for a full or partial credit. For vehicles placed in service on or after April 18, 2023, the credit amount will depend on the vehicle meeting the critical minerals requirement ($3,750) and/or the battery components requirement ($3,750). A vehicle meeting neither requirement will not be eligible for a credit, a vehicle meeting only one requirement may be eligible for a $3,750 credit, and a vehicle meeting both requirements may be eligible for the full $7,500 credit. For vehicles placed in service before or on April 17, 2023, the credit is calculated as a $2,500 base amount plus, for a vehicle which draws propulsion energy from a battery with at least 7 kilowatt hours of capacity, $417, plus an additional $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours, up to an additional $5,000 beyond the base amount. In general, the minimum credit amount will be $3,751 ($2,500 + 3 * $417), representing the credit amount for a vehicle with the required minimum of 7 kilowatt hours of battery capacity. Q7. Is the new clean vehicle credit refundable or able to be carried forward? (updated October 6, 2023) A7. The new clean vehicle credit may only be claimed to the extent of reported tax due of the taxpayer and cannot be refunded. The new clean vehicle credit cannot be carried forward to the extent it is claimed for personal use on Form 1040, Schedule 3, Additional Credits and Payments. However, the new clean vehicle credit can be carried forward to the extent it is claimed for business use on Form 3800, General Business Credit, as otherwise appropriate. See Topic H FAQ 3 regarding transfer of the clean vehicle credits. Q8. What does "original use" mean? (updated February 3, 2023) A8. For purposes of the new clean vehicle credit, "original use" means the first use to which the vehicle is put after it is sold, registered, or titled. A vehicle is not a new clean vehicle if (1) another person (including a dealer) has ever purchased, registered, or titled the clean vehicle and (2) placed it in service for any purpose (including as a dealer demonstrator vehicle). Where a vehicle is acquired for lease to another person, the lessor is the original user. Test drives by potential buyers do not disqualify a vehicle from eligibility for the new clean vehicle credit provided the dealer has not titled the vehicle to itself as a demonstrator vehicle. Q9. What is a qualified manufacturer? (added December 29, 2022) A9. A qualified manufacturer is a manufacturer that enters into a written agreement with the IRS to file periodic reports with VINs) and other information for each vehicle they manufacture. The IRS maintains a list of qualified manufacturers that can be found at Clean Vehicle Qualified Manufacturer Requirements. Q10. Do I have to report the vehicle identification number on my return to claim the new clean vehicles credit? (added December 29, 2022) A 10. Yes. The VIN of the new clean vehicle is required to be included on Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit, when you file your income tax return. Q11. Can the new clean vehicle credit be split between multiple owners? (added March 31, 2023) A11. No. In certain instances, multiple taxpayers may purchase, place in service, and be titled as owners of a single vehicle. For example, a married couple that files separate tax returns may jointly purchase and take possession of a new clean vehicle that qualifies for the credit and both be titled as owners of the vehicle. However, only one taxpayer can claim the new clean vehicle credit per vehicle placed in service, and the credit may not be allocated or prorated between multiple taxpayers. In the case of married taxpayers filing jointly, either spouse may be identified as the owner claiming the new clean vehicle credit. The name and taxpayer identification number of the owner claiming the credit new clean vehicle credit should be listed on the seller's report. See Topic B FAQ 9. Accordingly, multiple owners of a new clean vehicle should inform the seller which owner will claim the new clean vehicle credit so that the seller can identify that taxpayer on the seller's report. The credit would be allowed only on the tax return of the owner listed in the seller's report. Q12: What happens if the new clean vehicle sale is cancelled or the vehicle is returned or resold shortly after purchase? (added October 6, 2023) A12. If a sale is cancelled before the taxpayer places the vehicle in service, i.e., before the taxpayer takes possession of the vehicle, the taxpayer may not claim the new clean vehicle credit. The vehicle will still be eligible for a new clean vehicle credit upon a subsequent qualifying sale to another taxpayer. In the case of a return made within 30 days of placing the vehicle in service, the purchaser may not claim a clean vehicle credit with respect to the vehicle. Such vehicle, once returned, was already placed in service by a taxpayer, and a new clean vehicle tax credit is not available to a subsequent buyer. In the case of a resale by the purchaser made within 30 days of placing the vehicle in service, the purchaser is treated as having purchased the vehicle with an intent to resell and cannot claim a clean vehicle credit with respect to the vehicle. Such vehicle was already placed in service by a taxpayer, and a new clean vehicle tax credit is not available to a subsequent buyer. Q13. If I place a vehicle in service in 2024, and it has battery components manufactured by a foreign entity of concern but it meets the critical mineral applicable percentage requirements for 2024, does my vehicle qualify for the $3,750 portion of the new clean vehicle credit for meeting critical mineral requirements? (added December 26, 2023) A13. No, a vehicle placed in service after December 31, 2023, with battery components manufactured or assembled by a foreign entity of concern is not eligible for any amount of new clean vehicle credit, as statutorily provided in section 30D(d)(7)(B). If a vehicle has any battery components that were manufactured or assembled by a foreign entity of concern, then the vehicle is no longer considered a new clean vehicle and therefore is not eligible for a partial new clean vehicle credit ($3,750). Q14. Is a qualified manufacturer required in its written report to make an attestation under penalties of perjury, demonstrating compliance with the foreign entity of concern requirements of section 30D? (added December 26, 2023) A14. Yes, a qualified manufacturer is required to include in its written report the following attestation: "Under penalties of perjury, I declare that I have examined this certification, including accompanying documents, and to the best of my knowledge and belief, the facts presented in support of this certification are true, correct, and complete." As such, a qualified manufacturer's attestation of compliance with the foreign entity of concern requirements should be made to the best of the qualified manufacturer's knowledge and belief. Topic B: Income and Price Limitations for the New Clean Vehicle Credit Q1. Could my income level prevent me from taking the new clean vehicle credit? (updated October 6, 2023) A1. Yes. You may not claim the credit if your modified adjusted gross income (AGI) exceeds certain thresholds. This limitation is based on the lesser of your modified AGI for the year that the new clean vehicle was placed in service or for the preceding year. The relevant modified AGI thresholds are as follows: - Married filing jointly or filing as a qualifying surviving spouse or a qualifying widow(er) - $300,000 - Head of household - $225,000 - All other taxpayers - $150,000 Your modified AGI is the amount from line 11 of your Form 1040 plus: - Any amount on line 45 or line 50 of Form 2555, Foreign Earned Income. - Any amount excluded from gross income because it was received from sources in Puerto Rico or American Samoa. If your filing status changes between the preceding year and the current year, you may claim the new clean vehicle credit if your modified AGI is less than or equal to the threshold applicable to your filing status for in the preceding year or current year. Q2. How do the income thresholds apply to my partnership's purchase and use of a new clean vehicle? (added March 31, 2023) A2. If a partnership or an S corporation places a new clean vehicle in service and the new clean vehicle credit is claimed by individuals who are direct or indirect partners of that partnership or shareholders of that S corporation, the modified AGI thresholds apply to those partners or shareholders. Q3. Are there any price limitations on new clean vehicles eligible for the credit? (updated October 6, 2023) A3. Yes. The manufacturer's suggested retail price (MSRP) for the new clean vehicle may not exceed the following amounts for the following vehicle types: - Vans - $80,000 - Sport Utility Vehicles - $80,000 - Pickup Trucks - $80,000 - Other - $55,000 If the MSRP exceeds the limitation for that specific vehicle type, that vehicle is not eligible for the new clean vehicle credit. The Department of Energy hosts a purchaser-friendly version of IRS's list of eligible clean vehicles, including battery electric, plug-in hybrid, and fuel cell vehicles, that qualified manufacturers have indicated to the IRS meet the requirements to claim the new clean vehicle credit on FuelEconomy.gov, including the applicable MSRP limitation. Q4. How will I know what the MSRP is for a vehicle? (added December 29, 2022) A4. The MSRP will be on the vehicle information label attached to each vehicle on a dealer's premises. The MSRP for this purpose is the base retail price suggested by the manufacturer, plus the retail price suggested by the manufacturer for each accessory or item of optional equipment physically attached to the vehicle at the time of delivery to the dealer. It does not include destination charges or optional items added by the dealer, or taxes and fees. Q5. Would I still qualify for the new clean vehicle credit if the purchase price, including sales tax, fees, negative equity on a trade, etc., exceeds the MSRP threshold? (added December 29, 2022) A5. The credit limitations on the price of the vehicle are based on MSRP, not the actual price you paid for the vehicle. See FAQ 3 for how to determine the manufacturer's suggested retail price. Q6. If the manufacturer/dealer offers incentives on the purchase, and the total purchase price drops below the MSRP limitation, will the vehicle be eligible for the new clean vehicles credit? (added December 29, 2022) A6. The credit limitations on the price of the vehicle are based on MSRP, not the actual price you paid for the vehicle. See FAQ 3 for how to determine MSRP. Q7. How do I know if my vehicle is a pickup truck, van, sport utility vehicle (SUV), or other type of vehicle for purposes of determining the applicable MSRP for a vehicle? (updated October 6, 2023) A7. A vehicle's classification for this purpose relates to the classification describing the vehicle on the fuel economy label included as part of the window sticker as well as the EPA Size class displayed on FuelEconomy.gov. Vehicles whose class includes "sport utility vehicle," "pickup truck," or "van" on the fuel economy label or on FuelEconomy.gov are considered a sport utility vehicle, pickup truck, or van respectively for this purpose and the $80,000 MSRP limit applies, including for the following vehicle classes: - Small Sport Utility Vehicle - Standard Sport Utility Vehicle - Small Pickup Truck - Standard Pickup Truck - Minivan - Van If your eligible vehicle is not in one of the classes described in the list above, the $55,000 MSRP limitation applies. The Department of Energy hosts a purchaser-friendly version of IRS's list of eligible clean vehicles, including battery electric, plug-in hybrid, and fuel cell vehicles, that qualified manufacturers have indicated to the IRS meet the requirements to claim the new clean vehicle credit on FuelEconomy.gov, including the applicable MSRP limitation. Q8. If my vehicle's classification changed since it was purchased, can I claim the new clean vehicle credit? (updated October 6, 2023) A8. Eligible taxpayers who placed in service an eligible vehicle on or after January 1, 2023 may claim the credit on their tax return based on the updated vehicle classification definition provided in Notice 2023-16 issued on February 3, 2023, and incorporated in the April 2023 proposed regulations, and the associated MSRP limitation. All vehicles that were classified as an SUV, van, or pickup truck for the purpose of the new clean vehicle tax credit prior to the updated notice continue to be subject to the same $80,000 MSRP limitation. Some vehicles that were previously subject to the $55,000 MSRP limitation are now classified as SUVs and therefore get the benefit of the $80,000 MSRP limitation. The vehicles now classified as SUVs for this purpose include but may not be limited to the 2023 Cadillac Lyriq, the 2022 and 2023 Ford Mustang Mach-E, certain variants of the 2022 and 2023 Tesla Model Y, certain variants of the 2022 and 2023 Volkswagen ID.4, and the 2022 and 2023 Ford Escape Plug-In Hybrid. In the case where vehicles have been reclassified for the purpose of this credit, taxpayers should obtain a report from the seller, see FAQ 9. Vehicles placed in service on or after April 18, 2023 must also meet the critical minerals and battery sourcing requirements to claim the credit. Q9. What information does a seller have to provide to a taxpayer purchasing a new clean vehicle to allow the taxpayer to claim the new clean vehicle credit? (updated October 6, 2023) A9. A seller must provide the following information on a report to the taxpayer and to the IRS ("seller report" or "time of sale report"): - Name and taxpayer identification number of the seller - Name and taxpayer identification number of the taxpayer (only one taxpayer may be listed on the seller report; in the event of multiple owners, only the taxpayer that intends to claim the credit should be listed) - Vehicle identification number (VIN) of the new clean vehicle - Battery capacity of the new clean vehicle - Verification that the taxpayer is the original user of the new clean vehicle - The date of the sale and the sale price of the vehicle - Maximum credit allowable for the new clean vehicle being sold - For sales after December 31, 2023, the amount of any transfer credit applied to the purchase - A declaration under penalties of perjury from the seller For further details see Revenue Procedure 2022-42 and Revenue Procedure 2023-33. Q10. When must the seller provide the report to the taxpayer? (updated October 6, 2023) A10. The seller must provide the report to the taxpayer not later than the date the vehicle is purchased. However, taxpayers that did not receive a report from the seller because their vehicle was previously ineligible but their vehicle is now eligible (such as due to a change in the vehicle's classification and the applicable MSRP limitation) may request and receive a report from the seller after the vehicle's purchase date. For further details see Revenue Procedure 2022-42 and Revenue Procedure 2023-33. Q11. How will a seller provide these reports to the IRS? (updated October 6, 2023) A11. For vehicle sales occurring in calendar year 2023, sellers must file reports within 15 days after the end of the calendar year, via a method to be provided by the IRS or through IRS Energy Credits Online. For vehicle sales occurring in calendar year 2024 and later, sellers must file reports within 3 days of the time of sale, through IRS Energy Credits Online. For further details see Revenue Procedure 2022-42 and Revenue Procedure 2023-33. Topic C: When the New Requirements Apply to the New Clean Vehicle Credit Q1. On the day after the Inflation Reduction Act of 2022 became law (August 16, 2022), did any requirements for taxpayers or vehicles to qualify for the credit for new clean vehicles change? (added December 29, 2022) A1. Yes, after August 16, 2022, a new clean vehicle must have had its final assembly in North America to be eligible for the credit. There is a transition rule for vehicles purchased before August 16, 2022. Additional changes begin January 1, 2023. Q2. What additional changes to the credit apply for vehicles placed in service on or after January 1, 2023? (updated October 6, 2023) A2. The most significant changes to the credit for vehicles delivered on or after January 1, 2023, include: - The minimum battery capacity is increased to 7 kilowatt hours - Vehicles must be made by a qualified manufacturer (see Topic A, FAQ 9 for more detail) - MSRP limitations apply, based on the type of vehicle (see Topic B, FAQs 3 and 6 for more detail) - Income limits apply to taxpayers (see Topic B, FAQs 1 and 2 for more detail) - The taxpayer must report the vehicle identification number (VIN) of the vehicle on the taxpayer's income tax return - Sellers must provide reports to the taxpayer and the IRS regarding the sale of the vehicle - Beginning in 2024, the taxpayer may elect to transfer the new clean vehicle credit to the registered dealer Q3. Does the "phase-out period" that limited or eliminated the credit for vehicles sold by certain manufacturers that had sold more than 200,000 vehicles still apply for vehicles sold after January 1, 2023? (added December 29, 2022) A3. No, for vehicles sold on or after January 1, 2023, the prior sales volume limitations no longer apply. The prior sales volume limitations apply to vehicles sold before January 1, 2023. Q4. When do the new critical mineral and battery components requirements apply? (updated March 31, 2023) A4. April 18, 2023. The critical mineral and battery components requirements of the new clean vehicle credit apply to vehicles placed in service on or after April 18, 2023, the day after the applicable Notice of Proposed Rulemaking is issued in the Federal Register. Vehicles ordered or purchased prior to but placed in service on or after April 18, 2023 will be subject to the critical mineral and battery component requirements. Q5. If I order a new clean vehicle in one year and don't receive it until a subsequent year, when do I claim the credit? (updated March 31, 2023) A5. For vehicles purchased on or after August 16, 2022, the new clean vehicle credit is claimed in the tax year that the vehicle is placed in service, meaning the date the taxpayer takes delivery of the vehicle. For vehicles that are placed in service after they are ordered, a vehicle's eligibility for the new clean vehicle credit may change as certain eligibility criteria vary based on when the taxpayer takes delivery of the vehicle. For more information, see FAQ 7. However, if you entered into a written binding contract to buy a new clean vehicle after December 31, 2021, and before August 16, 2022, but took possession on or after August 16, 2022, you must claim the credit on a tax return for tax year 2022. Depending on the date the vehicle is delivered, you can claim the credit on your original, superseding, or amended 2022 tax return. For more information, see FAQ 8. Q6: If I order (or purchase) an eligible new clean vehicle on or after August 16, 2022, but don't take delivery until after Treasury issues proposed guidance on the critical mineral and battery component requirements, will my vehicle still be eligible? (updated March 31, 2023) A6: The vehicle may or may not be eligible depending on whether it meets the critical mineral and battery component requirements. A vehicle's eligibility for the new clean vehicle credit is generally based on the rules that apply as of the date a vehicle is placed in service, meaning the date the taxpayer takes delivery of the vehicle. New clean vehicles placed in service on or after April 18, 2023 are subject to the critical mineral and battery component requirements even if the vehicle was ordered or purchased before April 18, 2023. For vehicles purchased prior to August 16, 2022, see Credits for New Electric Vehicles Purchased in 2022 or Before. Q7: If I purchase a new clean vehicle in 2022 on or after August 16, 2022, but take delivery of the vehicle in 2023, do the income and MSRP limitations apply? (updated February 3, 2023) A7: Yes, the income and MSRP limitations apply to any vehicle that is placed in service (delivered to the taxpayer) in 2023. Q8: If I purchased or entered into a written binding contract to purchase my new clean vehicle after December 31, 2021, and before August 16, 2022, and placed it in service after December 31, 2022, what requirements apply and what tax year's return can I claim the new clean vehicle credit on? (added March 31, 2023) A8: If you purchased or entered into a written binding contract to purchase a new clean vehicle after December 31, 2021, and before August 16, 2022, but took possession on or after August 16, 2022, you may claim the credit based on the requirements for the credit that applied on August 15, 2022, the day before the IRA was enacted. To do so, you are required to claim the credit on a tax return for tax year 2022. Depending on the date the vehicle is placed in service, you may claim the credit on an original, superseding, or amended return for tax year 2022. Taxpayers may not claim the credit before they take possession of the vehicle. While taxpayers should file when they are ready, they should avoid filing prematurely. If you have not received the vehicle before your original tax filing deadline and you have the option, consider applying for an automatic extension of time to file your return. If you have not yet filed your tax return for tax year 2022 at the time you take possession of your new clean vehicle, you may claim the credit on your original 2022 tax return. If you have already filed your tax return for tax year 2022 at the time you take possession of the new clean vehicle, you may file an amended tax return for tax year 2022 and claim the credit. Generally, taxpayers must file an amended return within 3 years after the date the original return was filed or within two years after the date they paid the tax, whichever is later. Q9: If I purchase a new clean vehicle in 2022 that was made by a manufacturer that had already reached the manufacturer sales cap but it is not delivered until 2023, does the manufacturer sales cap still apply? (added December 29, 2022) A9: Yes, the sales cap of 200,000 vehicles applies to vehicles sold before January 1, 2023. If you purchased a vehicle that is subject to the sales cap, it is not eligible for the credit regardless of when you place it in service. Topic D: Eligibility Rules for the Previously-Owned Clean Vehicles Credit Q1. What is the previously-owned clean vehicles credit under § 25E? (updated October 6, 2023) A1. The previously-owned clean vehicles credit is a credit of up to $4,000 (see FAQ 5 ) for t purchase of an eligible previously- he owned clean vehicle with a sale price of $25,000 or less that is placed in service during a tax year by a qualified buyer. To claim the credit, a qualified buyer must meet certain income requirements (see Topic E FAQ 1 ), and it must be the vehicle's first qualified sale since August 16, 2022, other than to the original owner. Q2. What is previously-owned clean vehicle for the purpose of the previously owned clean vehicles credit? (updated a October 6, 2023) A2. A previously-owned clean vehicle is a motor vehicle that meets the following requirements: - The model year of the vehicle is at least two years earlier than the calendar year in which a taxpayer acquires the vehicle - The purchasing taxpayer is not the original user of the vehicle - The vehicle was acquired for a sales price of $25,000 (see Topic E FAQ 2 ) or a less from dealer and the purchasing taxpayer is the first qualified buyer (see FAQ 4 ) to claim the credit since August 16, 2022, other than its original user - And such motor vehicle is a: o Qualified fuel cell motor vehicle with a gross vehicle weight rating of less than 14,000 pounds, or o A vehicle made by a qualified manufacturer (see Topic A FAQ 9 ) that meets the definition of a motor vehicle under Title II of the Clean Air Act, has a gross vehicle weight rating of less than 14,000 pounds, is powered to a significant extent by an electric motor with a battery capacity of seven kilowatt hours or more, and is capable of being recharged from an external source of electricity. The dealer selling the previously-owned clean vehicle must provide a seller report containing buyer and vehicle information to the purchasing taxpayer and to the IRS. Q3. How will I know if a previously-owned clean vehicle may be eligible for a credit? (updated October 6, 2023) A3. Please see the following Used Electric Vehicle Credit list about vehicle eligibility. In addition, qualified buyers will want to ensure their income does not exceed certain thresholds (see Topic E FAQ 1 ) and check the sales history of the vehicle to ensure that their purchase will qualify as the first transfer of the previously-owned vehicle after August 16, 2022 (see FAQ 4, 7 ) other than to the person who was the original user of the vehicle. Visit fueleconomy.gov/usedtaxcredit for a list of manufacturers and models that are eligible for the used clean vehicle credit. Q4. Who is eligible to claim the previously-owned clean vehicle credit? (updated February 3, 2023) A4. Only individuals who meet the following requirements can claim the previously-owned clean vehicle credit: - The taxpayer purchases the vehicle for use and not for resale. - The taxpayer cannot be claimed as a dependent on another taxpayer's tax return. - The taxpayer has not been allowed another previously-owned clean vehicle credit in the three-year period prior to the date the previously owned clean vehicle is purchased. - The taxpayer's income level cannot exceed certain thresholds. (see Topic E FAQ 1 ) Q5. What is the amount of the previously- owned clean vehicle credit? (added December 29, 2022) A5. The previously-owned clean vehicle credit is the lesser of $4,000 or an amount equal to thirty (30) percent of the sales price of the vehicle purchased. Q6. What is "original use" of a previously-owned clean vehicle? (added December 29, 2022) A6. Original use occurs the first time an individual or business places a vehicle in service for personal or business purposes. Q7. What is the first transfer rule for purposes of being a qualified sale of a previously-owned clean vehicle? (updated October 6, 2023) A7. It is the first transfer of the vehicle after August 16, 2022, of the previously-owned clean vehicle credit other than to the person who was the original user of the vehicle. See FAQ 4 for information on individuals eligible to claim the previously-owned clean vehicle credit. The original user's sale of the vehicle to a dealer or a subsequent dealer does not negate the vehicle's eligibility for the credit under the first transfer rule. As described in See Topic J FAQ 2, sellers will review vehicle history reports when making attestations regarding the vehicle's eligibility and submitting seller reports. Q8. Can a business entity (e.g., a corporation or a partnership) purchase a previously-owned clean vehicle and claim the previously owned clean vehicle credit? (added December 29, 2022) A8. No. Only individuals are eligible for the previously-owned clean vehicle credit. Q9. Can I buy a previously-owned clean vehicle from a person who isn't a dealer and still qualify for the previously-owned clean vehicle credit? (updated October 6, 2023) A9. No. To qualify for the credit, the previously-owned clean vehicle must be purchased from a dealer. A dealer is a person licensed by a State, the District of Columbia, an Indian tribal government, or any Alaska Native Corporation to engage in the sale of vehicles. A dealer may make sales at sites outside of the jurisdiction in which its licensed. Q10: If I order or purchase a previously-owned clean vehicle in 2022 but take delivery of the vehicle in 2023, can the vehicle qualify for the previously-owned clean vehicle credit? (added December 29, 2022) A10: Yes, if all other eligibility criteria are met. Q11: If I purchase a previously-owned clean vehicle for which a new clean vehicle credit was claimed by the original buyer, may I claim a previously-owned clean vehicle credit for it? (added October 6, 2023) A11: Yes, if all other eligibility criteria for the previously-owned clean vehicle are met. Q12: What happens if a sale is cancelled or the vehicle is returned or resold shortly after purchase? (added October 6, 2023) A12. If a sale is cancelled before the taxpayer places the vehicle in service (that is, before the taxpayer takes possession of the vehicle), the vehicle may still be eligible for a previously-owned clean vehicle credit upon a subsequent qualifying sale to another taxpayer. In the case of a return of a previously-owned clean vehicle made within 30 days of placing the vehicle in service, the vehicle, once returned, is not eligible for a previously-owned clean vehicle credit upon a subsequent sale if the vehicle history reflects that such subsequent sale is not a qualified sale. However, if the vehicle history does not reflect the prior sale and return, the vehicle remains eligible. In the case of a resale made by the buyer within 30 days of placing the vehicle in service, the buyer is treated as having purchased the vehicle with an intent to resell and cannot claim a previously-owned clean vehicle credit with respect to the vehicle. Such vehicle was already placed in service by a taxpayer, and a previously-owned clean vehicle tax credit is not available to a subsequent buyer. Topic E: Income and Price Limitations for Previously-Owned Clean Vehicles Q1. Could my income level prevent me from taking the previously-owned clean vehicle credit? (added December 29, 2022) A1. Yes. You may not claim the credit if your modified adjusted gross income (AGI) exceeds certain thresholds. This limitation is based on the lesser of your modified AGI for the year that the previously-owned clean vehicle was placed in service or for the preceding year. The relevant modified AGI thresholds are as follows: - Married filing jointly or filing as a qualifying surviving spouse or a qualifying widow(er) - $150,000 - Head of household - $112,500 - All other filers - $75,000 Your modified AGI is the amount from line 11 of your Form 1040 plus: - Any amount on line 45 or line 50 of Form 2555, Foreign Earned Income. - Any amo u nt excluded from gross income because it was received from sources in Puerto Rico or American Samoa. Q2. Is there a price limitation on a previously-owned clean vehicles eligible for the credit? (updated October 6, 2023) A2. If the sales price exceeds the $25,000 limitation for previously-owned clean vehicle, the vehicle is not eligible for the previously-owned clean vehicle credit. The sale price of a previously-owned clean vehicle means the total sale price agreed upon by the buyer and seller in a written contract at the time of sale, including any delivery charges and after the application of any incentives, but excluding separately-stated taxes and fees required by State or local law. The sale price of a previously-owned clean vehicle is determined before the application of any trade-in value. The sale price does not include separate financing, extended warranties, or insurance. Topic F: Claiming the Previously-Owned Clean Vehicles Credit Q1. What information does a dealer have to provide to a taxpayer purchasing a previously-owned clean vehicle to allow the taxpayer to claim the previously-owned clean vehicle credit? (added December 29, 2022) A1. A dealer must provide the following information on a report to the taxpayer and to the IRS: - Name and taxpayer identification number of the dealer - Name and taxpayer identification number of the taxpayer - Vehicle identification number of the vehicle - Battery capacity of the vehicle - The date of the sale and the sales price of the vehicle - Maximum credit allowable for the vehicle being sold - For sales after December 31, 2023, the amount of any transfer credit applied to purchase - A declaration under penalties of perjury from the dealer The dealer must provide the report to the taxpayer not later than the date the vehicle is purchased. For further details on dealer reporting see Topic B, FAQs 7- 9 and Revenue Procedure 2022-42. Q2. Do I have to report the vehicle identification number on my return to claim the previously-owned clean vehicles credit? (updated October 6, 2023) A2. Yes. The vehicle identification number of the previously-owned clean vehicle is required to be included on Form 8936, Schedule A. Q3. Is the previously-owned clean vehicle credit refundable or able to be carried forward? (updated October 6, 2023) A3. No. The previously-owned clean vehicle credit may only be used by a taxpayer to the extent the taxpayer has a reported tax due. The credit cannot be carried forward to apply to future year tax returns, and the excess is not refundable. In addition, see Topic H FAQ 3 regarding transfer of the clean vehicle credits. Topic G: Qualified Commercial Clean Vehicles Credit Q1. Who is eligible to claim a credit under § 45W of the Code for purchasing a qualified commercial clean vehicle (qualified commercial clean vehicles credit)? (added December 29, 2022) A1. A taxpayer can claim a qualified commercial clean vehicles credit for purchasing and placing in service in the taxpayer's business a "qualified commercial clean vehicle" during the taxable year. The taxpayer must use the vehicle for a "business use." See FAQ 9. Q2. What is a "qualified commercial clean vehicle"? (added December 29, 2022) A2. A "qualified commercial clean vehicle" is defined as any vehicle of a character subject to the allowance for depreciation that: - Is made by a qualified manufacturer (See Topic A FAQ 9 ) - Is acquired for use or lease by the taxpayer and not for resale, - Is treated as a motor vehicle for purposes of title II of the Clean Air Act and is manufactured primarily for use on public streets, roads, and highways (not including a vehicle operated exclusively on a rail or rails), or is mobile machinery, as defined in § 4053(8) of the Code, and - Is propelled to a significant extent by an electric motor which draws electricity from a battery that has a capacity of not less than 15 kilowatt hours (or, in the case of a vehicle that has a gross vehicle weight rating of less than 14,000 pounds, 7 kilowatt hours) and is capable of being recharged from an external source of electricity, or satisfies the requirements under § 30B(b)(3)(A) and (B) of the Code for being a new qualified fuel cell motor vehicle. Q3. What is the amount of the qualified commercial clean vehicle credit a taxpayer can claim? (added December 29, 2022) A3. The amount of the qualified commercial clean vehicle credit is the lesser of (1) 15 percent of the taxpayer's tax basis in the vehicle (30 percent in the case of a vehicle not powered by a gasoline or diesel internal combustion engine), or (2) the incremental cost of the vehicle. The credit is limited to $7,500 in the case of a vehicle that has a gross vehicle weight rating of less than 14,000 pounds, and $40,000 for all other vehicles. Q4. How is "incremental cost" determined? (updated October 6, 2023) A4. The incremental cost is the excess of the purchase price of a qualified commercial clean vehicle over the price of a comparable vehicle. A comparable vehicle is a vehicle powered solely by a gasoline or diesel internal combustion engine that is comparable in size and use to the qualified commercial clean vehicle. For a safe harbor, a non-exhaustive estimate that may be used to determine incremental cost for taxable year 2023, see Notice 2023-9. Q5. Is a taxpayer that leases clean vehicles to customers as its business eligible to claim the qualified commercial clean vehicle credit? (added December 29, 2022) A5. Whether a taxpayer can claim the qualified commercial clean vehicle credit in its business depends on who is the owner of the vehicle for federal income tax purposes. The owner of the vehicle is determined based on whether the lease is respected as a lease or recharacterized as a sale for federal income tax purposes. Q6. What factors are used to determine if a transaction is a "lease" for tax purposes? (updated February 3, 2023) A6. Based on longstanding tax principles, the determination whether a transaction constitutes a sale or a lease of a vehicle for tax purposes is a question of fact. Features of a vehicle lease agreement that would make it more likely to be recharacterized as a sale of the vehicle for tax purposes include, but are not limited to: - A lease term that covers more than 80% to 90% of the economic useful life of the vehicle - A bargain purchase option at the end of the lease term (that is, the ability to purchase the vehicle at less than its fair market value at the end of the term) or other terms/provisions in the lease that economically compel the lessee to acquire the vehicle at the end of the lease term - Terms that result in the lessor transferring ownership risk to the lessee, for example, a terminal rental adjustment clause (TRAC) that requires the lessee to pay the difference between the actual and expected value of the vehicle at the end of the lease. (Note that special rules exist under § 7701(h) for qualified motor vehicle operating agreements that contains a TRAC.) Q7. What happens if the clean vehicle lease agreement is recharacterized as a sale for tax purposes? (added December 29, 2022) A7. In the event the clean vehicle lease is recharacterized as a sale, the lessee would need to determine if they are eligible to claim either a clean vehicle credit or a qualified commercial vehicle credit. The lessor would not be eligible to claim either credit because they would have engaged in a resale of the vehicle. Q8. What does "of a character subject to the allowance for depreciation" mean for purposes of the qualified commercial clean vehicle credit? (added December 29, 2022) A8. In general, property is subject to the allowance for depreciation if it is used in a trade or business of the taxpayer or for the production of income (business use). Q9. How does a taxpayer determine if a vehicle is used in a "business use"? (added December 29, 2022) A9. Generally, the term business use means any use in a trade or business of the taxpayer. IRS-FAQ Q10. Can I claim a qualified commercial clean vehicle credit for a vehicle for which I or another taxpayer claimed a new clean vehicle credit? (added March 31, 2023)? A10. No. A qualified commercial clean vehicle credit is not allowed with respect to a vehicle for which a new clean vehicle credit was allowed. Topic H: Transfer of New Clean Vehicle Credit and Previously-Owned Clean Vehicles Credit Q1. What is the transfer election? (added October 6, 2023) A1. The transfer election allows a taxpayer purchasing a new clean vehicle or previously-owned clean vehicle after December 31, 2023, to transfer the entirety of the allowable credit to an eligible entity (a registered dealer) in exchange for a financial benefit (i.e., reduced final cost) from the eligible entity equal to the amount of the credit, whether in cash, in the form of a partial payment, or down payment for the purchase of such vehicle. In short, the tax credit can be applied at the point of sale to reduce the cost of the purchase by the amount of the credit. Eligible taxpayers who purchase an eligible vehicle may choose to claim the tax credit on their return instead of transferring a new or previously-owned clean vehicle tax credit. Q2. Who can receive a transferred new or previously-owned clean vehicle tax credit? (added October 6, 2023) A2. Only an eligible entity can receive a transferred new or previously-owned clean vehicle tax credit. An eligible entity is generally a dealer that sells a new clean vehicle or previously-owned clean vehicle to a taxpayer and registers with the IRS as required by the October 2023 proposed regulations. For purposes of these FAQs, an eligible entity will be referred to as a "registered dealer." Buyers are advised to receive a copy of the seller report submitted by the dealer to the IRS and confirmation of the successful submission of the report through IRS Energy Credits Online. Q3. What are the requirements a buyer must meet to be eligible to transfer the new clean vehicle credit or previously-owned clean vehicle credit to a registered dealer? (added October 6, 2023) A3. A buyer must meet all eligibility requirements for the new clean vehicle credit or previously-owned clean vehicle credit, as applicable. See Topics A, B, D, and E. Q4: What if a buyer has insufficient tax liability to fully use a transferred credit? (added October 6, 2023) A4. The amount of the credit that the electing taxpayer elects to transfer to the eligible entity may exceed the electing taxpayer's regular tax liability for the taxable year in which the sale occurs, and the excess, if any, is not subject to recapture from the dealer or the buyer. Q5. What information does a registered dealer need to provide a buyer and when? (added October 6, 2023) A5. Not later than the time of sale, the registered dealer must provide the buyer with a written disclosure containing the following information under penalty of perjury: - The MSRP of the new clean vehicle or the sale price of the previously-owned clean vehicle. - The maximum amount of the credit allowable and any other incentive available for the purchase of such vehicle. - The amount provided by the dealer to you as a condition of you making the transfer election. - The modified AGI limitations provided in section 30D(f)(10) (in the case of a new clean vehicle) or section 25E(b)(2) (in the case of a previously-owned clean vehicle), as applicable. See Topic B FAQ 1 and Topic E FAQ 1. - For previously-owned clean vehicles, certification that: o the model year of the vehicle is at least two years prior to the calendar year of sale; and o that the transfer is the first transfer of the vehicle since August 16, 2022, to a person other than the person with whom the original use of such vehicle commenced. Not later than the time of sale, the registered dealer must also provide you a copy of the seller report submitted for the vehicle, see Topic B FAQ 9 and Topic D FAQ 2, an confirmation of the successful submission of the report through IRS Energy d Credits Online. To assist dealers with their disclosure obligations, the IRS will publish a sample disclosure form prior to January 1, 2024. Q6. What information do I need to provide to the registered dealer and when? (added October 6, 2023) A6. Not later than the time of sale, you must provide the registered dealer with the following: - Date of the transfer election. - Your taxpayer identification number. - A photocopy of your valid, government-issued photo identification document. - An attestation, that either: o Your prior year modified AGI did not exceed the modified AGI limitation, or, if not known, to the best of your knowledge and belief, your prior year modified AGI did not exceed such limitation, or o To the best of your knowledge and belief, your current year modified AGI will not exceed the modified AGI limitation. See Topic B FAQ 1 and Topic E FAQ 1. - For new clean vehicles, an attestation that the vehicle will be used predominantly for personal use. - For previously-owned clean vehicles, an attestation (or declaration) that you are a qualified buyer. See Topic D FAQ 4. - An attestation that you will file an income tax return for the taxable year in which the vehicle is placed in service on or before the due date of the return (including extensions), reporting your eligibility for the new clean vehicle credit or previously-owned clean vehicle credit, as applicable, including the vehicle's VIN, and your election to transfer the credit to the dealer and repaying any credit amounts subject to recapture (if applicable). - An attestation that you are making this election prior to placing the vehicle in service and this is the first or second transfer election you have made during the taxable year. - An attestation that in the event you exceed the applicable modified AGI limitations, you will repay the amount received as an addition to tax for the tax year the vehicle was placed in service. - An attestation that you have voluntarily elected to transfer the credit. Q7. How many transfer elections can I make in a year? (added October 6, 2023) A7. You can make no more than two elections to transfer a clean vehicle credit each tax year. Such elections could be for two clean vehicle credits or one clean vehicle credit and one previously-owned clean vehicle credit, but cannot be for two previously-owned clean vehicle credits. Accordingly, spouses may each transfer no more than two clean vehicle credits each tax year. Q8. Can I transfer part of the credit? (added October 6, 2023) A8. No. As a buyer, you must transfer the entire amount of the credit allowable to you to the registered dealer. Q9. When will the transfer election program be in effect? (added October 6, 2023) A9. The transfer election program applies to vehicles placed in service after December 31, 2023, and before December 31, 2032. Q10. What if I end up exceeding the modified AGI limitations for the year? (added October 6, 2023) A10. If your modified AGI exceeds the limitations for the taxable year, you will be required to repay the amount received for transferring the tax credit as an addition to tax for the tax year the vehicle was placed in service. Q11. If the IRS rejects the seller report submitted by the registered dealer, can I still claim the credit? (added October 6, 2023) A11. No. If the seller report is rejected, you may not claim the new clean vehicle credit or previously-owned clean vehicle credit. Starting for vehicles placed in service January 1, 2024 or after, the IRS will reject the seller report and notify the dealer. The IRS will accept or reject submissions in real-time. Purchasers and dealers are strongly encouraged to receive confirmation of a successfully submitted seller report before finalizing a sale and placing a vehicle in service. Dealers must provide confirmation of an accepted IRS Energy Credits Online seller report submission to buyers. Q12: What benefits may a purchaser get in exchange for transferring a clean vehicle tax credit to a registered dealer? (added October 6, 2023) A12: A dealer can provide a purchasing taxpayer with a financial benefit in cash or in the form of a partial payment or down payment for the purchase of the vehicle. The taxpayer benefits by receiving an immediate financial benefit at the time of sale, rather than having to wait to file a tax return and claim the credit. Q13: Can I change my mind about whether to transfer a tax credit after a sale has been finalized? (added October 6, 2023) A13: No. The transfer election is final. Q14: How does a dealer know the IRS will issue an advance payment to the dealer? How quickly will the IRS issue advance payments? (added October 6, 2023) A14: The IRS will promptly issue advance payments via direct deposit (ACH). The IRS anticipates deposits will typically occur within 48 - 72 hours of a successfully submitted time of sale report and advance payment request. Dealers will receive real time online confirmation as to whether an advance request was accepted or rejected. Q15: Are dealers liable to repay the advance payment if the purchaser exceeds the applicable income limits? Are dealers required to verify a purchaser's income in order to receive an advance payment? (added October 6, 2023) A15: Dealers are not required to verify a purchaser's income for a credit transfer or advance payment and are not required to repay the advance payment if the purchaser exceeds the income limits. Dealers are required to disclose information about the applicable income limits to the purchaser, who must attest that he or she expects to qualify for the credit. To assist dealers with their disclosure obligations, the IRS will publish a sample disclosure form prior to January 1, 2024. Q16: Do I have to transfer a tax credit when I am eligible and a dealer asks? (added October 6, 2023) A16. No. Registered dealers cannot require that a buyer transfer a tax credit in order to purchase a new or previously-owned clean vehicle. Q17: Can I transfer a credit if I will use the vehicle for both personal and business use? (added October 6, 2023) A17. You can transfer the new clean vehicle credit only if you intend to use the vehicle predominantly for personal use. Q18: What happens if a vehicle is returned or a sale is cancelled after a credit is transferred? (added October 6, 2023) A18. If a sale is cancelled before the taxpayer places the vehicle in service (that is, before the taxpayer takes possession of the vehicle), the vehicle will still be eligible for a clean vehicle credit upon a subsequent qualifying sale to another taxpayer. In that case, the credit would not yet have been transferred. In the case of return made within 30 days of placing the vehicle in service, the purchaser cannot claim a clean vehicle credit with respect to the vehicle. Such vehicle, once returned, was already placed in service by a taxpayer and a new clean vehicle tax credit is not available to a subsequent buyer. In the case of a return of a previously-owned clean vehicle, the vehicle, once returned, is not eligible for a credit upon a subsequent sale if the vehicle history reflects that such subsequent sale is not a qualified sale. However, if the vehicle history does not reflect the prior sale and return, the vehicle remains eligible. If the taxpayer made an election to transfer the clean vehicle credit, that vehicle transfer election is nullified, and any advance payment made pursuant to the clean vehicle transfer rules will be recaptured from the eligible entity as an excessive payment. Q19: How are transferred tax credits treated for tax purposes? (added October 6, 2023) A19. For dealers: Advance payments received by the registered dealer are not treated as a tax credit to the dealer and may exceed the dealer's regular tax liability. Advance payments received by the registered dealer are not included in the gross income of the dealer. The payment made by the registered dealer to the buyer in exchange for the transferred credit is not deductible by the dealer. Such payment is treated as repaid by the buyer to the registered dealer as part of the purchase price of the vehicle, and therefore is treated as included in the total amount received from the sale transaction. For buyers: The payment made by the registered dealer to the buyer in the form of a cash payment, down payment, or partial down payment is not includible in the gross income of the buyer. Such payment made by the registered dealer is treated as an advance payment of the credit to the buyer on behalf of the Secretary and the basis of such vehicle is reduced by the amount of such credit. Q20: Do dealers and buyers need to claim transferred tax credits when filing their tax return? (added October 6, 2023) A20. For dealers: No. The exclusive method for dealers to claim transferred tax credits is via the advance payment program through IRS Energy Credits Online. For buyers: An electing taxpayer must file an income tax return for the taxable year in which the vehicle transfer election is made that notes such election. Specifically, the electing taxpayer must file a Form 1040, U.S. Individual Income Tax Return, and attach a completed Form 8936, Clean Vehicle Credits, or successor form, and any other additional forms, schedules, or statements prescribed by the Commissioner for purposes of making a return to report tax under chapter 1. Q21: When do buyers need to repay tax credits transferred to the dealer? (added October 6, 2023) A21: If you transfer a credit to a registered dealer but exceed the relevant income limitations, you will need to repay the IRS when filing your tax return. Do NOT repay the dealer for a transferred tax credit if you end up not being eligible for the credit upon filing your tax return. Topic I: Registering a Dealer/Seller: Seller Reporting and Clean Vehicle Tax Credit Transfers Note: As of October 6, 2023, Dealer/Seller registration is coming soon. Please continue to visit IRS.gov/cleanvehicles for updates. Q1: May a buyer claim the new or previously-owned clean vehicle tax credits if the dealer or seller of the vehicle is not registered with the IRS? (added October 6, 2023) A1. No. Starting for vehicles placed in service January 1, 2024 or later, buyers will only be able to claim credits if the seller has registered with the IRS and successfully submits a seller report through the IRS Energy Credits Online. This submission is done at the time of sale through IRS Energy Credits Online, and the seller must provide a copy of the successfully submitted seller report to the buyer. Q2: Who must submit seller reports through IRS Energy Credits Online and who is eligible to participate in the advance payment program? (added October 6, 2023) A2. All dealers and sellers must submit seller reports through IRS Energy Credits Online for vehicles placed in service beginning January 1, 2024. Registered dealers that provide required information through IRS Energy Credits Online and are in tax compliance may become eligible to participate in the advance payment program once their registration information is verified by the IRS. Q3: Who should complete the initial registration on behalf of the dealer or seller? (added October 6, 2023) A3. An individual representative of the dealer or seller who is currently authorized to legally bind the dealer or seller in these matters can complete the initial registration through IRS Energy Credits Online. Starting December 2023, dealers and sellers will be able to authorize more than one employee to make representations on their behalf through IRS Energy Credits Online. Q4: What information is required for dealer registration? (added October 6, 2023) A4. Dealers should be prepared to create an account using general Business information ( including Business EIN, Address, Phone Number, and Email ) and authorize an individual to access dealer registration. Dealers registering for advance payments will have to provide additional information, detailed on IRS Energy Credits Online. Q5: Does a dealer need to be state licensed to register? (added October 6, 2023) A5. In order to submit seller reports for previously-owned clean vehicles or register to receive advance payments, a dealer must be licensed by a State, the District of Columbia, an Indian tribal government, or any Alaska Native Corporation to engage in the sale of vehicles. Non-licensed dealers (sellers) must still be registered through IRS Energy Credits Online to submit seller reports. Q6: What is the difference between registering for seller reporting and the advance payment program? (added October 6, 2023) A6. A registration to submit seller reports will allow dealers and sellers the ability to submit seller reports through IRS Energy Credits Online when selling eligible vehicles. This does not include the ability to receive advance payments. A registration for the advance payment program grants the dealer the ability to submit seller reports when selling a vehicle and submit a request for an advance payment to the IRS. Only licensed dealers may register to receive advance payments. Q7: Is a dealer required to register for both seller reporting and the advance payment program? (added October 6, 2023) A7. No. A dealer or seller can be registered to submit seller reports without registering to receive advance payments. However, only licensed dealers can be registered to receive advance payments. Q8: Once a dealer is registered, when can they start to receiving advance payments? (added October 6, 2023) A8. Buyers may transfer their credit to the dealer, thereby allowing dealers to initiate an advance payment request, beginning January 1, 2024. Q9: Can a dealer come back into IRS Clean Energy Online and complete its advance payment registration at another time? (added October 6, 2023) A9. Yes. A dealer who is registered to submit seller reports will have the ability to continue their registration to receive advance payments at any time. Q10: Is dealer registration separate for used and new vehicle sales? (added October 6, 2023) A10. No. Registered dealers may submit seller reports for both new and previously-owned clean vehicle sales. Please note, only licensed dealers may submit seller reports for previously-owned clean vehicles. Q11: How will the dealer be informed of a registration status update? (added October 6, 2023) A11. Registration status updates will be displayed in IRS Energy Credits Online. Q12: If registration fails initially, will the dealer have another opportunity to register? (added October 6, 2023) A12. Yes. A dealer may attempt registration again. Q13: Why did my dealership receive a tax compliance error? (added October 6, 2023) A13. A tax compliance error is a result of an overdue tax return or unpaid federal tax debt. If you receive this error, call 877-968-3413 for more information. Q14: What does my dealership need to do to be in tax compliance? What if my dealership is not in tax compliance? How can my dealership become compliant to participate in the advance payment program? (added October 6, 2023) A14. Dealer tax compliance means that all required Federal information and tax returns of the dealer have been filed, including for Federal income and employment tax purposes, and all Federal tax, penalties, and interest due of the dealer as of the time of sale have been paid. A dealer that has entered into an installment agreement with the IRS for which a dealer is current on its obligations is treated as being in dealer tax compliance. If the dealer is not in dealer tax compliance for any of the taxable periods during the last five taxable years, then the dealer may complete its initial registration with the IRS, but the dealer will not be eligible for the advance payment program until the compliance issue is resolved. The IRS will notify the dealer in writing that the dealer is not in dealer tax compliance, and the dealer will have the opportunity to address any failure through regular procedures. If the failure is corrected, the IRS will complete the dealer's registration for the advance payment program, and, provided all other requirements are met, the dealer will then be allowed to participate in the advance payment program. Q15: Do qualified manufacturers who are direct sellers need to register? (added October 6, 2023) A15. Qualified manufacturers who are direct sellers of vehicles must complete dealer registration in order to submit seller reports and receive an advance payment when a credit is transferred. Q16: How do I edit information within my dealer registration? (added October 6, 2023) A16. Contact information, such as phone number or email address, may be edited at any time by clicking into the dealer registration page. To edit any other information, a user must re-register with new information. Q17: Does my dealer registration expire? (added October 6, 2023) A17. A dealer registration expires after 10 years. Q18: If my dealership runs into difficulty at any point in the registration process, who should I contact? (added October 6, 2023) A18. Please contact IRS.Clean.Vehicles.Dealer.Info@IRS.gov with questions. Topic J: Seller Report Information for Buyers of New and Previously Owned Clean Vehicle Tax Credits Beginning in 2024 Q1: What must a buyer of a clean vehicle provide a seller in order to purchase a new clean vehicle or previously-owned clean vehicle and claim the applicable tax credit on their tax return? (added October 6, 2023) A1. The buyer must provide the seller information necessary, including name, taxpayer identification number (which may be a Social Security number), and valid identification, for the seller to successfully submit a seller report to the IRS. See Topic H FAQ 6. Q2: How can a buyer confirm that they will be able to claim a tax credit for a new or previously-owned clean vehicle? (added October 6, 2023) A2. For vehicles placed in service January 1, 2024 or after, sellers will submit seller reports electronically to the IRS. The IRS's acceptance of this seller report means a Qualified Manufacturer has submitted the VIN listed in the seller report to the IRS as an eligible vehicle. For previously-owned clean vehicles, sellers will also provide the sale price (which must be $25,000 or less) and review vehicle history reports in making attestations regarding the vehicle's eligibility. Eligible buyers can rely on a seller report that a seller has submitted electronically to the IRS, that the IRS has accepted, and that the seller has provided to the buyer, as confirmation that the vehicle is eligible. The buyer must still meet eligibility requirements, which are described in elsewhere in these FAQs to claim the credit or to transfer the credit to a dealer. For more eligibility information, please see the IRS new clean vehicle checklist and previously-owned clean vehicle checklist.

Private Letter Ruling Number: 202317012 Internal Revenue Service February 2, 2023 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202317012 Release Date: 4/28/2023 9100.22-00, 9100.31-00, 336.05-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:CORP:B05 PLR-116181-22 Date: February 02, 2023 Dear ******: This letter responds to a letter dated August 15, 2022, and subsequent correspondence, submitted on behalf of S Corporation Target, Shareholders, and Purchaser (collectively, the "Parties") requesting an extension of time under §301.9100-3 of the Procedure and Administration Regulations to file two elections. The Parties are requesting extensions of time to: (1) file an election statement under §1.336-2(h)(3)(iii) of the Income Tax Regulations (the "Section 336(e) Election Statement") with respect to Purchaser's acquisition, through a disregarded entity, of all the stock of S Corporation Target from Shareholders on Date 1; and (2) file an election under §301.7701-3(c)(i) for S Corporation Target to be treated as a disregarded entity for federal tax purposes effective Date 2 (the "Disregarded Entity Election" and, together with the Section 336(e) Election Statement, the "Elections"). The material information submitted is summarized below. FACTS S Corporation Target is a limited liability company organized under the laws of State on Date 3 that elected to be treated as an S corporation for federal tax purposes effective Date 3. Purchaser is a limited liability company that is classified as a partnership for federal tax purposes. On Date 1, Purchaser, through DE, a disregarded entity for federal tax purposes, acquired all the stock of S Corporation Target from Shareholders (the "Stock Disposition"). It has been represented that the Stock Disposition qualified as a "qualified stock disposition" as defined in §1.336-1(b)(6). The Parties intended to make a section 336(e) election for the Stock Disposition. The Parties also intended to elect to treat S Corporation Target as a disregarded entity effective Date 2. For various reasons, however, the Elections were not timely filed. Subsequently, this request was submitted, under §301.9100-3, for extensions of time to file the Elections. The Parties each represented that they are not seeking to alter a return position for which an accuracy-related penalty has been or could be imposed under section 6662. LAW AND ANALYSIS Regulations promulgated under section 336(e) permit certain sales, exchanges, or distributions of stock of a corporation to be treated as asset dispositions if: (1) the disposition is a "qualified stock disposition" as defined in §1.336-1(b)(6); and (2) a section 336(e) election is made. Section 1.336-2(h)(3) provides that a section 336(e) election for an S corporation target is made by: (i) all of the S corporation shareholders, including those who do not dispose of any stock in the qualified stock disposition, and the S corporation target entering into a written, binding agreement, on or before the due date (including extensions) of the federal income tax return of the S corporation target for the taxable year that includes the disposition date, to make a section 336(e) election; (ii) the S corporation target retaining a copy of the written agreement; and (iii) the S corporation target attaching the section 336(e) election statement, described in §1.336-2(h)(5) and (6), to its timely filed (including extensions) federal income tax return for the taxable year that includes the disposition date. Section 301.7701-3(a) provides that a business entity that is not classified as a corporation under §301.7701-2(b)(1), (3), (4), (5), (6), (7), or (8) (an eligible entity) can elect its classification for federal tax purposes. An eligible entity with a single owner can elect to be classified as an association (and thus a corporation under §301.7701-2(b)(2)) or to be disregarded as an entity separate from its owner. Section 301.7701-3(c)(1)(i) provides, in pertinent part, that an eligible entity may elect to change its classification by filing Form 8832, Entity Classification Election, with the service center designated on Form 8832. Section 301.7701-3(c)(1)(iii) provides that an election made under § 301.7701-3(c)(1)(i) will be effective on the date specified by the entity on Form 8832 or on the date filed if no such date is specified on the election form. The effective date specified by the entity on Form 8832 cannot be more than 75 days prior to the date on which the election is filed and cannot be more than 12 months after the date the election is filed. Section 301.7701-3(c)(1)(v) provides that an eligible entity that timely elects to be an S corporation under section 1362(a)(1) is treated as having made an election under this section to be classified as an association, provided that (as of the effective date of the election under section 1362(a)(1), the entity meets all other requirements to qualified as a small business corporation under section 1361(b). Subject to §301.7701-3(c)(1)(iv), the deemed election to be classified as an association will apply as of the effective date of the S corporation election and will remain in effect until the entity makes a valid election, under § 301.7701-3(c)(1)(i), to be classified as other than an association. Under §301.9100-1(c), the Commissioner has discretion to grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-1(b) provides that the term "regulatory election" includes an election whose due date is prescribed by a regulation published in the Federal Register. Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make a regulatory election. Section 301.9100-1(a). Section 301.9100-2 provides automatic extensions of time for making certain elections. Requests for relief under §301.9100-3 will be granted when the taxpayer provides evidence (including affidavits described in §301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. Section 301.9100-3(a). In this case, the times for filing the Elections are fixed by the regulations (i.e., §1.336-2(h)(3)(iii) and §301.7701-3(c)(1)(iii)). Therefore, the Commissioner has discretionary authority under §301.9100-3 to grant an extension of time to file the Elections, provided the Parties acted reasonably and in good faith, the requirements of §§301.9100-1 and 301.9100-3 are satisfied, and granting relief would not prejudice the interests of the government. Information, affidavits, and representations submitted by the Parties, Company Officials, and Tax Professional explain the circumstances that resulted in the failure to timely file the Elections. The information establishes that the request for relief was filed before the failure to file the Elections was discovered by the Internal Revenue Service. See §301.9100-3(b)(1)(i). CONCLUSION Based on the facts and information submitted, including the representations made, we conclude that the Parties have acted reasonably and in good faith, the requirements of §§301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government. Accordingly, the following extensions of time are granted under §301.9100-3: (i) The Parties are granted until 75 days from the date on this letter to file the Section 336(e) Election Statement with respect to the Stock Disposition; and (ii) The Parties are granted until 120 days from the date on this letter to make an election to treat S Corporation Target as a disregarded entity for federal tax purposes effective Date 2. WITHIN 75 DAYS OF THE DATE ON THIS LETTER, S Corporation Target must file the Section 336(e) Election Statement in accordance with §1.336-2(h)(iii). The Section 336(e) Election Statement must be attached to S Corporation Target's tax return for the taxable year including Date 1. In addition, a copy of this letter must be attached to S Corporation Target's return. Alternatively, if S Corporation Target files its return electronically, it may satisfy the requirement of attaching a copy of this letter to the return by attaching a statement to its return that provides the date on, and control number (PLR-116181-22) of, this letter ruling. WITHIN 120 DAYS OF THE DATE ON THIS LETTER, S Corporation Target should make the Disregarded Entity Election by filing a properly executed Form 8832 with the appropriate service center. A copy of this letter should be attached to the form. WITHIN 150 DAYS OF THE DATE ON THIS LETTER, all relevant parties must file or amend, as applicable, all returns and amended returns (if any) necessary to report the transaction consistently with the making of a section 336(e) election for the taxable year in which the transaction was consummated (and for any other affected taxable year). The above extensions of time are conditioned on no relevant party's tax liabilities (if any) being lower, in the aggregate, for all taxable years affected by the Elections than it would have been if the Elections had been timely filed (taking into account the time value of money). No opinion is expressed as to the taxpayers' tax liabilities for the years involved. A determination thereof will be made by the applicable Director's office upon audit of the federal income tax returns involved. Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. For example, we express no opinion as to: (1) whether the Stock Disposition qualifies as a "qualified stock disposition" or (2) any other tax consequences arising from the Elections. In addition, we express no opinion as to the tax consequences of filing the return or making the Elections late under the provisions of any other section of the Code and regulations, or as to the tax treatment of any conditions existing at the time of, or resulting from, filing the Elections late that are not specifically set forth in the above ruling. For purposes of granting relief under §301.9100-3, we have relied on certain statements and representations made by the Parties, Company Officials, and Tax Professional. However, the Director should verify all essential facts. In addition, notwithstanding that extensions are granted under §301.9100-3 to file the Elections, penalties and interest that would otherwise be applicable, if any, continue to apply. This letter is directed only to the taxpayer who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent. Pursuant to the Power of Attorney on file in this office, a copy of this letter is being sent to your authorized representatives. Sincerely, Thomas I. Russell Thomas I. Russell Chief, Branch 1 Office of Associate Chief Counsel (Corporate) cc:

Treasury Decision 9985 Internal Revenue Service 2024-5 I.R.B. 573 (26 CFR 54.9816-8 Independent dispute resolution process; 26 CFR 54.9816-8T Independent dispute resolution process (temporary)) T.D. 9985 DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 54 DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Part 2590 DEPARTMENT OF HEALTH AND HUMAN SERVICES 45 CFR Part 149 Federal Independent Dispute Resolution (IDR) Process Administrative Fee and Certified IDR Entity Fee Ranges AGENCY: Internal Revenue Service (IRS), Department of the Treasury; Employee Benefits Security Administration, Department of Labor; Centers for Medicare & Medicaid Services, Department of Health and Human Services (HHS). ACTION: Final rules. SUMMARY: This document finalizes rules related to the fees established by the No Surprises Act for the Federal independent dispute resolution (IDR) process, as established by the Consolidated Appropriations Act, 2021 (CAA). These final rules amend existing regulations to provide that the administrative fee amount charged by the Department of the Treasury, the Department of Labor, and the Department of Health and Human Services (the Departments) to participate in the Federal IDR process, and the ranges for certified IDR entity fees for single and batched determinations, will be set by the Departments through notice and comment rulemaking. The preamble to these final rules also sets forth the methodology used to calculate the administrative fee and the considerations used to develop the certified IDR entity fee ranges. This document also finalizes the amount of the administrative fee for disputes initiated on or after the effective date of these rules. Finally, this document finalizes the certified IDR entity fee ranges for disputes initiated on or after the effective date of these rules. DATES: These final rules are effective on [insert date 30 days after date of publication in the Federal Register ]. FOR FURTHER INFORMATION CONTACT: Shira B. McKinlay or William Fischer, Internal Revenue Service, Department of the Treasury, 202-317-5500; Shannon Hysjulien or Rebecca Miller, Employee Benefits Security Administration, Department of Labor, 202-693-8335; and Jacquelyn Rudich or Nora Simmons, Centers for Medicare & Medicaid Services, Department of Health and Human Services, 301-492-5211. SUPPLEMENTARY INFORMATION: I. Background A. Preventing Surprise Medical Bills and Establishing the Federal IDR Process under the Consolidated Appropriations Act, 2021 On December 27, 2020, the CAA was enacted. 1 Title I, also known as the No Surprises Act, and title II (Transparency) of Division BB of the CAA amended chapter 100 of the Internal Revenue Code (Code), part 7 of the Employee Retirement Income Security Act (ERISA), and title XXVII of the Public Health Service Act (PHS Act). The No Surprises Act provides Federal protections against surprise billing by limiting out-of-network cost sharing and prohibiting balance billing in many of the circumstances in which surprise bills most frequently arise. In particular, the No Surprises Act added new provisions applicable to group health plans and health insurance issuers offering group or individual health insurance coverage. Section 102 of the No Surprises Act added section 9816 of the Code, 2 section 716 of ERISA, 3 and section 2799A-1 of the PHS Act, 4 which contain limitations on cost sharing and requirements regarding the timing of initial payments and notices of denial of payment by plans and issuers for emergency services furnished by nonparticipating providers and nonparticipating emergency facilities, and for non-emergency services furnished by nonparticipating providers for patient visits to participating health care facilities, generally defined as hospitals, hospital outpatient departments, critical access hospitals, and ambulatory surgical centers. 5 1 Public Law 116-260 (Dec. 27, 2020). 2 26 U.S.C. 9816, et seq. 3 29 U.S.C. 1185e, et seq. 4 42 U.S.C. 300gg-111, et seq. 5 Section 102(d)(1) of the No Surprises Act amended the Federal Employees Health Benefits (FEHB) Act, 5 U.S.C. 8901 et seq., by adding a new subsection (p) to 5 U.S.C. 8902. Under this new provision, each FEHB Program contract must require a carrier to comply with requirements described in sections 9816 and 9817 of the Code, sections 716 and 717 of ERISA, and sections 2799A-1 and 2799A-2 of the PHS Act (as applicable) in the same manner as these provisions apply with respect to a group health plan or health insurance issuer offering group or individual health insurance coverage. Section 103 of the No Surprises Act established a Federal IDR process that plans and issuers and nonparticipating providers and facilities may utilize to resolve certain disputes regarding out-of-network rates under section 9816 of the Code, 6 section 716 of ERISA, 7 and section 2799A-1 of the PHS Act. 8 Section 9816(c)(8) of the Code, 9 section 716(c)(8) of ERISA, 10 and section 2799A-1(c)(8) of the PHS Act 11 provide that each party to a determination under the Federal IDR process shall pay a fee for participating in the Federal IDR process, and the amount of the fee is an amount established by the Departments in a manner such that the total amount of fees paid by all parties is estimated to be equal to the amount of expenditures estimated to be made by the Departments for the year in carrying out the Federal IDR process. ******** 6 26 U.S.C. 9816. 7 29 U.S.C. 1185e, et seq. 8 42 U.S.C. 300gg-111, et seq. 9 26 U.S.C. 9816(c)(8). 10 29 U.S.C. 1185e(c)(8). 11 42 U.S.C. 300gg-111(c)(8). ******** Section 105 of the No Surprises Act added section 9817 of the Code, 12 section 717 of ERISA, 13 and section 2799A-2 of the PHS Act. 14 These sections contain limitations on cost sharing and requirements for the timing of initial payments and notices of denial of payment by plans and issuers for air ambulance services furnished by nonparticipating providers of air ambulance services, and allow plans and issuers and nonparticipating providers of air ambulance services to utilize the Federal IDR process. ******** 12 26 U.S.C. 9817. 13 29 U.S.C. 1185f, et seq. 14 42 U.S.C. 300gg-112, et seq. ******** The No Surprises Act also added provisions to title XXVII of the PHS Act in a new part E 15 that apply to health care providers, facilities, and providers of air ambulance services, such as prohibitions on balance billing for certain items and services and requirements related to disclosures about balance billing protections. ******** 15 42 U.S.C. 300gg-131-139. ******** The Departments, along with the Office of Personnel Management (OPM), have issued rules in 2021 and 2022 to implement various provisions of the No Surprises Act. More specifically relevant to this rulemaking, the Departments and OPM issued interim final rules (July 2021 interim final rules 16 and October 2021 interim final rules 17 ) and final rules (August 2022 final rules 18 ) implementing provisions of sections 9816 and 9817 of the Code, 19 sections 716 and 717 of ERISA, 20 and sections 2799A-1 and 2799A-2 of the PHS Act. 21 Those rules implement provisions to protect consumers from surprise medical bills for emergency services, non-emergency services furnished by nonparticipating providers for patient visits to participating facilities 22 in certain circumstances, and air ambulance services furnished by nonparticipating providers of air ambulance services. Those rules also implement provisions to establish a Federal IDR process to determine payment amounts when there is a dispute between plans or issuers and providers, facilities, or providers of air ambulance services about the out-of-network rate for these services if a specified State law as defined in 26 CFR 54.9816-3T, 29 CFR 2590.716-3, and 45 CFR 149.30 or an applicable All-Payer Model Agreement under section 1115A of the Social Security Act does not provide a method for determining the total amount payable. ******** 16 86 FR 36872 (July 13, 2021). 17 86 FR 55980 (October 7, 2021). 18 87 FR 52618 (August 26, 2022). 19 26 U.S.C. 9816 and 26 U.S.C. 9817. 20 29 U.S.C. 1185e, et seq. and 29 U.S.C. 1185f, et seq. 21 42 U.S.C. 300gg-111, et seq. and 42 U.S.C. 300gg-112, et seq. 22 References to a "participating facility" in this preamble mean a "participating health care facility," as defined at 26 CFR 54.9816-3T, 29 CFR 2590.716-3, and 45 CFR 149.30. ******** The July 2021 interim final rules and October 2021 interim final rules generally apply to plans and issuers (including grandfathered health plans) for plan years (in the individual market, policy years) beginning on or after January 1, 2022, and to health care providers, facilities, and providers of air ambulance services for items and services furnished during plan years (in the individual market, policy years) beginning on or after January 1, 2022. 23 The August 2022 final rules became effective October 25, 2022, and are applicable for items or services provided or furnished on or after October 25, 2022, for plan years (in the individual market, policy years) beginning on or after January 1, 2022. ******** 23 The interim final rules also include interim final regulations under 5 U.S.C. 8902(p) issued by OPM that specify how certain provisions of the No Surprises Act apply to health benefit plans offered by carriers under the FEHB Act. These provisions apply to carriers in the FEHB Program with respect to contract years beginning on or after January 1, 2022. The disclosure requirements at 45 CFR 149.430 regarding patient protections against balance billing are applicable as of January 1, 2022. ******** B. October 2021 Interim Final Rules and Related Guidance The October 2021 interim final rules implement the Federal IDR process under sections 9816(c) and 9817(b) of the Code, 24 sections 716(c) and 717(b) of ERISA, 25 and sections 2799A-1(c) and 2799A-2(b) of the PHS Act. 26 The rules apply to emergency services, non-emergency services furnished by nonparticipating providers for patient visits to certain types of participating health care facilities 27 (unless an individual has been provided notice and waived the individual's surprise billing protections, in accordance with 45 CFR 149.410 or 149.420, as applicable), and air ambulance services furnished by nonparticipating providers of air ambulance services, for situations in which neither a specified State law as defined in 26 CFR 54.9816-3T, 29 CFR 2590.716-3, and 45 CFR 149.30 nor an All-Payer Model Agreement under section 1115A of the Social Security Act applies. ******** 24 26 U.S.C. 9816(c) and 26 U.S.C. 9817(b). 25 29 U.S.C. 1185e(c) and 29 U.S.C. 1185f(b). 26 42 U.S.C. 300gg-111(c) and 42 U.S.C. 300gg-112(b). 27 A health care facility, in the context of non-emergency services, is defined as (1) a hospital (as defined in section 1861(e) of the Social Security Act), (2) a hospital outpatient department, (3) a critical access hospital (as defined in section 1861(mm)(1) of the Social Security Act), or (4) an ambulatory surgical center described in section 1833(i)(1)(A) of the Social Security Act. Code section 9816(b)(2)(A)(ii), ERISA section 716(b)(2)(A)(ii), and PHS Act section 2799A-1(b)(2)(A)(ii). 26 CFR 54.9816-3T, 29 CFR 2590.716-3, and 45 CFR 149.30. ******** To implement the Federal IDR process, the October 2021 interim final rules include requirements governing the costs of the Federal IDR process. Under section 9816(c)(5)(F)(i) of the Code, 28 section 716(c)(5)(F)(i) of ERISA, 29 section 2799A-1(c)(5)(F)(i) of the PHS Act, 30 and the October 2021 interim final rules, the party whose offer is not selected is responsible for the payment of the fee charged by the certified IDR entity (certified IDR entity fee). 31 Under the October 2021 interim final rules, as a condition of certification, the certified IDR entity must notify the Departments of the amount of the certified IDR entity fees it intends to charge for payment determinations, which is limited to a fixed certified IDR entity fee amount for single determinations and a separate fixed certified IDR entity fee amount for batched determinations. 32 Each of these fixed certified IDR entity fees must be within a range set forth in guidance by the Departments, unless the certified IDR entity receives written approval from the Departments to charge a certified IDR entity fee outside that range. 33 The October 2021 interim final rules describe the considerations that the Departments will use to develop the certified IDR entity fee ranges, including the anticipated time and resources needed for certified IDR entities to meet the requirements of those interim final rules, the volume of payment determinations, and the capacity of the Federal IDR process to efficiently handle the volume of IDR initiations and payment determinations, and provide that the Departments will review and update the allowable fee ranges annually based on these factors, the impact of inflation, and other cost increases. Those rules also provide that on an annual basis, the certified IDR entity may update its certified IDR entity fees within the ranges set forth in current guidance and seek approval from the Departments to charge fixed certified IDR entity fees beyond the upper or lower limits for certified IDR entity fees. 34 ******** 28 26 U.S.C. 9816(c)(5)(F)(i). 29 29 U.S.C. 1185e(c)(5)(F)(i). 30 42 U.S.C. 300gg-111(c)(5)(F)(i). 31 In the case of a batched dispute, the party with fewest determinations in its favor is considered the non-prevailing party and is responsible for paying the certified IDR entity fee. In the event that each party prevails in an equal number of determinations, the certified IDR entity fee will be split evenly between the parties. 86 FR 55980, 56001. 32 26 CFR 54.9816-8T(e)(2)(vii), 29 CFR 2590.716-8(e)(2)(vii), and 45 CFR 149.510(e)(2)(vii). 33 Id. 34 Id. ******** Additionally, pursuant to section 9816(c)(8) of the Code, 35 section 716(c)(8) of ERISA, 36 and section 2799A-1(c)(8) of the PHS Act, 37 and under the October 2021 interim final rules, each party must pay an administrative fee for participating in the Federal IDR process. The administrative fee is established in guidance in a manner so that, in accordance with the requirements of section 9816(c)(8)(B) of the Code, 38 section 716(c)(8)(B) of ERISA, 39 and section 2799A-1(c)(8)(B) of the PHS Act, 40 the total administrative fees paid for a year are estimated to be equal to the amount of expenditures estimated to be made by the Departments in carrying out the Federal IDR process for that year. 41 ******** 35 26 U.S.C. 9816(c)(8). 36 29 U.S.C. 1185e(c)(8). 37 42 U.S.C. 300gg-111(c)(8). 38 26 U.S.C. 9816(c)(8)(B). 39 29 U.S.C. 1185e(c)(8)(B). 40 42 U.S.C. 300gg-111(c)(8)(B). 41 26 CFR 54.9816-8T(d)(2)(ii), 29 CFR 2590.716-8(d)(2)(ii), and 45 CFR 149.510(d)(2)(ii). ******** Contemporaneously with the October 2021 interim final rules, the Departments released the Calendar Year 2022 Fee Guidance for the Federal Independent Dispute Resolution Process Under the No Surprises Act (October 2021 guidance), setting the administrative fee for both parties to a dispute at $50 per party. 42 The October 2021 guidance also established the range for fixed certified IDR entity fees for single determinations as $200-$500, and the range for fixed certified IDR entity fees for batched determinations as $268-$670, unless the Departments otherwise grant approval for the certified IDR entity to charge a fee outside these ranges. In October 2022, the Departments released the Calendar Year 2023 Fee Guidance for the Federal Independent Dispute Resolution Process Under the No Surprises Act (October 2022 guidance), again setting the administrative fee for both parties to a dispute at $50 per party. 43 The October 2022 guidance explained that the data available regarding usage of the Federal IDR process was not sufficiently reliable to support a change to either the estimated number of payment determinations for which administrative fees would be paid or the estimated ongoing program costs for 2023; therefore, the 2023 administrative fee amount due from each party for participating in the Federal IDR process would remain the same as the 2022 administrative fee amount. The October 2022 guidance permits certified IDR entities to charge a fee between $200 and $700 for single determinations and between $268 and $938 for batched determinations, unless the Departments otherwise grant approval for the certified IDR entity to charge a fee outside of these ranges. In addition, to account for the heightened workload for batched determinations, the October 2022 guidance permits a certified IDR entity to charge the following percentage of its approved certified IDR entity batched determination fee ("batching percentage") for batched determinations, which are based on the number of line items initially submitted in the batch: ******** 42 Centers for Medicare & Medicaid Services (September 30, 2021). Calendar Year 2022 Fee Guidance for the Federal Independent Dispute Resolution Process under the No Surprises Act. https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Technical-Guidance-CY2022-Fee-Guidance-Federal-Independent-Dispute-Resolution- Process-NSA.pdf. 43 Centers for Medicare & Medicaid Services (October 31, 2022). Calendar Year 2023 Fee Guidance for the Federal Independent Dispute Resolution Process under the No Surprises Act. https://www.cms.gov/cciio/resources/regulations-and-guidance/downloads/cy2023-fee-guidance-federal-independent-dispute-resolution-process-nsa.pdf. ******** - 2-20 line items: 100 percent of the approved batched determination fee; - 21-50 line items: 110 percent of the approved batched determination fee; - 51-80 line items: 120 percent of the approved batched determination fee; and - 81 line items or more: 130 percent of the approved batched determination fee. In December 2022, the Departments released the Amendment to the Calendar Year 2023 Fee Guidance for the Federal Independent Dispute Resolution Process Under the No Surprises Act: Change in Administrative Fee (December 2022 guidance), which amended the $50 per party administrative fee set in the October 2022 guidance to $350 for calendar year 2023. 44 The change in the administrative fee for 2023 reflected the additional costs to the Departments to carry out the Federal IDR process as a result of the Departments' enhanced role in calendar year 2023 in conducting pre-eligibility reviews to allow the certified IDR entities to complete their eligibility determinations more efficiently, 45 as well as systemic improvements that allowed for the aggregation of data needed to estimate the rate at which disputes were determined eligible for the Federal IDR process and the rate at which one or both parties paid the administrative fee for purposes of calculating the administrative fee. The December 2022 guidance did not amend the certified IDR entity fee ranges provided in the October 2022 guidance. ******** 44 Centers for Medicare & Medicaid Services (December 23, 2022). Amendment to the Calendar Year 2023 Fee Guidance for the Federal Independent Dispute Resolution Process under the No Surprises Act: Change in Administrative Fee. https://www.cms.gov/cciio/resources/regulations-and-guidance/downloads/amended-cy2023-fee-guidance-federal-independent-dispute-resolution-process-nsa.pdf. 45 Centers for Medicare & Medicaid Services (November 21, 2022). Notice of the Federal Independent Dispute Resolution (IDR) Team Technical Assistance to Certified Independent Dispute Resolution Entities (IDREs) in the Dispute Eligibility Determination Process. https://www.cms.gov/files/document/idre-eligibility-support-guidance-11212022-final-updated.pdf. ******** C. Recent Litigation On November 30, 2022, the Texas Medical Association, Tyler Regional Hospital, and a Texas physician filed a lawsuit ( TMA III ) 46 against the Departments and OPM, asserting that the July 2021 interim final rules, 47 including the regulations governing how the qualifying payment amount (QPA) should be calculated, and certain related guidance documents conflicted with the statutory language. On August 24, 2023, the U.S. District Court for the Eastern District of Texas (District Court) issued a memorandum opinion and order 48 that vacated certain portions of the July 2021 interim final rules and associated regulatory provisions 49 and portions of guidance documents, 50 including portions that provided the methodology for calculating the QPA and interpretations for certified IDR entities related to the processing of disputes for air ambulance services. ******** 46 Complaint, Tex. Med. Ass'n v. U. S. Dep't of Health and Human Servs., No. 6:22-cv-00450-JDK (E.D. Tex. Nov. 30, 2022) (ECF No. 1). 47 86 FR 36872 (July 13, 2021). 48 See Memorandum Opinion and Order, Tex. Med. Ass'n. v. U.S. Dep't of Health & Hum. Servs., No. 6:22-cv-00450-JDK, 2023 WL 5489028 (E.D. Tex. Aug. 24, 2023). 49 Specifically, the District Court vacated certain provisions of 26 CFR 54.9816-6T and 54.9817-1T, 29 CFR 2590.716-6 and 2590.717-1, and 45 CFR 149.130 and 149.140. The District Court also vacated 5 CFR 890.114(a), insofar as it requires compliance with the vacated regulations and guidance. 50 Specifically, the District Court vacated FAQs 14 and 15 of FAQs about Affordable Care Act and Consolidated Appropriations Act, 2021 Implementation Part 55 (August 19, 2022), as well as portions of Technical Guidance for Certified IDR Entities at 2-3 (August 18, 2022). ******** On January 30, 2023, the Texas Medical Association, Houston Radiology Associated, Texas Radiological Society, Tyler Regional Hospital, and a Texas physician filed a lawsuit ( TMA IV ) 51 against the Departments and OPM, asserting that the December 2022 guidance 52 that set the $350 per party administrative fee amount for 2023 was unlawfully issued without notice and comment rulemaking. 53 On August 3, 2023, the District Court issued a memorandum opinion and order 54 vacating the portion of the December 2022 guidance 55 that increased the administrative fee for the Federal IDR process to $350 per party for disputes initiated during the calendar year beginning January 1, 2023. The District Court also vacated certain provisions of the October 2021 interim final rules setting forth the batching criteria under which multiple IDR items or services may be considered jointly as part of a single IDR dispute. 56 On August 11, 2023, the Departments released guidance 57 to reflect the TMA IV opinion and order related to the administrative fee to clarify that the $50 per party per dispute administrative fee amount established in the October 2022 guidance applies for disputes initiated on or after August 3, 2023, and until the Departments take action to set a new administrative fee amount. ******** 51 Complaint, Tex. Med. Ass'n. v. U. S. Dep't of Health and Human Servs., No. 6:23-cv-00059-JDK (E.D. Tex. Jan. 30, 2023) (ECF No. 1). 52 Centers for Medicare & Medicaid Services (December 23, 2022). Amendment to the Calendar Year 2023 Fee Guidance for the Federal Independent Dispute Resolution Process Under the No Surprises Act: Change in Administrative Fee. https://www.cms.gov/cciio/resources/regulations-and-guidance/downloads/amended-cy2023-fee-guidance-federal-independent-dispute-resolution-process-nsa.pdf. 53 Complaint, Tex. Med. Ass'n. v. U. S. Dep't of Health and Human Servs., No. 6:23-cv-00059-JDK (E.D. Tex. Jan. 30, 2023) (ECF No. 1). 54 See Memorandum Opinion and Order, Tex. Med. Ass'n. v. U.S. Dep't of Health & Hum. Servs., No. 6:23-cv-00059-JDK, 2023 WL 4977746 (E.D. Tex. Aug. 3, 2023). 55 Centers for Medicare & Medicaid Services (December 23, 2022). Amendment to the Calendar Year 2023 Fee Guidance for the Federal Independent Dispute Resolution Process under the No Surprises Act: Change in Administrative Fee. https://www.cms.gov/cciio/resources/regulations-and-guidance/downloads/amended-cy2023-fee-guidance-federal-independent-dispute-resolution-process-nsa.pdf. 56 Specifically, the District Court vacated the requirement under 26 CFR 54.9816-8T(c)(3)(i)(C), 29 CFR 2590.716-8(c)(3)(i)(C), and 45 CFR 149.510(c)(3)(i)(C) that for a qualified IDR item and service to be considered the same or similar item and service, it must be billed under the same service code or a comparable code under a different procedural code system, such as the Current Procedural Terminology (CPT) codes with modifiers, if applicable, Healthcare Common Procedure Coding System (HCPCS) with modifiers, if applicable, or Diagnosis-Related Group (DRG) codes with modifiers, if applicable. 57 U.S. Department of Health and Human Services, U.S. Department of Labor, and U.S. Department of the Treasury (August 2023). Federal Independent Dispute Resolution (IDR) Process Administrative Fee FAQs. https://www.cms.gov/files/document/idr-admin-fees-faqs-081123-508.pdf-0. ******** On October 6, 2023, the Departments and OPM released "FAQs About Consolidated Appropriations Act, 2021 Implementation Part 62" 58 to provide guidance related to the TMA III opinion and order. On November 28, 2023, the Departments released guidance in accordance with the TMA III and TMA IV opinions and orders 59 to clarify how certified IDR entities should determine whether a dispute is appropriately batched and how to submit single and batched air ambulance disputes. 60 ******** 58 See U.S. Department of Health and Human Services, U.S. Department of Labor, U.S. Department of Treasury, Office of Personnel Management (October 6, 2023), FAQs about Consolidated Appropriations Act, 2021 Implementation Part 62, available at https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/aca-part-62.pdf and https://www.cms.gov/files/document/faqs-part-62.pdf. 59 See U.S. Department of Health and Human Services, U.S. Department of Labor, U.S. Department of Treasury, Office of Personnel Management (November 28, 2023), FAQs about Consolidated Appropriations Act, 2021 Implementation Part 63, available at https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/aca-part-62.pdf and https://www.cms.gov/files/document/faqs-part-63.pdf. 60 See U.S. Department of Health and Human Services, U.S. Department of Labor, U.S. Department of Treasury, Office of Personnel Management (November 28, 2023), Federal Independent Dispute Resolution (IDR) Process Batching and Air Ambulance FAQs, available at https://www.cms.gov/files/document/faqs-batching-air-ambulance.pdf. ******** D. Federal Independent Dispute Resolution Operations Proposed Rules On November 3, 2023, the Departments published the Federal Independent Dispute Resolution Operations proposed rules 61 (IDR Operations proposed rules). Those proposed rules included new proposed requirements for disclosing information when initiating the Federal IDR process and the provision of certain claims codes with paper or electronic remittances. Additionally, those proposed rules would amend certain requirements related to the open negotiation period, initiation of the Federal IDR process, eligibility determinations, batched disputes, extensions due to extenuating circumstances, and the collection of administrative fees and certified IDR entity fees. Lastly, those proposed rules would require plans and issuers to register with the Federal IDR portal. ******** 61 88 FR 75744. ******** With respect to the administrative fee, the Departments proposed in the IDR Operations proposed rules to collect the administrative fee directly from the parties rather than having the certified IDR entities collect the administrative fee on the Departments' behalf. The Departments also proposed required timeframes for the initiating and non-initiating parties to pay the administrative fee and proposed to establish consequences for non-payment of the administrative fee for each party. Finally, to ensure that the Federal IDR process is accessible to all parties, the Departments proposed to charge both parties a reduced administrative fee when the highest offer made during open negotiation by either party was less than a predetermined threshold and proposed to charge the non-initiating party a reduced administrative fee when the dispute is determined ineligible by either the certified IDR entity or the Departments, as applicable. To align with these proposals, the Departments also set forth the methodology inputs used to calculate the proposed administrative fee amounts in the preamble to the IDR Operations proposed rules that would be effective for disputes initiated on or after January 1, 2025. The Departments proposed that the full administrative fee amount would be $150 per party per dispute, the reduced administrative fee for both parties when the highest offer made by either party during open negotiation was less than the threshold would be $75 per party per dispute (50 percent of the full administrative fee amount), and the reduced administrative fee for non-initiating parties in ineligible disputes would be $30 per non-initiating party per ineligible dispute (20 percent of the full administrative fee amount). The inputs to the methodology set forth in this preamble and the administrative fee amount the Departments are finalizing in these final rules are effective for disputes initiated on or after the effective date of these final rules. In contrast, the proposed administrative fee structure and administrative fee amounts based on inputs to the methodology set forth in the IDR Operations proposed rules, if finalized, would be effective for disputes initiated on or after January 1, 2025. The administrative fee policies finalized in these final rules are effective, and unchanged by the proposals in the IDR Operations proposed rules, unless and until superseding administrative fee policies in the IDR Operations proposed rules are adopted. E. Public Comments Received in Response to Proposed Rules In the September 26, 2023 Federal Register, the Departments published the Federal Independent Dispute Resolution (IDR) Process Administrative Fee and Certified IDR Entity Fee Ranges proposed rules (IDR Fees proposed rules), 62 which proposed to amend existing regulations to provide that the administrative fee amount charged by the Departments to participate in the Federal IDR process, and the ranges for certified IDR entity fees for single and batched determinations, would be set by the Departments through notice and comment rulemaking. The IDR Fees proposed rules also discussed the methodology used to calculate the administrative fee and the considerations used to develop the certified IDR entity fee ranges. Finally, the IDR Fees proposed rules proposed the amount of the administrative fee and the certified IDR entity fee ranges for disputes initiated on or after the later of the effective date of these rules or January 1, 2024. ******** 62 88 FR 65888. ******** The Departments received 44 comments on many different aspects of the IDR Fees proposed rules. In particular, the Departments received many comments stating that the administrative fee amount and the certified IDR entity fee ranges create a barrier to accessing the Federal IDR process for many parties, particularly small, rural, or independent providers, and these comments supported retaining the current $50 per party per dispute administrative fee amount. The Departments also received many comments on the proposed certified IDR entity fee ranges, particularly the proposed additional tiered batched fee range for disputes with more than 25 line items. While some commenters supported the increased flexibility for certified IDR entity fee ranges, many commenters were concerned about the proposed further increases in the certified IDR entity fee ranges. The Departments respond to these comments in section II of this preamble. Many comments concerned matters that were outside of the scope of the proposed rules and therefore are not addressed in these final rules. For example, the Departments received comments stating that the current Federal IDR process lacks the efficiency needed to resolve disputes quickly. The Departments also received many comments related to the eligibility determination process, including on difficulties determining eligibility in States with a specified State law and the lack of information provided by plans and issuers. Comments on the efficiency of the Federal IDR process and eligibility determinations relate to operations that are outside of the scope of these final rules' limited focus on the administrative fee and certified IDR entity fee ranges and the processes for setting such amounts. The Departments encourage interested parties to submit comments regarding the proposals included in the IDR Operations proposed rules, including the proposal to establish a Departmental eligibility review process, in accordance with the instructions set forth in those proposed rules. 63 ******** 63 See 88 FR 75744. ******** Some other out-of-scope comments addressed the impacts of the Federal IDR portal closure, which occurred in response to litigation previously described in this preamble. For example, the Departments received comments requesting that, as a result of TMA IV, the Departments should refund $300 to each party that paid a $350 administrative fee between January 1, 2023 and August 3, 2023, and the Departments should offer an extension to parties that would have initiated a dispute if the administrative fee during that time was $50, rather than $350, to now initiate that dispute. The Departments note that this relief was requested by the plaintiffs in TMA IV and was denied by the court. 64 Comments also addressed the impact of TMA III on the calculation of the QPA, specifically asking the Departments to address underpayments to providers due to purported artificially suppressed QPAs. Additionally, the Departments received comments related to the batching requirements for submission of disputes. Some of these comments addressed specific difficulties in batching emergency medicine, radiology, and anesthesiology services and expressed a desire to broaden the batching criteria. While the IDR Operations proposed rules included proposals related to the batching requirements, these comments were outside the scope of this rulemaking because the IDR Fees proposed rules did not propose any changes to the batching requirements or calculation of the QPA. ******** 64 See Memorandum Opinion and Order, Tex. Med. Ass'n., et al. v. U.S. Dep't of Health and Human Servs., et al., No. 6:23-cv-00059-JDK (E.D. Tex. August 3, 2023). ******** Finally, the Departments received many comments suggesting different administrative fee structures. For example, the Departments received comments suggesting that the administrative fee amount be split between the parties, be refundable to the prevailing party, be funded 75 percent by plans and issuers and 25 percent by providers or be payable at the end of the Federal IDR process. The Departments also received comments recommending a variable administrative fee amount tied to the amount in dispute or the QPA, either for all disputes or just for batched disputes. Further comments suggested capping the administrative fee amount or imposing a base administrative fee amount and an additional tiered fee amount based on the amount in dispute. As a result of the TMA IV opinion and order having set aside the Departments' guidance establishing administrative fees, the Departments set a goal of establishing in rulemaking administrative fee amounts that would be effective as close to January 1, 2024 as possible, because the current $50 administrative fee amount is insufficient to satisfy the statutory requirement that the total amount of fees paid for the year be estimated to be equal to the amount of expenditures estimated to be made for the year in carrying out the Federal IDR process. If the Departments were to continue to impose a $50 per party per dispute administrative fee amount throughout 2024, the Departments estimate that they would collect approximately $24.6 million in administrative fees for the year (492,000 administrative fees paid x $50 per party per dispute), as discussed further in section IV.D.2.a of this preamble. As discussed further in section II.A of this preamble, the Departments estimate that their expenditures to carry out the Federal IDR process in 2024 will be approximately $56.6 million. Therefore, if the administrative fee amount remains at $50 per party per dispute in 2024, the Departments would significantly under-collect administrative fees required to carry out the Federal IDR process. Accordingly, to be able to implement an increase to the administrative fee amount as soon as possible, consistent with the statutory requirement, the IDR Fees proposed rules proposed the amount of the administrative fee and the preamble to the proposed rules described the methodology for calculating it. The Departments did not propose any changes to the structure of the administrative fee as this would take longer to develop and implement and would be more efficiently operationalized with the changes proposed in the IDR Operations proposed rules, which are intended to be more comprehensive. While the Departments considered alternative fee structures in this rulemaking, the Departments were of the view that addressing the structure of the administrative fee in the IDR Operations proposed rules would give interested parties more time to comment, consider, and prepare for any fee structure change, because the effective date of the IDR Operations proposed rules, if finalized, will be later than the effective date of these final rules. Additionally, the policies proposed in the IDR Operations proposed rules would require more time for the Departments to develop and implement due to the substantial changes to the Federal IDR portal required by those proposals, if finalized, including adopting new processes to collect the administrative fees directly from the parties and collecting differing amounts of administrative fees from different parties in certain circumstances, as described further in the IDR Operations proposed rules. Therefore, the Departments deferred those proposed changes to the Federal IDR process and administrative fee structure and collection procedures to the IDR Operations proposed rules and prioritized completing this rulemaking. The Departments encourage interested parties to submit relevant comments regarding batching and the administrative fee structure, the new inputs to the administrative fee methodology, and the amount of the fee proposed in the IDR Operations proposed rules, in response to those proposed rules. 65 ******** 65 See 88 FR 75744. ******** The Departments also sought to establish in rulemaking certified IDR entity fee ranges that would be effective as close to January 1, 2024 as possible, because this effective date would provide predictability for certified IDR entities, who must plan for and finalize their 2024 certified IDR entity fixed fee amounts, and parties, who must budget for their participation in the Federal IDR process taking into account both the administrative and certified IDR entity fees. Establishing the certified IDR entity fee ranges in rulemaking with an effective date close to January 1, 2024 would also allow for greater transparency than the current method of establishing the fee ranges in guidance. F. Scope and Purpose of Rulemaking These final rules amend 26 CFR 54.9816-8(d)(2)(ii) and (e)(2)(vii), 29 CFR 2590.716-8(d)(2)(ii) and (e)(2)(vii), and 45 CFR 149.510(d)(2)(ii) and (e)(2)(vii) to provide that the administrative fee amount and the ranges for certified IDR entity fees for single and batched disputes will be set by the Departments through notice and comment rulemaking, rather than in guidance published annually. The preamble to this rulemaking also sets forth the methodology used to calculate the administrative fee amount and the considerations used to develop the certified IDR entity fee ranges. These rules also finalize the administrative fee amount and certified IDR entity fee ranges for disputes initiated on or after the effective date of these rules. The finalized administrative fee amount and certified IDR entity fee ranges in these rules will remain in effect until changed by notice and comment rulemaking. The IDR Fees proposed rules proposed that the administrative fee amount and certified IDR entity fee ranges finalized in these final rules would be effective for disputes initiated on or after the later of the effective date of these rules or January 1, 2024. As these final rules will not be effective by January 1, 2024, the Departments are finalizing the proposal that the administrative fee amount and certified IDR entity fee ranges in these rules will be effective for disputes initiated on or after the effective date of these rules, which is 30 calendar days from publication in the Federal Register. II. Overview of the Final Rules--Departments of the Treasury, Labor, and HHS A. Administrative Fee Amount and Methodology 1. Summary of Proposed and Finalized Policies Under section 9816(c)(8)(A) of the Code, 66 section 716(c)(8)(A) of ERISA, 67 section 2799A-1(c)(8)(A) of the PHS Act, 68 and the October 2021 interim final rules, 69 each party to a determination for which a certified IDR entity is selected must pay an administrative fee for participating in the Federal IDR process. Under section 9816(c)(8)(B) of the Code, 70 section 716(c)(8)(B) of ERISA, 71 section 2799A-1(c)(8)(B) of the PHS Act, 72 and the October 2021 interim final rules, 73 the administrative fee is established in a manner such that the total amount of administrative fees paid for a year are estimated to be equal to the amount of expenditures estimated to be made by the Departments in carrying out the Federal IDR process for that year. ******** 66 26 U.S.C. 9816(c)(8)(A). 67 29 U.S.C. 1185e(c)(8)(A). 68 42 U.S.C. 300gg-111(c)(8)(A). 69 26 CFR 54.9816-8T(d)(2)(i), 29 CFR 2590.716-8(d)(2)(i), and 45 CFR 149.510(d)(2)(i). 70 26 U.S.C. 9816(c)(8)(B). 71 29 U.S.C. 1185e(c)(8)(B). 72 42 U.S.C. 300gg-111(c)(8)(B). 73 26 CFR 54.9816-8T(d)(2)(ii), 29 CFR 2590.716-8(d)(2)(ii), and 45 CFR 149.510(d)(2)(ii). ******** The Departments proposed to establish the amount of the administrative fee through notice and comment rulemaking by amending 26 CFR 54.9816-8(d)(2)(ii), 29 CFR 2590.716-8(d)(2)(ii), and 45 CFR 149.510(d)(2)(ii). The Departments also proposed at 26 CFR 54.9816-8(d)(2)(ii), 29 CFR 2590.716-8(d)(2)(ii), and 45 CFR 149.510(d)(2)(ii) that, for disputes initiated on or after the later of the effective date of these rules or January 1, 2024, the administrative fee amount would be $150 per party per dispute, which would remain in effect until changed by subsequent rulemaking. 74 Under the proposed rules, the Departments would have retained the flexibility to update the administrative fee more or less frequently than annually if the total estimated amount of administrative fees paid or amount of expenditures estimated to be made by the Departments in carrying out the Federal IDR process changed such that a new administrative fee amount would be required to satisfy the requirement that the total amount of administrative fees paid is estimated to be equal to the amount of expenditures estimated to be made by the Departments in carrying out the Federal IDR process. ******** 74 As previously mentioned, in the event the effective date of these final rules is after January 1, 2024, the $50 per party per dispute administrative fee amount in effect for 2023, as provided in the October 2022 guidance, will continue to apply to disputes initiated between January 1, 2024 and the effective date of these rules. ******** The Departments proposed to set the administrative fee amount by estimating the amount of expenditures made by the Departments in carrying out the Federal IDR process and dividing this amount by the estimated total number of administrative fees paid by the parties. As explained in the preamble to the IDR Fees proposed rules, the Departments estimated the total number of administrative fees paid based on the total volume of closed disputes. For the purpose of calculating the administrative fee amount in the IDR Fees proposed rules, the Departments projected that approximately 225,000 disputes would be closed annually, resulting in 450,000 administrative fees paid. Additionally, the Departments estimated that the expenditures made by the Departments for carrying out the Federal IDR process in 2024 would be approximately $70 million. 75 Using this methodology, proposed in paragraphs 26 CFR 54.9816-8(d)(2)(ii), 29 CFR 2590.716-8(d)(2)(ii), and 45 CFR 149.510(d)(2)(ii), the Departments calculated the proposed administrative fee for disputes initiated on or after the effective date of these rules, and continuing until changed by subsequent rulemaking, by dividing the annual expenditures of approximately $70 million estimated to be made by the Departments in carrying out the Federal IDR process by 450,000, the estimated annual number of administrative fees to be paid by the disputing parties. This resulted in a proposed administrative fee amount of $150 per party per dispute. 76 ******** 75 The list of expenditures associated with the estimated $70 million was provided in the IDR Fees proposed rules at 88 FR 65893. 76 As described in the IDR Fees proposed rules, the Departments estimated that the proposed administrative fee amount of $150 per party per dispute would result in an estimated annual collection approximately equal to the estimated annual expenditures of approximately $70 million. See 88 FR 65888 at 65899. ******** After considering comments received on the proposals, as discussed further in this preamble section, the Departments are finalizing the policy to set the administrative fee amount in notice and comment rulemaking no more frequently than once per calendar year. The Departments may set the administrative fee less frequently than annually if the Departments estimate that the total amount of administrative fees paid under the current administrative fee amount would continue to be equal to the amount of expenditures estimated to be made by the Departments in carrying out the Federal IDR process for the upcoming calendar year. Additionally, in response to comments received on the proposals, the Departments are modifying the administrative fee methodology used to estimate the number of administrative fees paid. The Departments will use the estimated number of administrative fees paid to certified IDR entities, rather than the estimated number of closed disputes, to estimate the total number of administrative fees paid. In addition, the Departments will not assume, as set forth in the IDR Fees proposed rules, a 25 percent reduction in the volume of disputes as the result of the District Court vacating certain batching requirements in TMA IV. The Departments are also revising the expenditures estimated to be made by the Departments in carrying out the Federal IDR process from approximately $70 million to approximately $56.6 million to reflect a reduction in the Departments' anticipated assistance with eligibility determinations, as discussed later in this preamble. Collectively, these modifications to the methodology result in a finalized administrative fee amount of $115 per party per dispute for disputes initiated on or after the effective date of these rules. As the administrative fee methodology in the IDR Operations proposed rules included some of the same elements as the administrative fee methodology in the IDR Fees proposed rules, the Departments will consider whether any modifications made to the administrative fee methodology in these final rules should also be adopted when finalizing the administrative fee amount using the methodology proposed in the IDR Operations proposed rules. 2. Summary of Comments Received and Responses to Comments a. Establishing the Administrative Fee in Notice and Comment Rulemaking Many commenters supported the proposal to establish the administrative fee in notice and comment rulemaking. Commenters stated that this transparent process would allow the public to evaluate the administrative fee amount and provide feedback on the feasibility of providers using the Federal IDR process. However, several commenters opposed the proposal to establish the administrative fee amount more or less frequently than annually and stated that adopting this proposal would introduce uncertainty in the Federal IDR process and would make budgeting more challenging. These commenters requested that the Departments update the administrative fee annually, to balance stability, transparency, and responsiveness, which they stated would mitigate the impact of changes to the administrative fee. One commenter supported the proposal to establish the administrative fee amount more or less frequently than annually, but only if a mid-year change led to a decrease to the administrative fee amount. Commenters also stated that any increases to the administrative fee amount should be on an annual basis with advance notice to interested parties. One of these commenters stated that the administrative fee amount should be set predictably and with at least 90 days' advance notice. Some commenters requested further clarification on the process for proposing and finalizing administrative fee amounts in notice and comment rulemaking. The Departments agree that one of the goals of establishing the administrative fee amount in notice and comment rulemaking is to foster transparency and allow interested parties to provide feedback on the methodology and process for setting the proposed fee amount. The Departments recognize commenters' concerns about establishing the administrative fee amount more or less frequently than annually, and the Departments are finalizing a policy under which they would establish the administrative fee amount no more frequently than once per calendar year. In addition, the Departments are finalizing as proposed the proposal to change the administrative fee amount less frequently than annually if the expenditures estimated to be made by the Departments in carrying out the Federal IDR process and the estimated total amount of administrative fees paid in the upcoming year are estimated to be equal. If the Departments determine that the estimated total amount of administrative fees paid in a future year at the current administrative fee amount would be less than the expenditures estimated to be made by the Departments in carrying out the Federal IDR process for that year, the Departments would propose to raise the administrative fee amount in notice and comment rulemaking. Alternatively, if the Departments determine that the estimated total amount of administrative fees paid in a future year at the current administrative fee amount would be more than the expenditures estimated to be made in carrying out the Federal IDR process for that year, the Departments would propose to lower the administrative fee amount in notice and comment rulemaking. Consistent with the statute, the Departments will set the administrative fee such that the estimated total amount of administrative fees paid is equal to the amount of expenditures estimated to be made by the Departments in carrying out the Federal IDR process. 77 ******** 77 Section 9816(c)(8)(B) of the Code, section 716(c)(8)(B) of ERISA, and section 2799A-1(c)(8)(B) of the PHS Act. ******** The Departments also reiterate that using the notice and comment rulemaking process to establish the administrative fee amount will provide interested parties with substantial advance notice of fee changes, so additional advance notice is not needed. As described in the IDR Fees proposed rules, the Departments will provide details on the methodology used to determine the proposed administrative fee amount, and the proposed administrative fee amount, if finalized, would be effective prospectively. Interested parties will be provided with a period to submit public comments on the proposals, and the Departments will consider all comments submitted within the comment period in developing the final rules. In addition, other commenters raised concerns regarding the amount of the administrative fee changing between any proposed and final rules. One commenter did not support making changes to the administrative fee amount between the proposed and final rules, while another commenter stated that any such changes should be by no more than 10 percent. The Departments acknowledge these commenters' suggestions but note that the Departments may have more recent data available to estimate the total amount of administrative fees paid or the amount of expenditures estimated to be made by the Departments in carrying out the Federal IDR process while developing the final rules than they had while developing the IDR Fees proposed rules, and it is reasonable for the Departments to rely on the more recent data in developing the final rules, provided that they use the methodology described in the preamble to the IDR Fees proposed rules or a methodology modified from the preamble to the IDR Fees proposed rules in response to comments. As in these final rules, these circumstances may result in the Departments finalizing a different administrative fee amount than the amount proposed. The finalized administrative fee amount will differ from the amount proposed, if necessary, to comply with the statutory requirement that the total administrative fees paid are estimated to be equal to the amount of expenditures estimated to be made by the Departments in carrying out the Federal IDR process. 78 ******** 78 Id. ******** One commenter was concerned about the ability to comment on the administrative fee amount rather than just the methodology used to calculate the amount and stated that only seeking comment on the methodology could inhibit commenters' ability to accurately express the impact of the proposed fee amount on a disputing party's access to the Federal IDR process. As previously explained, the Departments are finalizing a policy to establish the administrative fee amount in notice and comment rulemaking no more frequently than once per calendar year and will provide opportunity for comment on any new proposed administrative fee amount, as well as any changes to the methodology used to calculate the administrative fee amount. b. Administrative Fee Methodology - Estimated Total Number of Administrative Fees Paid Many commenters opposed the Departments' proposed administrative fee methodology for estimating the total number of administrative fees to be paid. Many commenters suggested that estimating the total number of administrative fees paid based on the projected total number of disputes closed would not capture all disputes in which administrative fees are paid. Some commenters were concerned that this methodology could result in an overpayment of administrative fees to the Departments. One of these commenters was concerned that the data from the six-month period in 2023 used to estimate the number of disputes closed would be radically different from 2024 data. Several commenters suggested using other metrics to calculate the estimated total number of administrative fees paid, including the number of disputes initiated, the number of disputes for which a certified IDR entity fee was paid, and the number of disputes for which parties submitted offers. Moreover, some commenters asserted that using disputes closed contradicts the Departments' regulations requiring each party to pay the administrative fee at the time the certified IDR entity is selected and the Departments' guidance permitting certified IDR entities to collect the administrative fee from parties up to the time of offer submission. 79 ******** 79 See 26 CFR 54.9816-8(d)(2)(i), 29 CFR 2590.716-8(d)(2)(i), and 45 CFR 149.510(d)(2)(i); see also section 4.8 of the Federal Independent Dispute Resolution (IDR) Process Guidance for Certified IDR Entities. October 2022. https://www.cms.gov/cciio/resources/regulations-and-guidance/downloads/federal-independent-dispute-resolution-process-guidance-for-certified-idr-entities. pdf. ******** The Departments proposed to use the projected total number of disputes closed to calculate the administrative fee amount because that metric reflected collections under current collections processes, 80 and the Departments were of the view that it was a reliable metric upon which to base the estimated total number of administrative fees to be paid. However, after considering the comments, the Departments agree with the commenters who stated that estimating the total number of administrative fees paid using the projected number of disputes closed would not capture all disputes in which administrative fees are paid because administrative fees may be paid for disputes that have not yet been closed. To capture all disputes in which parties pay administrative fees, the Departments are finalizing the administrative fee amount based on a methodology that estimates the total number of administrative fees paid by projecting Federal IDR portal data on the number of administrative fees paid to certified IDR entities, as explained in the subsequent paragraphs. The number of administrative fees paid to certified IDR entities is currently the best available metric in the Federal IDR portal data to capture all administrative fees parties pay for disputes in any stage of the Federal IDR process. ******** 80 Under current guidance, the administrative fee may be collected by certified IDR entities up until the time the parties submit their offers, and therefore the administrative fee is not collected for all disputes initiated. See, for example, Centers for Medicare & Medicaid Services (March 2023). Federal Independent Dispute Resolution (IDR) Process Guidance for Certified IDR Entities. https://www.cms.gov/files/document/federal-idr-guidance-idr-entities-march-2023.pdf. ******** In the preamble to the IDR Fees proposed rules, the Departments set the administrative fee amount based on the projection that 225,000 disputes would be closed annually. Because both initiating and non-initiating parties to a dispute are required to pay the administrative fee, the Departments estimated in the preamble to the IDR Fees proposed rules that 450,000 administrative fees would be paid annually, or 37,500 per month. As explained above, in setting the administrative fee in these final rules, the Departments are using the total number of administrative fees paid to certified IDR entities for disputes in any stage of the Federal IDR process after certified IDR entity selection. Using the methodology being adopted in these final rules, the Departments estimate that 492,000 administrative fees will be paid annually, or 41,000 administrative fees will be paid per month, by the parties. The Departments estimate the total number of administrative fees paid annually based on the monthly average number of administrative fees paid to certified IDR entities between February 2023 and July 2023. This monthly average was approximately 41,000, and the Departments projected this figure forward by 12 months to estimate that 492,000 administrative fees will be paid annually. The Departments are using data from the same time period that was used in the IDR Fees proposed rules (February 2023 to July 2023), without updating to newer data. Data from this time period remains the best available data to project future trends due to portal closures and other Federal IDR process changes that began in August 2023 due to the TMA III and TMA IV opinions and orders. While the Departments considered using data from the most recent six-month period prior to the finalization of this rule (June 2023 to November 2023), they concluded this would inaccurately reflect the monthly average number of administrative fees paid, as various aspects of the Federal IDR process were temporarily suspended from August 4, 2023 to October 6, 2023 for all disputes. 81 ******** 81 Of note, batched disputes and single disputes involving air ambulance services also remained suspended after October 6, 2023 and would not be reflected in the most recent data. ******** The Departments considered comments providing alternatives for estimating the total number of administrative fees paid in calculating the administrative fee amount. Some commenters wanted the Departments to estimate the total number of administrative fees paid based on the number of disputes initiated. This metric is inaccurate for purposes of calculating the administrative fee amount because the administrative fee may not be collected for all disputes initiated. The obligation for parties to pay the administrative fee attaches at the time of certified IDR entity selection (with guidance permitting certified IDR entities to collect the administrative fee from parties until the time of offer submission). Therefore, if a dispute is withdrawn before selection of the certified IDR entity, there is no obligation for the parties to pay administrative fees for that dispute. For this reason, using the total number of disputes initiated to estimate the number of administrative fees to be paid in the administrative fee methodology risks the Departments underfunding the Federal IDR process. 82 ******** 82 In the IDR Operations proposed rules, the Departments proposed to use the total volume of disputes projected to be initiated because the proposed operational changes in those rules, if finalized, would result in the Departments' collection of administrative fees closer to a dispute's date of initiation, and therefore, it may be appropriate to estimate the total volume of administrative fees paid using the total volume of disputes initiated. 88 FR 75793. ******** Other commenters requested the Departments to estimate the total number of administrative fees paid based on the number of disputes for which a certified IDR entity fee was paid. Because parties are not required to pay their certified IDR entity fees and administrative fees at the same time, the number of certified IDR entity fees paid would not necessarily reflect the number of administrative fees paid. Therefore, this metric would also be inaccurate for purposes of calculating the administrative fee amount. Finally, the Departments also considered estimating the total number of administrative fees paid based on the number of disputes for which parties submitted offers. However, the Departments did not believe this metric would accurately reflect the estimated number of administrative fees that would be paid, since parties may pay administrative fees without submitting offers. Thus, the metric could understate the total number of administrative fees paid. In summary, the Departments are of the view that it is most accurate to use the total number of administrative fees paid to certified IDR entities in the administrative fee methodology rather than the other metrics suggested by commenters in the prior paragraphs, as this metric reflects actual administrative fees that have been paid for disputes in any stage of the Federal IDR process after certified IDR entity selection. 83 Therefore, in recognition of commenters' concerns about a methodology that could underestimate the total number of administrative fees paid in 2024, resulting in an overestimate of the amount of the administrative fee needed for 2024, the Departments are establishing the administrative fee methodology using the total number of administrative fees paid to certified IDR entities, rather than the total number of closed disputes, to estimate the total number of administrative fees paid in 2024. ******** 83 As explained in these final rules, under current processes, the total volume of administrative fees paid to certified IDR entities is the best metric to use in the administrative fee methodology to align with statute requiring the Departments to estimate the total number of administrative fees paid. As operations of the Federal IDR process improve over time, the Departments will consider changes to the methodology to best estimate the total number of administrative fees paid. ******** The Departments also received comments regarding the Departments' projections of the total number of closed disputes used to estimate the total number of administrative fees paid. Several commenters suggested that the Departments' estimate of 225,000 closed disputes is too low. A few commenters suggested that the Departments are underestimating utilization of the Federal IDR process and recommended that the Departments analyze the available data from States implementing similar policies before the No Surprises Act. In the IDR Fees proposed rules, the Departments estimated that 225,000 disputes would be closed annually, and because both the initiating and non-initiating parties to a dispute are required to pay the administrative fee, 450,000 administrative fees would be paid annually. The Departments now estimate that 492,000 administrative fees will be paid to certified IDR entities in the year, as described earlier in this preamble section. The Departments continue to be of the view that Federal IDR process data is the best available data to project trends in the Federal IDR process, especially because regulations and volume differ in State IDR processes. As mentioned in the IDR Fees proposed rules,the Departments initially anticipated 17,333 disputes involving non-air ambulance services would be initiated during the first year of implementation of the Federal IDR process. The Departments developed this estimate based on the experience of New York State. However, the use of State data resulted in the Departments underestimating utilization of the Federal IDR process, as nearly 335,000 disputes were initiated in the Federal IDR process between April 2022 and March 2023. 84 As demonstrated by this result, past data from State processes has limited applicability in predicting future use of the Federal IDR process. For this reason, the Departments are of the view that it is better to use Federal IDR process data rather than State data to estimate the total number of administrative fees paid. ******** 84 Centers for Medicare & Medicaid Services (April 27, 2023). Federal Independent Dispute Resolution Process - Status Update. https://www.cms.gov/files/document/federal-idr-processsta-tus-update-april-2023.pdf. ******** In addition, several commenters disagreed with the Departments' assumption of a 25 percent reduction in the volume of disputes in estimating the total number of administrative fees paid to account for the impact of TMA IV 's vacatur of batching regulations and guidance, or asked for more detail on how the projected 25 percent reduction factor was determined, including the details on how the batching of claims will be treated in the future. One commenter noted that the vacatur of the $350 administrative fee amount and batching regulations as a result of TMA IV allows many additional claims to become economically viable, so the Departments should expect dispute volume to increase. Another commenter stated that the Departments cannot know with certainty that the TMA IV opinion and order will decrease the number of disputes. This commenter also asserted that TMA IV did not affect the batching criteria that serve as the largest obstacle for emergency medicine, and therefore there will not be large batches in emergency medicine, which the commenter noted comprised over 70 percent of disputes reflected in the Partial Report on the Independent Dispute Resolution (IDR) Process October 1 - December 31, 2022. 85 Moreover, a few commenters suggested that the TMA III opinion and order will increase dispute volume as providers will continue to see low QPAs from plans and issuers and will rely on the Federal IDR process for appropriate payment. One commenter agreed with the Departments' assumption that the TMA IV opinion and order will decrease the volume of disputes but disagreed with the Departments' rationale that the increased number of line items will take more time to close. This commenter expected that providers batching claims rather than submitting claims individually would increase efficiencies in the Federal IDR process. ******** 85 U.S. Department of Health and Human Services, U.S. Department of Labor, U.S. Department of the Treasury. Partial Report on the Independent Dispute Resolution (IDR) Process October 1 - December 31, 2022. https://www.cms.gov/files/document/partial-report-idr-process-octoberdecember-2022.pdf. ******** After reviewing the comments, the Departments have reconsidered the assumption that the number of disputes will decrease by 25 percent as a result of TMA IV 's vacatur of batching regulations and guidance. Therefore, the Departments are not finalizing the projected 25 percent reduction in the estimated total number of administrative fees paid. The Departments recognize that certain batching criteria remain in place, such as criteria that impact the batching of emergency medicine claims, and items and services included in such claims will have to be submitted as separate disputes if they do not comply with the applicable batching criteria. 86 Moreover, because the Departments are finalizing the administrative fee amount based on a methodology that estimates the total number of administrative fees paid based on the total number of administrative fees paid to certified IDR entities, rather than the total number of closed disputes, the methodology no longer requires the Departments to make an assumption on whether batched disputes will take more time to close after the vacatur of the batching regulations as a result of TMA IV. In addition, the Departments do not have data available to support commenters' assertion that TMA III will lead more providers to rely on the Federal IDR process for appropriate claims payment. Plans and issuers are required to calculate QPAs using a good faith, reasonable interpretation of the applicable statutes and regulations that remain in effect after the TMA III opinion and order. 87 Furthermore, in their experience operating the Federal IDR process, the Departments have not seen a clear or quantifiable relationship between changes in policy and changes in the number of disputes initiated. The Departments are of the view that the historical data from February 2023 to July 2023 is the best available data at this time to project utilization of the Federal IDR process in 2024, and the Departments are therefore finalizing the administrative fee amount based on a methodology that does not include a 25 percent reduction in the volume of disputes. ******** 86 U.S. Department of Health and Human Services, U.S. Department of Labor, U.S. Department of Treasury, Office of Personnel Management (October 6, 2023). FAQs about Consolidated Appropriations Act, 2021 Implementation Part 62. https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/aca-part-62.pdf and https://www.cms.gov/files/document/faqs-part-62.pdf. 87 Id. ******** c. Administrative Fee Methodology - Estimated Expenditures The Departments also received comments related to their estimated expenditures for purposes of calculating the administrative fee amount. Several commenters suggested that the Departments should disclose more data supporting the estimated costs to carry out the Federal IDR process in the administrative fee methodology to provide the public with an opportunity to comment. Some of these commenters asserted that the IDR Fees proposed rules did not provide enough detail on the estimated expenditures to allow interested parties to provide meaningful comment on the proposed administrative fee amount. One commenter urged the Departments to establish a regular process for detailing the Departments' data on the administrative fee, including an annual disclosure statement with a balance sheet, to promote transparency and predictability. A few commenters disputed the Departments' reference that Freedom of Information Act (FOIA) regulations prevent the Departments from providing detail on certain estimated expenditure amounts. These commenters stated that without this transparency, interested parties were not afforded an opportunity to meaningfully comment on the proposals related to the administrative fee amount and methodology inputs. The Departments are finalizing the administrative fee amount based on a methodology that divides the "estimated," rather than "projected," expenditures to carry out the Federal IDR process by the estimated total number of administrative fees to be paid in the year. The use of "estimated" rather than "projected" expenditures is to ensure the terminology used to describe the methodology is consistent with that of the statutory text. 88 To calculate the estimated expenditures to carry out the Federal IDR process, the Departments included the Federal resources needed to carry out the Federal IDR process, such as future personnel and contract costs. The preamble to the IDR Fees proposed rules provided an overview of the future contract costs and Federal resources included in the estimated expenditures and explained that the estimated expenditures to carry out the Federal IDR process in 2024 were approximately $70 million. The Departments disagree with commenters that the Departments did not provide sufficient information to allow meaningful comment. In particular, in the preamble to the IDR Fees proposed rules, the Departments provided details on the types of costs that are included in the estimated expenditures. 89 ******** 88 Section 9816(c)(8)(B) of the Code, section 716(c)(8)(B) of ERISA, and section 2799A-1(c)(8)(B) of the PHS Act. 89 88 FR 65893. ******** While the Departments described the contract costs and Federal resources associated with estimated expenditures to carry out the Federal IDR process in the preamble to the IDR Fees proposed rules, in response to comments requesting additional specifics on the estimated expenditures and in an effort to promote transparency, the Departments are providing further detail on costs included in the total estimated expenditures in these final rules within the bounds of the Departments' ability to disclose these amounts. To avoid releasing sensitive contract information, the Departments are breaking down the costs, which include the future contract and Federal personnel costs, by category of expenditure, and providing approximate cost estimates for carrying out the following categories of Federal IDR process activities: 90 ******** 90 As discussed further later in this preamble section, the Departments have reconsidered costs associated with total estimated expenditures of carrying out the Federal IDR process and are revising the total estimated expenditures for 2024 from approximately $70 million to approximately $56.6 million. Additionally, certain expenses apply across multiple categories that were included in the IDR Fees proposed rules. This revised combination of categories better provides a meaningful cost estimate of these activities. ******** - Maintaining, operating, and improving the Federal IDR portal, certifying IDR entities, and collecting data from certified IDR entities (approximately $26,360,000); - Conducting program integrity activities, such as certain QPA audits (as further described subsequently in this preamble) and IDR decision audits, and receiving and investigating Federal IDR process-related complaints (approximately $13,060,000, of which QPA audits resulting from complaints filed by providers, facilities, or providers of air ambulance services comprise approximately $5,000,000); - Providing outreach to parties and technical assistance to certified IDR entities, including assisting with eligibility determinations when the volume of disputes submitted exceeds the capacity of certified IDR entities to perform those determinations (approximately $11,630,000, of which assisting with eligibility determinations comprises approximately $10,000,000); 91 and ******** 91 Centers for Medicare & Medicaid Services (November 21, 2022). Notice of the Federal Independent Dispute Resolution (IDR) Team Technical Assistance to Certified Independent Dispute Resolution Entities (IDREs) in the Dispute Eligibility Determination Process. https://www.cms.gov/files/document/idre-eligibility-support-guidance-11212022-final-updated.pdf. ******** - Collecting administrative fees (approximately $5,530,000), which includes costs to invoice certified IDR entities for administrative fees collected, provide the system infrastructure for certified IDR entities to record and remit administrative fees collected, track data on fees collected and make continuous improvements to the collections process and invoicing systems. The Departments are publishing summary-level estimated budget information and have provided meaningful data for public input for the purposes of calculating the administrative fee amount. The Departments intend to continue to provide data on the Federal IDR process to promote transparency and predictability in the administrative fee amount, including publishing quarterly public reports with the Departments' expenditures and administrative fee collections. 92 ******** 92 See, e.g., U.S. Department of Health and Human Services, U.S. Department of Labor, U.S. Department of the Treasury. Initial Report on the Independent Dispute Resolution (IDR) Process April 15 - September 30, 2022. https://www.cms.gov/files/document/initial-report-idr-april-15-september-30-2022.pdf. U.S. Department of Health and Human Services, U.S. Department of Labor, U.S. Department of the Treasury. Partial Report on the Independent Dispute Resolution (IDR) Process October 1 - December 31, 2022. https://www.cms.gov/files/document/partial-report-idr-process-octoberdecember-2022.pdf. ******** In response to commenters' concerns regarding the Departments' reference to the applicability of FOIA exemptions to information shared during the rulemaking process, the Departments clarify that they will disclose information in response to any requests in accordance with the FOIA and accompanying regulations. However, the Departments are not publishing specific future contract estimates in this rule in response to commenters' requests for more detail on estimated expenditures of Federal IDR process activities and the data underlying those estimates because publishing those contract estimates could undermine future contract procurements. For example, if the Departments were to publish the projected future cost of the contracts used to maintain the Federal IDR portal, the Federal Government would be meaningfully disadvantaged in future contract negotiations related to the Federal IDR portal, as bidders would know how much the Departments anticipate such a future contract being worth. Although current contract awards are published and publicly available, 93 these award amounts do not necessarily reflect the future value of the contract, as there may be future changes in policy and operations and the scope of work. ******** 93 Available at www.sam.gov. ******** The Departments are of the view that interested parties had sufficient information to meaningfully comment on the IDR Fees proposed rules. For example, commenters provided valuable information in their comments regarding how the Departments should estimate the total number of administrative fees paid. Based on these comments, the Departments modified the methodology accordingly. Similarly, the Departments provided detailed information in the IDR Fees proposed rules on their calculation of the estimated expenditures to carry out the Federal IDR process. Specifically, the Departments detailed the types of activities included in estimating the annual expenditures of approximately $70 million and received comments on these activities. After considering comments received on these details of the administrative fee methodology, the Departments have revised this estimate of annual expenditures down to approximately $56.6 million, as explained in later paragraphs. In addition, many commenters raised concerns about the inclusion of certain types of expenses in the administrative fee methodology. Several commenters recommended excluding all or some of the QPA audit costs given that the QPA also serves a purpose outside of the Federal IDR process in calculating patient cost sharing. Some commenters asked the Departments to disclose their total expenditures on QPA audits and the portion proposed to be funded by administrative fees compared to other sources. As previously mentioned, the Departments are required to include estimated expenditures to carry out the Federal IDR process, which include contract costs and Federal resources, in calculating the administrative fee amount. Accordingly, the Departments disagree with commenters who suggested that QPA audit costs should not be included in the calculation of the administrative fee amount and are adopting an administrative fee methodology that includes certain QPA audit costs in the estimated expenditures. For any dispute in the Federal IDR process, a plan or issuer would have been required to disclose the QPA to the provider along with the initial payment or notice of denial of payment for items and services, and disputing parties must include the QPA for items and services when initiating a dispute. Certified IDR entities are required to consider the QPA when selecting between the offers submitted by disputing parties when determining the total out-of-network payment rate for items and services subject to the Federal IDR process. 94 ******** 94 Section 9816(c)(5)(C)(i)(I) of the Code, section 716(c)(5)(C)(i)(I) of ERISA, and section 2799A-1(c)(5)(C)(i)(I) of the PHS Act. ******** Furthermore, it is the responsibility of the Departments (or the applicable State authorities), rather than the provider, facility, provider of air ambulance services, or the certified IDR entity, to monitor plan and issuer compliance with the QPA requirements. 95 To date, the Departments have only conducted audits as part of investigations of complaints, and anticipate continuing to conduct these risk-based audits in the future, though the No Surprises Act permits the Departments to conduct random and risk-based audits. 96 Given the role of the QPA in the Federal IDR process and the direct impact on providers, performing audits on plans and issuers in response to allegations that the plan's or issuer's QPAs are inaccurate is necessary to carry out the Federal IDR process and promotes the integrity of and confidence in the Federal IDR process. ******** 95 Section 9816(a)(2)(A)(i) of the Code, section 716(a)(2)(A) of ERISA, and section 2799A-1(a)(2)(A)(i) of the PHS Act. See also 86 FR 36899. However, a provider or facility may always assert to the certified IDR entity that additional information points in favor of the selection of its offer as the out-of-network payment amount, even where that offer is for a payment amount that is different from the QPA. 87 FR 52627. 96 Section 9816(a)(2)(A)(ii) of the Code, and section 2799A-1(a)(2)(A)(ii) of the PHS Act. The July 2021 interim final rules describe the enforcement responsibilities for each Department and OPM. 86 FR 36899 (July 13, 2021). https://www.federalregister.gov/documents/2021/07/13/2021-14382/requirements-related-to-surprise-billing-part-i. ******** Moreover, addressing concerns about inaccurately calculated QPAs helps to ensure plans and issuers provide correctly calculated QPAs when they participate in the Federal IDR process. For example, in the absence of QPA audits to investigate complaints from providers, facilities, and providers of air ambulance services that one or more of a plan's or issuer's QPAs are inaccurate, plan and issuer compliance with QPA requirements would go unchecked. 97 Certified IDR entities must consider the relevant QPA in making each payment determination under the No Surprises Act, 98 and unchecked QPAs would significantly threaten the integrity of QPAs and the payment determinations made by certified IDR entities. These audits help to increase transparency into the QPA calculation methodology and encourage compliance among plans and issuers. Accordingly, QPA audits are an integral part of the Federal IDR process, the costs of which are reasonably included in the calculation of the administrative fee amount. ******** 97 The accuracy of a plan's or issuer's QPA (or QPA methodology) may not be reviewed within a payment determination under the Federal IDR process. See 86 FR 55996. 98 Section 9816(c)(5)(C)(i)(I) of the Code, section 716(c)(5)(C)(i)(I) of ERISA, and section 2799A-1(c)(5)(C)(i)(I) of the PHS Act. ******** In estimating the expenditures to carry out the Federal IDR process, the Departments are including estimated costs only for certain QPA audits that the Departments anticipate incurring to investigate complaints regarding inaccurate QPAs made by providers, facilities, and providers of air ambulance services under the Federal IDR process. The Departments are not including the costs of QPA audits conducted: (1) in connection with Department of Labor, OPM, or Department of the Treasury investigations; (2) randomly; or (3) in response to complaints from consumers, as not all of these audits are necessarily related to the Federal IDR process. The Departments are of the view that only the costs related to QPA audits conducted in response to complaints from entities that are potential parties to a payment determination are sufficiently related to the Federal IDR process to justify their inclusion in the administrative fee calculation. For example, consumers who complain that a plan or issuer inaccurately calculated their cost sharing based on an erroneously calculated QPA will not be involved in the Federal IDR process, and therefore the costs of such audits are appropriately excluded from those costs supported by administrative fees paid by parties to the Federal IDR process. Because HHS is primarily responsible for the implementation of the Federal IDR process, the Departments view similarly random QPA audits that may be conducted by the Departments, as well as any QPA audits in connection with Department of Labor, OPM, and Department of the Treasury investigations. The costs of HHS conducting QPA audits for complaints that a plan's or issuer's QPAs are inaccurate are estimated to be approximately $5,000,000 in 2024. As plans and issuers improve their compliance in calculating QPAs correctly, the Departments anticipate that the costs of conducting these audits will decrease, which would be reflected in the estimated expenditures used to determine future administrative fee amounts. Several commenters also disagreed with including costs associated with assisting with eligibility reviews in the estimated expenditures to carry out the Federal IDR process. A few of these commenters noted that certified IDR entities are responsible for conducting eligibility reviews and therefore certified IDR entity fees should cover this cost. Some commenters asserted that such costs should be recovered through the non-prevailing party's certified IDR entity fee, as the eligibility determination is part of the payment determination. One of these commenters expressed concern that including this expense would incentivize certified IDR entities to understaff as HHS would intervene to address a staffing shortage. The Departments disagree that the costs of assisting with eligibility determinations should be excluded from estimated expenditures. Certified IDR entities voluntarily participate in the Federal IDR process and set their certified IDR entity fees within ranges established by the Departments to ensure they remain financially viable and that such fees can cover their operating expenses to participate in the Federal IDR process, which include the costs incurred in determining the eligibility of items and services for the Federal IDR process. While certified IDR entities are responsible for making eligibility determinations, and therefore incur costs associated with this activity, the Departments have also incurred costs since November 2022 to assist certified IDR entities in making these determinations by performing research and outreach on disputes pending eligibility determinations, including identifying and obtaining information necessary for certified IDR entities to make eligibility determinations, and will continue to incur such costs in 2024. 99 The Departments disagree with the commenter that stated that the Departments' assistance would incentivize certified IDR entities to understaff. Certified IDR entities could not have reasonably predicted the amount of personnel they would need to make eligibility determinations within the required timeframe given the extremely high volume of disputes. Moreover, it has been difficult for certified IDR entities to make staffing adjustments in response to utilization of the Federal IDR process due to the repeated temporary pauses in the Federal IDR portal resulting from litigation matters and changes in operations. ******** 99 Centers for Medicare & Medicaid Services (November 21, 2022). Notice of the Federal Independent Dispute Resolution (IDR) Team Technical Assistance to Certified Independent Dispute Resolution Entities (IDREs) in the Dispute Eligibility Determination Process. https://www.cms.gov/files/document/idre-eligibility-support-guidance-11212022-final-updated.pdf. ******** When the Departments first developed the Federal IDR process and the rules and guidance establishing how certified IDR entities were to calculate their fees for the scope of work they were expected to perform, the Departments and the certified IDR entities did not anticipate the significant difficulty and costs involved in determining eligibility for the Federal IDR process. After six months of operating the Federal IDR process and receiving feedback from disputing parties and certified IDR entities, the Departments determined that it was necessary to assist certified IDR entities with determining eligibility through performing research and outreach on disputes pending eligibility determinations, including identifying and obtaining information necessary to make an eligibility determination. 100 The Departments determined that this course of action was necessary when it became clear that eligibility determinations were taking significantly longer than the Departments had anticipated. ******** 100 The Departments are providing technical assistance regarding eligibility but are not making eligibility determinations, as, under current regulations, only certified IDR entities may make eligibility determinations. Id. ******** In the IDR Operations proposed rules, the Departments proposed several policies aimed at improving communication between the parties that would make eligibility determinations less burdensome for certified IDR entities and speed up the Federal IDR process, as well as allow the Departments to make eligibility determinations under extenuating circumstances. 101 However, these policies, if finalized, will take time to implement. In the interim, the Departments are working to balance feedback from interested parties asking the Departments to increase the efficiency of the Federal IDR process and decrease the backlog of disputes with other feedback asking the Departments to minimize expenditures and avoid increases to the administrative fee. The Departments have also received comments urging them to shorten the time it takes for payment determinations to be reached. The Departments continue to believe that some level of assistance is necessary to address the high volume of disputes submitted and the backlog of disputes, due in part to the closing and reopening of the Federal IDR process to make necessary systems updates in light of the TMA III and TMA IV opinion and orders. ******** 101 88 FR 75744. ******** However, after reviewing comments, the Departments have reconsidered the amount of estimated costs associated with pre-eligibility reviews that should be included in the estimated expenditures to carry out the Federal IDR process in calendar year 2024. In estimating the expenditures of approximately $70 million in the IDR Fees proposed rules, the Departments included an increase in costs to reflect the Departments taking on a greater role in assisting with eligibility determinations to improve the efficiency of the Federal IDR process. 102 Based on comments received urging the Departments to avoid increasing the administrative fee, the Departments will not take on a greater role in broadly assisting certified IDR entities with eligibility determinations at this time. Instead, the Departments will limit their assistance with eligibility determinations to more complex disputes, such as disputes where there is missing information to determine Federal versus State jurisdictions in a State with a specified State law. This approach will ensure efficient use of the Departments' resources by leveraging the Departments' assistance and expertise in handling pre-eligibility reviews for disputes that certified IDR entities may need to spend more time on, such as disputes for which information was limited due to the systems in place when those disputes were initiated, and will allow certified IDR entities to focus on moving disputes through the Federal IDR process. Furthermore, this will allow the Departments to keep the costs of assisting with eligibility determinations lower in 2024 such that the expenditures estimated to be made by the Departments to carry out the Federal IDR process are now estimated to be approximately $56.6 million in 2024. The total estimated expenditures in the IDR Fees proposed rules included approximately $20 million for the Departments to assist with eligibility determinations via conducting research and outreach. The estimated cost of assisting with eligibility determinations in 2024, as used to calculate the administrative fee as finalized, is approximately $10 million. ******** 102 While there is an implementation appropriation, the initial appropriation of $500 million in the CAA is finite and only remains available until expended through 2024. Moreover, the Departments note that additional mandatory funding for the Federal IDR process has not been appropriated beyond the initial $500 million made available in the CAA. However, the Departments cannot rely on budget requests or on appropriations enacted by Congress when calculating this fee. The statute requires the fee to be set at an amount such that the total amount of fees paid is estimated to be equal to the amount of expenditures estimated to be made by the Departments in carrying out the Federal IDR process. ******** Furthermore, the Departments do not anticipate that the decision to focus their assistance with pre-eligibility reviews on more complex disputes and the revised administrative fee amount finalized in these rules will impact the fees certified IDR entities choose to charge. Given the backlog of disputes, utilization of the Federal IDR process strains the current capacity of certified IDR entities to make timely determinations. While the Departments' assistance with eligibility determinations is currently helping to alleviate the backlog of disputes, certified IDR entities' operating expenses are not expected to decrease as a result. If the Departments are able to decrease their assistance with eligibility determinations, the costs of pre-eligibility reviews would decrease, which would be reflected in the estimated expenditures used to determine future administrative fee amounts. In addition, some commenters disagreed with including the costs of investigating complaints of non-compliance in the administrative fee methodology. Commenters asked for clarity in the "investigating relevant complaints" expense and asserted that "relevant" complaints beyond the Federal IDR process would be inappropriate to include in the calculation of the administrative fee amount. A few of these commenters suggested that the party found to be non-compliant should bear the costs of the investigation and asked the Departments to publicly report summary data on these investigations and the costs covered by non-compliant parties compared to those covered by administrative fees. One commenter suggested that the investigation of complaints related to violations of the No Surprises Act should be funded by a congressional appropriation as these are largely unrelated to the Federal IDR process. The Departments clarify that the complaints costs included in the estimated expenditures in the administrative fee methodology only include costs associated with receiving and investigating Federal IDR process-related complaints. For example, such costs include investigating complaints within the Departments' jurisdiction regarding the failure of a non-prevailing party to pay the payment determination amount to the prevailing party within 30 days of the certified IDR entity's payment determination as required by the No Surprises Act. 103 Complaints costs do not include costs for complaints that are not related to the Federal IDR process, such as those related to the QPA for patient cost sharing. Therefore, the Departments are of the view that those costs are appropriate to include in the administrative fee methodology and are necessary to ensure compliance with the Federal IDR process. 104 ******** 103 Section 9816(c)(6) of the Code, section 716(c)(6) of ERISA, and section 2799A-1(c)(6) of the PHS Act. 104 While there is an implementation appropriation, the initial appropriation of $500 million in the CAA is finite and only remains available until expended through 2024. Moreover, the Departments note that additional mandatory funding for the Federal IDR process has not been appropriated beyond the initial $500 million made available in the CAA. The Departments are unable to appropriate this funding themselves, although they have made numerous requests to Congress for additional funding, and therefore this is not a reliable source of Federal IDR process funding. ******** Many commenters suggested that the Departments consider other funding sources besides the administrative fee to fund expenditures. Several commenters suggested that implementing penalties could help fund expenditures, including penalties for submitting ineligible disputes, failing to comply with disclosure obligations, or delaying the Federal IDR process. Some commenters suggested the CAA's $500 million appropriation to implement the No Surprises Act should cover at least a portion of the Departments' estimated expenditures. One commenter asked for confirmation that the implementation appropriation has been exhausted fully and suggested requesting additional funds from Congress in upcoming budget requests to support the funding of the Departments' ongoing implementation. Another commenter asserted that the administrative fee methodology set forth in the IDR Fees proposed rules did not take into account any appropriations funding. As required by the No Surprises Act, 105 both parties to a dispute must pay an administrative fee for participating in the Federal IDR process. By statute, the administrative fee amount must be calculated such that the total amount of fees paid for a year is estimated to be equal to the amount of expenditures estimated to be made by the Departments for such year in carrying out the Federal IDR process. While the CAA appropriated $500 million to remain available until expended through 2024 for preparing regulations, guidance, and reports, collecting data, conducting audits and enforcement activities, 106 and establishing and initially implementing the No Surprises Act and Title II Transparency provisions through calendar year 2024, this finite appropriation is not solely for the Federal IDR process. Additionally, while the Fiscal Year 2024 President's budget included another $500 million appropriation request for the continued implementation of the No Surprises Act and Title II Transparency provisions, the administrative fee amount finalized in these rules must still be consistent with the statutory requirement to set the administrative fee amount such that the total amount of administrative fees paid is estimated to be equal to the amount of expenditures estimated to be made by the Departments in carrying out the Federal IDR process. As a result, when calculating this fee, the Departments cannot rely on budget requests or on appropriations enacted by Congress. ******** 105 Section 9816(c)(8)(A) of the Code, section 716(c)(8)(A) of ERISA, and section 2799A-1(c)(8)(A) of the PHS Act. 106 As previously explained in the preamble to these final rules, the Departments may conduct random or risk-based QPA audits. The Departments consider it appropriate to include some of the costs of conducting risk-based QPA audits resulting from complaints filed by providers, facilities, or providers of air ambulance services alleging that the QPA was inaccurate as expenditures made in carrying out the Federal IDR process, and therefore include the costs of conducting these audits in estimating the expenditures made by the Departments in carrying out the Federal IDR process. Other audit costs, such as the QPA audits conducted in connection with Department of Labor, OPM, or Department of Treasury investigations; audits conducted randomly; or audits conducted in response to complaints from consumers regarding QPAs may be funded using other appropriations, as applicable. ******** In addition, commenters urged the Departments to consider strategies to decrease utilization of the Federal IDR process, decrease administrative burden, increase the efficiency of the Federal IDR process, and ultimately reduce the cost of administering the Federal IDR process. Examples of commenters' suggestions include enforcing disclosure requirements, requiring plans and issuers to include remittance advance remark codes (RARCs) at the time of initial claim determination, easing batching requirements, disincentivizing bad faith conduct, making improvements to the Federal IDR portal, and implementing a required initial payment amount for out-of-network emergency services. Several commenters suggested that the volume of ineligible disputes and the cost of conducting eligibility reviews would be reduced or eliminated if the Departments enforced disclosure requirements or required plans and issuers to provide adequate information for providers to determine whether a claim is eligible for the Federal IDR process. One commenter suggested that plans and issuers should cover the cost of eligibility reviews when they fail to inform the provider of eligibility for the Federal IDR process. Another commenter suggested that the cost of eligibility reviews should be assessed to the party that challenges eligibility as this cost would be avoidable if the plan or issuer provided sufficient information. One commenter suggested that the Departments could reduce the administrative burden of the Federal IDR process by contracting with an established claims processing clearinghouse that currently possesses the capabilities to perform real-time eligibility determinations to create an in-portal eligibility validation process. The Departments continue to consider improvements to the Federal IDR process and recently published the IDR Operations proposed rules, 107 which include policies aimed at reducing the volume of ineligible disputes, establishing additional disclosure requirements (such as requiring plans and issuers to use approved claim adjustment reason codes (CARCs) and RARCs), incentivizing good faith conduct with respect to open negotiation and exchange of information, and otherwise improving the Federal IDR process. Overall, these policies would, if finalized, support efficiency in Federal IDR process operations and reduce the cost of administering the Federal IDR process in the future. ******** 107 88 FR 75744. ******** Recognizing that the cost of certifying IDR entities is included in the administrative fee methodology, one commenter sought clarity on how the methodology considers efficiencies gained from certifying more IDR entities to make payment determinations and therefore reduce the backlog. The Departments note that the benefits of certifying new IDR entities will be achieved over time, as new certified IDR entities acclimate to the process and increase the speed at which they move disputes through the Federal IDR process. As efficiencies in the Federal IDR process are adopted over time, the expenditures required to carry out the Federal IDR process could decrease, exerting downwards pressure on the administrative fee amount. If any of these situations results in changes to the data used to calculate the administrative fee amount, the Departments intend to take these changes into consideration when establishing the administrative fee amount in the future. d. Administrative Fee Methodology - Other Comments The Departments sought comments on whether, when calculating the administrative fee amount in future years, they should apply an inflationary adjustment, such as the consumer price index for all urban consumers (CPI-U), to the amount of estimated expenditures to be made by the Departments in carrying out the Federal IDR process. A few commenters supported using an inflationary adjustment, such as the CPI-U, to adjust the administrative fee amount in future years. Other commenters opposed this approach, stating that it would not necessarily correlate with the Departments' expenditures to operate the Federal IDR process and may not align with the established methodology of dividing the Departments' estimated expenditures by the estimated total number of administrative fees to be paid. Another commenter stated that this proposal would be unnecessary if the Departments finalize the proposal to establish the administrative fee amount more or less frequently than annually. Finally, another commenter asked the Departments to revisit this proposal when data are more predictable after implementing planned improvements to the Federal IDR process. Upon consideration of the comments, the Departments are not finalizing the use of an inflationary adjustment, such as the CPI-U, to adjust the administrative fee amount in future years. The Departments agree with commenters that the CPI-U may not correlate with projected increases in the Departments' estimated expenditures to carry out the Federal IDR process and therefore using it could be inconsistent with the statute. Several commenters urged the Departments to improve the Federal IDR process before increasing the administrative fee amount by decreasing the backlog, enforcing timely payment, and holding all parties accountable to the regulatory requirements. Some commenters recommended maintaining the current administrative fee amount until there is stability in the Federal IDR process and more data are available to accurately forecast long-term costs. A few commenters suggested that the Departments modify the administrative fee amount in future years to make up for any shortfall or surplus created by the finalized administrative fee amount. As previously mentioned, the Departments continue to consider improvements to the Federal IDR process; however, implementing these improvements would increase the costs of carrying out the Federal IDR process in the short term and would take time to operationalize. As previously mentioned, the Departments proposed policies in the IDR Operations proposed rules aimed to improve the overall efficiency and operations of the Federal IDR process. 108 The Departments were unable to propose those policies in the IDR Fees proposed rules because they are much more comprehensive than the fee-related policies proposed in the IDR Fees proposed rules and would require more time to develop and implement, if finalized. There is an urgency to publish these final rules due to the need to sufficiently fund the Federal IDR process in 2024, because, as explained above, the current $50 administrative fee amount is insufficient to provide total administrative fees that are estimated to be equal to the expenditures estimated to be made by the Departments in carrying out the Federal IDR process, as required by the No Surprises Act. 109 ******** 108 88 FR 75744. 109 Section 9816(c)(8)(B) of the Code, section 716(c)(8)(B) of ERISA, and section 2799A-1(c)(8)(B) of the PHS Act. ******** e. Administrative Fee Amount and Impact Many commenters opposed the proposed $150 per party per dispute administrative fee amount and stated that it would make the Federal IDR process cost-prohibitive to pursue for many providers, especially small providers, rural providers, independent practices, and certain medical specialties, such as psychiatry, emergency medicine, radiology, and anesthesiology. Some commenters requested that the Departments analyze how the proposed administrative fee amount would be cost-prohibitive for providers and would deter and limit dispute resolution for small providers. A few commenters asserted that the administrative fee amount would unfairly favor plans and issuers over providers in the Federal IDR process. One commenter recommended against using a methodology to calculate the administrative fee amount that did not consider the increased financial burdens on providers compared to plans and issuers. Another commenter stated that the proposed administrative fee amount prioritizes the interest of certified IDR entities and the Departments in covering their costs at the expense of parties' access to the Federal IDR process. Similarly, some commenters stressed that it is important to keep the administrative fee amount low to prevent the administrative fee from serving as a de facto barrier to the Federal IDR process. These commenters asserted that such a de facto barrier would not align with congressional intent, as Congress decided against adding a dollar-value threshold to the No Surprises Act despite considering this while developing the legislation. Several commenters raised concerns that reducing access to the Federal IDR process would reduce providers' reimbursements for out-of-network services, as it would not be cost-effective to dispute certain payment amounts in the Federal IDR process. Some commenters asserted that a cost-prohibitive administrative fee amount would reduce incentives for plans and issuers to negotiate fair in-network contracts or, in some cases, renew contracts, forcing providers out of networks. A few commenters suggested that patients would also be impacted by the increased administrative fee amount, either through plans and issuers narrowing provider networks or increasing premiums and cost-sharing amounts, or providers passing on costs to patients or going out of business. However, several commenters noted that the proposed fee amount was an improvement from the previous $350 amount. For reasons described throughout this preamble, the Departments are finalizing the administrative fee amount for disputes initiated on or after the effective date of these rules as $115 per party per dispute. This change in the administrative fee amount between the proposed and final rules reflects modifications to the estimated expenditures and to the administrative fee methodology described elsewhere in this preamble. While the Departments are statutorily required to set the administrative fee amount such that the total amount of administrative fees paid is estimated to be equal to the amount of expenditures estimated to be made by the Departments in carrying out the Federal IDR process, the Departments acknowledge the concerns of commenters related to accessibility and affordability of the Federal IDR process and the impact of the proposed administrative fee amount on the parties and patients. In the Departments' effort to balance their statutory obligations with the priority of ensuring equitable access for parties to engage in the Federal IDR process, the Departments proposed in the IDR Operations proposed rules to reduce the administrative fee amount in certain circumstances. In the IDR Operations proposed rules, the Departments proposed to reduce the administrative fee amount to $75 (50 percent of the full administrative fee amount proposed in those proposed rules) for both parties when the highest offer by either party in open negotiation was less than the full administrative fee amount ($150 as proposed in those proposed rules) 110 and to $30 (20 percent of the full administrative fee amount proposed in those proposed rules) for non-initiating parties in ineligible disputes. 111 The Departments also proposed in the IDR Operations proposed rules to revise the requirements for batching qualified IDR items and services together into a single Federal IDR process dispute. 112 The Departments anticipate that these proposals would make the Federal IDR process more accessible for all parties, but especially the parties for whom commenters expressed concerns, such as small and rural providers and certain medical specialties. ******** 110 88 FR 75799. 111 88 FR 75800. 112 88 FR 75783 through 75791. ******** The administrative fee amount being finalized in these final rules is applied equally to both parties to a dispute. The Departments are of the view that it would be inequitable to charge a smaller party a lower administrative fee, because a dispute initiated by a smaller party costs the Departments the same amount to process as a dispute initiated by a larger party. Furthermore, the value of a dispute, rather than the size of the party, determines whether it will be cost-effective for the party to pursue the dispute. For example, a smaller party could initiate a high dollar value dispute, while a larger party could initiate a small dollar value dispute. The Departments proposed in the IDR Operations proposed rules to charge both parties a reduced administrative fee when the highest offer made during open negotiation is less than the full administrative fee amount, 113 which is intended to improve the accessibility of the Federal IDR process for parties to low-dollar disputes. The Departments anticipate that such parties may be smaller providers and facilities or independent practices. However, larger parties to low-dollar disputes would not be precluded from paying the reduced administrative fee as long as the dispute meets the aforementioned requirement. ******** 113 88 FR 75799. ******** The Departments considered the impact of the proposed $150 administrative fee amount on the parties compared to the current $50 administrative fee amount and the previous $350 administrative fee amount. While the Departments understand that it may be economically infeasible to initiate some claims in the Federal IDR process due to the administrative and certified IDR entity fees associated with accessing the process, as discussed previously, the Departments are statutorily obligated to charge an administrative fee amount such that the administrative fees paid are estimated to be equal to the amount of expenditures estimated to be made by the Departments in carrying out the Federal IDR process. 114 The methodology used by the Departments is derived from this statutory language. ******** 114 Section 9816(c)(8)(B) of the Code, section 716(c)(8)(B) of ERISA, and section 2799A-1(c)(8)(B) of the PHS Act. ******** Congress did not include a dollar-value threshold for Federal IDR process disputes in the No Surprises Act. Rather, Congress opted to include a requirement in the No Surprises Act for each party to a dispute for which a certified IDR entity is selected to pay to the Departments, at such time and in such manner as specified by the Departments, a fee for participating in the Federal IDR process. 115 Therefore, regardless of the administrative fee amount, disputing parties must always evaluate whether it would be economically efficient to initiate a dispute in the Federal IDR process. Congress also provided in the No Surprises Act that the administrative fee amount is established by the Departments in a manner such that the total amount of fees paid for such year is estimated to be equal to the amount of expenditures estimated to be made by the Departments for such year in carrying out the Federal IDR process. 116 ******** 115 Section 9816(c)(8)(A) of the Code, section 716(c)(8)(A) of ERISA, and section 2799A-1(c)(8)(A) of the PHS Act. 116 Section 9816(c)(8)(B) of the Code, section 716(c)(8)(B) of ERISA, and section 2799A-1(c)(8)(B) of the PHS Act. ******** In regard to comments stating that the administrative fee could result in narrowing networks, many factors may impact whether a provider, facility, or provider of air ambulance services and a plan or issuer will enter a network agreement with one another, including the market power of each party, Federal and State network adequacy laws, and other factors. The Departments acknowledge that the amount paid for out-of-network services is one of the factors that impacts market participants' decisions whether to enter network agreements. The No Surprises Act represents a substantial change to the way the parties come to agreement on payment for out-of-network services by prohibiting, in many circumstances, the practice of sending surprise medical bills to patients and establishing a Federal IDR process for determining the appropriate out-of-network rate. Many providers report that initial payments made by plans and issuers for out-of-network services are now substantially lower than such payments were before enactment of the No Surprises Act. Some providers report that plans' and issuers' abilities to make lower payments for out-of-network services has impacted their willingness to offer acceptable in-network payment rates in network agreement negotiations. To the extent that the Federal IDR process and the prohibition on surprise medical billing change this equilibrium among parties, they could impact the number of providers and plans and issuers that are able to agree on terms for entering a network agreement and consequently network breadth. In the IDR Operations proposed rules, the Departments are proposing a number of steps to accelerate throughput in the Federal IDR process, 117 which would make it easier for the parties to use the process to determine the appropriate payment amount for out-of-network services. That said, the appropriate payment rate for out-of-network services is only one factor among many that influences network breadth. It is also important for the parties to meaningfully engage in open negotiation to determine an appropriate out-of-network payment rate, since agreeing to rates in open negotiation allow the parties to avoid the costs of using the Federal IDR process. Even as the Federal IDR process becomes faster and more parties avail themselves of the opportunity to agree to out-of-network payment rates during the open negotiation period, the price paid for out-of-network services will remain one among many factors in a dynamic market. Furthermore, the Departments anticipate that a Federal IDR process with consistent payment determination outcomes will lead to fewer dispute initiations, because parties will have a better understanding of what a determination will likely be and more disputes would likely be settled in open negotiation or even earlier, resulting in the parties avoiding the costs associated with the Federal IDR process. ******** 117 88 FR 75744. ******** The Departments also do not anticipate that the policies finalized in these rules would cause plans and issuers to increase premiums, as further discussed in section IV.G of this preamble, or patient cost sharing, because administrative fees paid would likely represent a very small percentage of the costs considered by plans and issuers in calculating annual premiums or cost sharing. Many commenters emphasized the importance of considering the proposed administrative fee amount alongside batching requirements to determine whether the administrative fee amount would be cost-prohibitive. Some commenters suggested that batching policies could mitigate the financial challenges providers and facilities face, especially when pursuing low-dollar claims. A few commenters suggested it was premature to update the administrative fee amount or provide feedback on a proposed amount until batching guidance is updated. One commenter viewed an administrative fee of $150 per party as reasonable so long as a claim is defined as an episode of care or a single medical encounter in the batching policy. The Departments are continuing to assess batching flexibilities and the impact of batching on various parts of the Federal IDR process. To further improve batching requirements, the Departments proposed provisions in the IDR Operations proposed rules 118 that would allow for more clarity, certainty, and flexibility in batching multiple items or services in a single dispute. 119 These batching proposals are designed so that the expenses of engaging in the Federal IDR process, including the administrative fee, do not unreasonably impede parties' access to the Federal IDR process. As previously mentioned, the IDR Operations proposed rules 120 also proposed a reduced administrative fee for low-dollar disputes, identified as disputes for which the highest offer by either party in open negotiation was less than the administrative fee amount, which, if finalized, would mitigate financial burden on providers and facilities when pursuing payment on low-dollar claims. The Departments encourage interested parties to submit comments on the IDR Operations proposed rules prior to the comment deadline. 121 ******** 118 88 FR 75744. 119 On November 28, 2023, the Departments released FAQs pertaining to batching that will be effective until the IDR Operations proposed rules are finalized and take effect. These FAQs discuss how, in light of the TMA IV and TMA III opinions and orders, the batching requirements of the No Surprises Act apply to qualified IDR items and services for disputes eligible for initiation of the Federal IDR process on or after August 3, 2023, until the Departments engage in future notice and comment rulemaking. See U.S. Department of Health and Human Services, U.S. Department of Labor, U.S. Department of Treasury, Office of Personnel Management (November 28, 2023), FAQs about Consolidated Appropriations Act, 2021 Implementation Part 63, available at https://www.cms.gov/files/document/faqs-part-63.pdf. 120 Id. 121 As discussed earlier in this preamble section, the Departments were unable to propose these operational policies in the IDR Fees proposed rules because they are more comprehensive than the fee-related policies proposed in the IDR Fees proposed rules and require more time to develop and implement if finalized. There is an urgency to publish these final rules due to the need to sufficiently fund the Federal IDR process in 2024. ******** While the Departments continue to consider improvements to the Federal IDR process, including policies surrounding batching and low-dollar claims, the No Surprises Act requires that the administrative fee be estimated to cover the expenditures estimated to be made by the Departments in carrying out the Federal IDR process in the year, and the Departments estimate that $115 per party per dispute is the appropriate administrative fee amount to meet this requirement for disputes initiated on or after the effective date of these rules. B. Certified IDR Entity Fee Ranges Under current regulations at 26 CFR 54.9816-8T(e)(2)(vii), 29 CFR 2590.716-8(e)(2)(vii), and 45 CFR 149.510(e)(2)(vii), the certified IDR entity fees for single and batched determinations are set by the certified IDR entities within the upper and lower limits of ranges for each as set forth in guidance issued annually by the Departments. In the IDR Fees proposed rules, the Departments proposed to amend the provisions of the regulations establishing the ranges for certified IDR entity fees for single and batched disputes to establish the ranges in notice and comment rulemaking, rather than in guidance, at 26 CFR 54.9816-8(e)(2)(vii), 29 CFR 2590.716-8(e)(2)(vii), and 45 CFR 149.510(e)(2)(vii). Further, the IDR Fees proposed rules provided that, consistent with current rules, certified IDR entities must annually provide a fixed fee for single determinations and separate fixed fees for batched determinations within the upper and lower limits for each as set in notice and comment rulemaking. Additionally, the IDR Fees proposed rules provided that the certified IDR entity fee ranges established by the Departments in rulemaking would remain in effect until new certified IDR entity fee ranges are established by subsequent notice and comment rulemaking, 122 allowing the Departments to update the certified IDR entity fee ranges more or less frequently than annually. Finally, the Departments proposed that the certified IDR entity or IDR entity seeking certification may seek advance written approval from the Departments to update its fees more often than once annually. ******** 122 88 FR 65888. ******** The Departments proposed that for disputes initiated on or after the later of the effective date of these rules or January 1, 2024, certified IDR entities would be permitted to charge a fixed certified IDR entity fee for single determinations within the range of $200 to $840, unless a fee not within that range is approved by the Departments pursuant to paragraphs 26 CFR 54.9816-8(e)(2)(vii)(A) and (B), 29 CFR 2590.716-8(e)(2)(vii)(A) and (B), and 45 CFR 149.510(e)(2)(vii)(A) and (B). The Departments also proposed that for disputes initiated on or after the later of the effective date of these rules or January 1, 2024, certified IDR entities would be permitted to charge a fixed certified IDR entity fee for batched determinations within the range of $268 to $1,173, unless a fee outside this range is approved by the Departments pursuant to paragraphs 26 CFR 54.9816-8(e)(2)(vii)(A) and (B), 29 CFR 2590.716-8(e)(2)(vii)(A) and (B), and 45 CFR 149.510(e)(2)(vii)(A) and (B). The Departments proposed to continue to use a tiered fee structure based on the number of line items within the batch. 123 Under the IDR Fees proposed rules, certified IDR entities would be permitted to charge a fixed tiered fee within the range of $75 to $250 for every additional 25 line items within a batched dispute beginning with the 26th line item. 124 The IDR Fees proposed rules explained the Departments' considerations for proposing the certified IDR entity fee ranges, which included the anticipated time and resources needed for certified IDR entities to make payment determinations meeting the requirements of the statute, rules, and guidance; the anticipated time and resources needed for data reporting; the anticipated time and resources needed to comply with audit requirements; the anticipated volume of Federal IDR initiations and payment determination quality assessments; the anticipated volume of Federal IDR initiations ineligible for the Federal IDR process; and the level of complexity in determining the eligibility of items and services for the Federal IDR process. 125 These fee ranges would apply until another set of fee ranges is proposed and finalized through subsequent notice and comment rulemaking. ******** 123 A tiered fee structure was first proposed in the Calendar Year 2023 Fee Guidance for the Federal Independent Dispute Resolution Process under the No Surprises Act and implemented for all disputes initiated as of January 1, 2023. See Centers for Medicare & Medicaid Services (October 31, 2022). Calendar Year 2023 Fee Guidance for the Federal Independent Dispute Resolution Process under the No Surprises Act. https://www.cms.gov/cciio/resources/regulations-and-guidance/downloads/cy2023-fee-guidance-federal-independent-dispute-resolution-process-nsa.pdf. 124 88 FR 65888. 125 88 FR 65888 at 65895 through 65896. ******** If a certified IDR entity wishes to charge a fee outside either of these fee ranges, it would continue to follow the existing process for requesting written approval from the Departments outlined in 26 CFR 54.9816-8(e)(2)(vii)(A) and (B), 29 CFR 2590.716-8(e)(2)(vii)(A) and (B), and 45 CFR 149.510(e)(2)(vii)(A) and (B). Since the publication of the IDR Fees proposed rules, the Departments have analyzed updated data and assumptions as applied to the factors considered in the IDR Fees proposed rules' preamble to set the fee ranges, and the Departments found that the results of the analysis remain the same. The Departments received comments on these proposals. The Departments are finalizing as proposed the policy to establish the certified IDR entity fee ranges through notice and comment rulemaking, rather than guidance. The Departments are also finalizing the certified IDR entity fee ranges for single and batched disputes as proposed. Finally, the Departments are finalizing the fixed tier fee structure for batched disputes, as well as the range for this structure, as proposed. However, after considering the public comments, the Departments are not finalizing the proposal which would have allowed the Departments to set the certified IDR entity fee ranges more frequently than annually but are instead finalizing the proposal with modifications to reflect that the certified IDR entity fee ranges may be established by the Departments no more frequently than annually through notice and comment rulemaking. Further, the Departments are finalizing the proposal that the certified IDR entity or IDR entity seeking certification may seek advance written approval from the Departments to update its fees more often than once annually, with modifications to reflect that in addition to setting their initial fee for the calendar year, certified IDR entities may only request approval from the Departments to update their fees one additional time per year, and with additional non-substantive modifications for readability. Finalizing this policy would result in a process where the certified IDR entity or IDR entity seeking certification sets their fixed fees for single and batched determinations for the year, and then is allowed one opportunity at any point during the calendar year to update their fixed fees, provided that their request is approved by the Departments. Many commenters supported the proposal to establish the certified IDR entity fee ranges through notice and comment rulemaking. Several commenters noted that establishing the certified IDR entity fee ranges through notice and comment rulemaking would increase transparency and allow interested parties to provide feedback that would help the Departments appropriately adjust the fee ranges. Many commenters expressed opposition to the Departments' proposal to establish the certified IDR entity fee ranges more or less frequently than annually. The majority of these commenters encouraged the Departments to update the certified IDR entity fee ranges only once annually to create a more predictable and stable Federal IDR process. Several commenters expressed concern that changing the certified IDR entity fee ranges more frequently than once annually would prevent providers from effectively budgeting for participation in the Federal IDR process, which would create a barrier to access. A few commenters noted that unpredictable changes to the certified IDR entity fee ranges could impact plans' and issuers' abilities to budget for the Federal IDR process and could lead plans and issuers to budget more conservatively and pass on the cost increase to consumers. A few commenters generally supported the flexibility to update the certified IDR entity fee ranges more or less frequently than annually. However, one commenter supported the proposed flexibility only if the Departments adjusted the fee ranges less frequently than annually, while another commenter supported the proposed flexibility if the Departments provided adequate notice, such as 90 days, before implementing the changed fee ranges. Further, several commenters opposed the proposal to allow certified IDR entities or IDR entities seeking certification to seek advance written approval from the Departments to set their certified IDR entity fees more often than annually. Similar to the proposal to establish the certified IDR entity fees through notice and comment rulemaking more or less frequently than annually, some commenters expressed concerns that the proposed policy would cause unpredictability for the parties, which would impact their ability to effectively budget for the Federal IDR process. One commenter misinterpreted the proposed policy as proposing to require certified IDR entities to adjust their fees whenever operational or technological efficiencies could justify a decrease in cost, and expressed concern that the proposed policy may discourage certified IDR entities from participating in the Federal IDR process. One commenter opposed multiple fee adjustments within a given year but supported allowing certified IDR entities a limit of one additional fee adjustment per year following a compelling request and formal approval. The Departments agree with commenters that the proposal to establish the certified IDR entity fee ranges through notice and comment rulemaking will improve transparency and provide opportunity for greater engagement by interested parties in the establishment of the ranges. The Departments recognize commenters' concerns that the proposed flexibility to set the certified IDR entity fee ranges through notice and comment rulemaking more or less frequently than annually would enable multiple changes to the certified IDR entity fee ranges over the course of a year. In general, the Departments recognize that frequent changes to the established certified IDR entity fee ranges could increase unpredictability in the Federal IDR process and potentially burden parties, but note that they did not propose this policy with the intention of pursuing such frequent changes. The Departments contemplated establishing this proposed flexibility so that the certified IDR entity fee ranges could remain effective for multiple years. Further, updating the certified IDR entity fee ranges does not guarantee that certified IDR entities will set new fixed fee amounts. Each certified IDR entity determines their fee amounts independently, and there is no requirement to make a corresponding adjustment each time the certified IDR entity fee ranges established by the Departments change, provided the certified IDR entity's fee stays within the new range. While it would be unlikely that the Departments would pursue multiple notice and comment rulemakings in a single year to adjust the certified IDR entity fee ranges, the Departments acknowledge the potential for the proposed policy to increase uncertainty within the Federal IDR process. Therefore, to be responsive to commenters' concerns, the Departments are finalizing this proposal with modifications to reflect that the certified IDR entity fee ranges may be established no more frequently than once per calendar year. This allows the certified IDR entity fee ranges to remain effective over multiple years until they are updated in subsequent notice and comment rulemaking, while addressing commenters' concerns by preventing multiple adjustments of the certified IDR entity fee ranges in a single year. The Departments acknowledge that frequent increases to certified IDR entity fees could lead to unpredictability and complicate the ability of the parties to effectively budget for the Federal IDR process. The Departments are of the view that the proposed mechanism for certified IDR entities to request to set their fees more than once annually includes sufficient guardrails to ensure that any changes to the certified IDR entities' fees would not prevent parties from accessing the Federal IDR process. Specifically, the Departments proposed to require certified IDR entities to submit the following information to the Departments in their requests: (1) the fixed fee that the certified IDR entity is seeking to charge; (2) a description that reasonably explains the circumstances that require a change to its fee; and (3) a detailed description that reasonably explains how the change to its fee will be used to mitigate the effects of these circumstances. The Departments would use their discretion to determine if the explanations included in the request demonstrate that the change would ensure the certified IDR entity's financial viability and would not impose on parties an undue barrier to accessing the Federal IDR process. The Departments seek to strike a balance between predictable fees for parties participating in the Federal IDR process and certified IDR entities' need for flexibility to respond to circumstances that require fee adjustments to maintain program operations. For example, the Departments acknowledge that certified IDR entities consider various factors, including operational costs, in setting fees for the Federal IDR process. However, certified IDR entities have needed to increase staff resources, implement system updates, and adjust operations to respond to unexpectedly frequent changes to guidance or regulations governing the Federal IDR process or the volume of disputes initiated and closed under the Federal IDR process. To ensure that certified IDR entities have sufficient funding to respond to such circumstances, providing certified IDR entities with the ability to request an update to their fees one additional time during a calendar year is appropriate. To address some of the concerns expressed by commenters, the Departments are finalizing this proposal with modifications to reflect that certified IDR entities may only request approval from the Departments to set their fee one additional time for a calendar year. In other words, if a certified IDR entity wishes to update its fees an additional time after already setting fees for the calendar year, the certified IDR entity must seek approval from the Departments to do so. A certified IDR entity may set its fees at most two times for a calendar year, once at the initial setting of the fees, and once after receiving approval from the Departments to update the fees, regardless of whether the Departments have established new certified IDR fee ranges in notice and comment rulemaking. If the Departments reject a certified IDR entity's request to update its fees during the calendar year, the certified IDR entity may continue to seek approval by submitting subsequent requests as long as these requests comply with the requirements finalized in this rule. If a certified IDR entity requests to update its fees after initially setting its fee for the calendar year, and the request is approved by the Departments, the change to its fees will be made public before those fees are effective, in a form and manner specified by the Secretary, to allow the parties time to consider the fee change in their decision making. Updated fees will apply to disputes initiated on or after the effective date of the fee amount. The modified policy will provide an appropriate amount of flexibility to certified IDR entities to make a fee adjustment to account for efficiencies and fluctuations in the conditions of the Federal IDR process in future years, while also capping the number of fee adjustments in a given calendar year and limiting cost volatility for parties participating in the Federal IDR process. The Departments solicited comment on whether they should apply an inflationary adjustment, such as the CPI-U, to the considerations used to develop the certified IDR entity fee ranges in future years. One commenter supported the use of an inflationary adjustment and suggested updating the certified IDR entity fee ranges annually based on inflation rather than through notice and comment rulemaking. A few commenters opposed updating the certified IDR entity fee ranges using an inflationary adjustment such as the CPI-U. Specifically, one commenter posited that since the CPI-U is updated on a monthly basis, the Departments might pursue monthly adjustments to the certified IDR entity fee ranges, which would severely complicate the Federal IDR process. Another commenter expressed concern that applying an inflationary adjustment would only drive costs up over time, prompting plans and issuers to pass any additional costs on to consumers. One commenter neither explicitly supported nor opposed the general use of an inflationary adjustment to set the certified IDR entity fee ranges but noted that setting the certified IDR entity fee ranges through notice and comment rulemaking could be an opportunity to adjust based on inflation. This commenter cautioned that if the Departments pursued the use of an inflationary adjustment, such an adjustment should be the only consideration used to update the certified IDR entity ranges. The Departments appreciate the comments on the use of an inflationary adjustment to update the certified IDR entity fee in future years. The Department share the commenters' desire to maintain predictable and accessible costs for participating in the Federal IDR process and agree that additional adjustments to the fee ranges more frequently than annually would complicate the Federal IDR process for all parties. As stated earlier in this preamble, based on the comments received, the Departments are finalizing the proposal to establish the certified IDR entity fee ranges through notice and comment rulemaking, which will allow for greater transparency and feedback related to the establishment of the ranges. Further, the Departments are of the view that the considerations being finalized in this rulemaking are necessary to develop reasonable certified IDR entity fee ranges, and that the addition of inflationary adjustment to the considerations, or the exclusive use of an inflationary adjustment to develop the ranges, is not practical or necessary at this time. The Departments will continue to carefully consider whether such a policy may be appropriate in future rulemaking. Several commenters expressed concerns with the proposed certified IDR entity fee ranges' increased upper limits. Some of these commenters stated that the proposed certified IDR entity fee ranges may be cost-prohibitive and limit access to the Federal IDR process, particularly for small providers. A few of the commenters opposed to the proposed increase in the upper limits of the certified IDR entity fee ranges asserted that any increase in the certified IDR entity fee ranges would limit participation in the Federal IDR process. Specifically, one of these commenters asserted that the proposed ranges would result in costs passed on to patients in the form of increased premiums and cost-sharing amounts. Some commenters, however, supported the proposed certified IDR entity fee ranges. Some of these commenters asserted that the increase to the upper limit of the certified IDR fee ranges is reasonable and will encourage greater plan and issuer participation prior to the Federal IDR process, such as during open negotiation, and will reduce the time needed for certified IDR entities to render payment determinations. The Departments maintain the view that the proposed certified IDR entity fee ranges will keep costs reasonable such that participating in the Federal IDR process will not be cost-prohibitive, including for smaller providers, while also ensuring that certified IDR entities are able to cover their operating costs and continue participating in the Federal IDR process. The Departments acknowledge that broadening the certified IDR entity fee ranges could have an impact on the cost to parties to engage in the Federal IDR process. However, the current range of fees charged by certified IDR entities reflects that, since the opening of the Federal IDR process, certified IDR entities do not all charge the same fees, nor do they all charge the maximum fee amount in the ranges set by the Departments. 126 To remain competitive, the certified IDR entities have an incentive to charge fees on the lower end of the established range. As a result, the Departments do not believe that an increase to the upper limits of the certified IDR entity fee ranges will result in drastic increases to the fees charged by certified IDR entities. Further, the Departments have not seen any data suggesting that the proposed increases to the certified IDR entity fee ranges will result in a substantial enough increase in costs to plans and issuers that they will impact patients in the form of increased premiums and cost-sharing amounts. However, the Departments will continue to monitor this dynamic. ******** 126 See https://www.cms.gov/nosurprises/help-resolve-payment-disputes/certified-idre-list. ******** The Departments agree with commenters asserting that the increases to the certified IDR entity fee ranges will encourage greater plan and issuer participation prior to the Federal IDR process, such as during open negotiation. The Departments believe that the increases to the certified IDR entity fee ranges will encourage parties to actively participate in open negotiation to preclude the need for the Federal IDR process, thereby eliminating the need for parties to pay the certified IDR entity fee. The Departments emphasize that while they establish ranges for the certified IDR entity fees, certified IDR entities choose the fixed fees they charge for single and batched determinations based on a number of factors. As noted earlier in this preamble, certified IDR entities have needed to make numerous adjustments in response to high volumes of disputes, complex determinations, and litigation resulting in changes to guidance and regulations governing the Federal IDR process. The proposed ranges for the single and batched determination fees, including the proposed range for the tiered fee for batched determinations, allow for appropriate compensation corresponding to the complexity and effort associated with making eligibility and payment determinations. The Departments remain of the view that the proposed ranges would keep costs for participating in the Federal IDR process reasonable and reduce the potential for increased costs to be passed on to patients. Several commenters opposed the proposed tiered fee structure for batched determinations. Commenters were concerned that the proposed tiered fee structure would be cost-prohibitive, particularly due to the absence of a limitation on the number of line items considered in the price tiers (that is, no line item cap to the application of the tiered fee, as currently exists). Further, some commenters asserted that the proposed tiered fee structure and range would disincentivize the submission of batched disputes. A few commenters supported an increased fee for larger batched determinations but recommended that the tiering structure reflect intervals of 50 line items rather than 25. Further, one commenter supported a fixed-dollar tiered fee, as opposed to a range, suggesting that a fixed-dollar fee would provide more consistency across the fees charged by different certified IDR entities and avoid potential issues such as certified IDR entities being overwhelmed with disputes and resulting delays in the Federal IDR process. The proposed tiered fee structure and range reflect the Departments' intent to keep the costs of participating in the Federal IDR process affordable while ensuring that certified IDR entities are compensated for their work in rendering payment determinations on complex batched disputes. Certified IDR entities have indicated to the Departments that making determinations on large batches of dissimilar items and services is particularly complex and burdensome and that they generally do not realize economies of scale as the number of batched line items increases. The Departments considered the impact of the TMA IV opinion and order as discussed in section I.C of this preamble on the anticipated complexity and volume of batched disputes while determining the certified IDR entity fee ranges. The Departments acknowledge the efficiencies gained by batching and believe that the proposed tiered fee structure would maintain those efficiencies while allowing certified IDR entities to charge a reasonable fee for the level of work involved in batched determinations. Several commenters stated that the proposed tiered fee structure might increase the costs to disputing parties submitting batched disputes with many line items because there is no cap to the number of line items within a batched dispute after which the tiered fee would no longer apply. A tiered fee selected by each certified IDR entity from a dollar range established by the Departments allows for greater flexibility, as opposed to applying a standard fixed dollar amount or applying a percentage of the certified IDR entity's batched determination fee as is currently used. 127 The tiered fee range reflects the costs associated with increasing line items in a batched dispute and provides certified IDR entities the appropriate flexibility to set fees commensurate with their costs. Additionally, the Departments believe that a dollar range based on the number of line items in a batched dispute would provide transparent and consistent pricing for both parties and certified IDR entities. The Departments agree that instances of batched disputes with exceedingly high numbers of line items occur infrequently but remain a possible occurrence. In addition, as mentioned previously, certified IDR entities have indicated that they generally do not realize economies of scale for batched disputes with high numbers of line items. For instance, certified IDR entities often need to verify the acuity of every patient in a batch, even when the service is the same. Given the anticipated infrequency of batched disputes with exceedingly high numbers of line items and in recognition of the need for the certified IDR entity to cover its costs for such batched disputes, the Departments believe the tiered fee structure is a reasonable approach. ******** 127 See Centers for Medicare & Medicaid Services (December 23, 2022). Amendment to the Calendar Year 2023 Fee Guidance for the Federal Independent Dispute Resolution Process under the No Surprises Act: Change in Administrative Fee. https://www.cms.gov/cciio/resources/regulations-and-guidance/downloads/amended-cy2023-fee-guidance-federal-independent-dispute-resolution-process-nsa.pdf. ******** The Departments also considered whether certified IDR entities should be permitted to charge only an additional fixed dollar amount (for example, $125, $150, $200, etc.) per every additional 25 line items but determined that the proposed range for a tiered fee would provide the appropriate operational flexibility for certified IDR entities. Providing this flexibility is important to maintain participation of certified IDR entities in the Federal IDR process. The operational costs for the Federal IDR process incurred by each certified IDR entity may vary, requiring certified IDR entities to consider their unique circumstances in determining their fixed fee amounts to maintain financial viability. Therefore, allowing certified IDR entities to select a tiered fee within a dollar range established by the Departments will allow the certified IDR entities the flexibility to tailor their pricing to fit their company's needs, while ensuring reasonable costs for parties participating in the Federal IDR process. For the purposes of the batched tiered fee range intervals, the Departments considered whether a grouping of 50 line items would be a more appropriate interval than the proposed interval of 25 line items. A few commenters suggested that 50 line items would be a more appropriate interval than the proposed 25-line-item increment. In determining the interval appropriate for the tiered fee range for batched determinations, the Departments considered historical trends in the number of line items submitted in batched disputes in addition to the anticipated changes in batching behaviors due to the TMA IV vacatur of certain batching provisions. The Departments remain of the view that a 25-line-item increment is the most reasonable increment to balance the affordability to parties and the amount of resources expended by the certified IDR entities to review those line items. As a result, the Departments are finalizing this policy as proposed. III. Severability In the event that any portion of these final rules is declared invalid, the Departments intend that the various aspects of the finalized administrative fee provisions and certified IDR entity fee provisions be severable. The Departments proposed at 26 CFR 54.9816-8(d)(3)(i), 29 CFR 2590.716-8(d)(3)(i), and 45 CFR 149.510(d)(3)(i) that any provision of paragraph (d) or paragraphs (e)(2)(vii) through (e)(2)(ix) held to be invalid or unenforceable as applied to any person or circumstance would be construed so as to continue to give the maximum effect to the provision permitted by law, including as applied to persons not similarly situated or to dissimilar circumstances, unless such holding is that the provision of these paragraphs is invalid and unenforceable in all circumstances, in which event the provision would be severable from the remainder of these paragraphs and would not affect the remainder thereof. The Departments further proposed at new 26 CFR 54.9816-8(d)(3)(ii), 29 CFR 2590.716-8(d)(3)(ii), and 45 CFR 149.510(d)(3)(ii) that the provisions in paragraphs (d) and (e)(2)(vii) through (ix) are intended to be severable from each other. Additionally, the Departments further proposed that if a court were to find unlawful the administrative fee policies, the certified IDR entity fee policies should stand. In the alternative, if a court were to find unlawful the certified IDR entity fee policies, the administrative fee policies should stand. A few commenters supported the proposed severability provisions. These commenters stated that the provisions would help mitigate uncertainty that may result from future court decisions if a lawsuit occurs. The Departments agree that the severability clause will help mitigate uncertainty. After considering the comments, the Departments are finalizing these policies as proposed, with a technical modification that the provisions in 26 CFR 54.9816-8(d) and (e)(2)(vii) and (viii), 29 CFR 2590.716-8(d) and (e)(2)(vii) and (viii), and 45 CFR 149.510(d) and (e)(2)(vii) and (viii) are intended to be severable, rather than 26 CFR 54.9816-8(d) and (e)(2)(vii) through (ix), 29 CFR 2590.716-8(d) and (e)(2)(vii) through (ix), and 45 CFR 149.510(d) and (e)(2)(vii) through (ix). This technical modification is due to the restructuring of the regulatory text in these final rules pertaining to certified IDR entity fees at 26 CFR 54.9816-8(e)(2)(vii) and (viii), 29 CFR 2590.716-8(e)(2)(vii) and (viii), and 45 CFR 149.510(e)(2)(vii) and (viii) compared to what was proposed, as discussed further in section II.B of this preamble. The Departments further clarify their intent that the methodology being adopted here to set the administrative fee amount and the considerations the Departments used in developing the certified IDR entity fee ranges are also intended to be severable. Should any aspect of the methodology or considerations be determined to be unlawful, the Departments intend for the administrative fee amount or certified IDR entity fee ranges to be adjusted by applying the methodology in accordance with the remaining elements of the methodology or considerations. For instance, if it is determined that certain expenditures should not have been included in calculating the administrative fee amount, then the Departments would implement these rules by eliminating those expenditures from the total expenditures estimated to be made by the Departments in carrying out the Federal IDR process, and dividing the new expenditures amount by the same estimated number of administrative fees paid to calculate the new administrative fee amount. The resulting administrative fee amount would be immediately effective, without requiring additional notice and comment rulemaking. IV. Economic Impact and Paperwork Burden A. Summary - Departments of Health and Human Services and Labor These final rules establish the administrative fee amount and the certified IDR entity fee ranges in notice and comment rulemaking, and the preamble sets forth the methodology for setting the administrative fee amount and the considerations used to develop the certified IDR entity fee. The Departments have examined the effects of these final rules as required by Executive Order 13563 (76 FR 3821, January 21, 2011, Improving Regulation and Regulatory Review); Executive Order 12866 (58 FR 51735, October 4, 1993, Regulatory Planning and Review); Executive Order 14094 (88 FR 21879, April 11, 2023, Modernizing Regulatory Review); the Regulatory Flexibility Act (Pub. L. 96-354, September 19, 1980); section 1102(b) of the Social Security Act (42 U.S.C. 1102(b)); section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4, March 22, 1995); and Executive Order 13132 (64 FR 43255, August 10, 1999, Federalism). B. Executive Orders 12866, 13563, and 14094 - Departments of Health and Human Services and Labor Executive Orders 12866, 13563, and 14094 direct Federal agencies to assess all costs and benefits of available regulatory alternatives and if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Under Executive Order 12866, "significant" regulatory actions are subject to review by the Office of Management and Budget (OMB). Executive Order 14094, entitled "Modernizing Regulatory Review" (hereinafter, the Modernizing E.O.), amends section 3(f) of Executive Order 12866 (Regulatory Planning and Review). The amended section 3(f) of Executive Order 12866 defines a "significant regulatory action" as an action that is likely to result in a rule: (1) having an annual effect on the economy of $200 million or more in any 1 year (adjusted every 3 years by the Administrator of OMB's Office of Information and Regulatory Affairs (OIRA) for changes in gross domestic product), or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, territorial, or tribal governments or communities; (2) creating a serious inconsistency or otherwise interfering with an action taken or planned by another agency; (3) materially altering the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raising legal or policy issues for which centralized review would meaningfully further the President's priorities or the principles set forth in this Executive order, as specifically authorized in a timely manner by the Administrator of OIRA in each case. A regulatory impact analysis (RIA) must be prepared for rules deemed significant. OMB's OIRA has deemed this rule significant. The Departments have prepared an RIA that to the best of their ability presents the costs and benefits of these rules. OMB has reviewed these final regulations, and the Departments have provided the following assessment of their impact. C. Need for Regulatory Action - Departments of Health and Human Services and Labor The Departments are amending the certified IDR entity and administrative fee provisions of the rules for the Federal IDR process to set the administrative fee amount and the certified IDR entity fee ranges in notice and comment rulemaking, and set forth the methodology for setting the administrative fee amount and the considerations for developing the certified IDR entity fee ranges. These policies will ensure that all interested parties are sufficiently notified and provided an opportunity to comment on the fees associated with the Federal IDR process. D. Summary of Impacts and Accounting Table - Departments of Health and Human Services and Labor The expected benefits and costs of these final rules are summarized in Table 1 and discussed in this section of the preamble. In accordance with OMB Circular A-4, Table 1 depicts an accounting statement summarizing the Departments' assessment of the benefits, costs, and transfers associated with this regulatory action. The Departments are unable to quantify all benefits and costs of these final rules but have sought, where possible, to describe these non-quantified impacts. The effects in Table 1 reflect non-quantified impacts and estimated direct monetary costs resulting from the provisions of these final rules. TABLE 1: Accounting Table 1. Benefits The primary benefit of these final rules is to allow the Federal IDR process to function through establishing the administrative fee amount and certified IDR entity fee ranges in rulemaking and establishing the amounts of these fees for disputes initiated on or after the effective date of these rules. In response to the opinion and order in TMA IV, these final rules are necessary in order to set the administrative fee amount as close to January 1, 2024 as possible, because the current $50 administrative fee amount is insufficient to satisfy the statutory requirement that the total amount of fees paid for the year be estimated to be equal to the amount of expenditures estimated to be made by the Departments in carrying out the Federal IDR process. The primary non-quantifiable benefit of these final rules is the continuation of a functioning Federal IDR process, which helps to protect consumers from certain surprise medical bills and helps providers to receive compensation for certain out-of-network services. Additional benefits specific to each Federal IDR process fee type appear in the following sections. a. Administrative Fee Amount and Methodology The Departments are finalizing the proposal to establish the administrative fee amount in notice and comment rulemaking for disputes initiated on or after the effective date of these rules, and the Departments are setting forth the methodology for determining the administrative fee amount. Utilizing notice and comment rulemaking will increase transparency of the administrative fee-setting process and allow interested parties to provide feedback to the Departments prior to the Departments setting the administrative fee amount. The Departments sought comment on these benefits. The Departments received comments on these benefits and respond to these comments in section II.A of this preamble. The Departments are finalizing these benefits as proposed. b. Certified IDR Entity Fee Ranges The Departments proposed to establish the certified IDR entity fee ranges for single and batched determinations, which include a tiered fee range for batched determinations that exceed 25 line items, in notice and comment rulemaking for disputes initiated on or after the effective date of these rules. Utilizing notice and comment rulemaking to set the appropriate ranges for certified IDR entity fees will increase transparency for parties interested in the certified IDR entity fee ranges and allow these parties to identify in advance the impacts of changing the certified IDR entity fee ranges. The Departments sought comment on these benefits. The Departments received comments on these benefits and respond to these comments in section II.B of this preamble. The Departments are finalizing these benefits as proposed. 2. Costs a. Administrative Fee Amount and Methodology The Departments are finalizing the proposal to establish the administrative fee amount in notice and comment rulemaking for disputes initiated on or after the effective date of these rules, and set forth the methodology for setting the administrative fee amount with modifications described in section II.A of this preamble to ensure that disputing and other parties are sufficiently notified and provided an opportunity to comment on the administrative fee amount. The Departments are also finalizing the administrative fee amount for disputes initiated on or after the effective date of these rules at $115 per party per dispute. The current administrative fee is $50 per party per dispute. 128 In the IDR Fees proposed rules, the Departments estimated that approximately 225,000 disputes are closed per year. 129 Therefore, if the current administrative fee were to remain applicable, the Departments estimated in the IDR Fees proposed rules that the parties would pay approximately $22.5 million in administrative fees annually (225,000 disputes x 2 parties per dispute x $50 per party). In the IDR Fees proposed rules, the Departments also estimated that if they were to finalize an administrative fee amount of $150 per party per dispute for disputes initiated on or after the effective date of these rules, the parties would pay approximately $67.5 million in administrative fees annually beginning in 2024 (225,000 disputes x 2 parties per dispute x $150 per party), assuming the number of disputes remains stable year over year and the administrative fee amount is not subsequently changed through notice and comment rulemaking. Therefore, in the IDR Fees proposed rules, the Departments estimated that the costs associated with this proposal, if finalized, would be approximately $45 million ($67.5 million if this proposal is finalized minus $22.5 million if the status quo were to continue). ******** 128 As a result of the opinion and order in TMA IV, which vacated the portion of the December 2022 guidance that increased the administrative fee amount to $350 per party per dispute for disputes initiated during calendar year 2023, the administrative fee amount reverted to the amount established in the October 2022 guidance. See Centers for Medicare & Medicaid Services (August 11, 2023). Federal Independent Dispute Resolution (IDR) Process Administrative Fee FAQs. https://www.cms.gov/cciio/resources/regulations-and-guidance/downloads/no-surprises-act-independent-dispute-resolution-administrative-fee-frequently- asked-questions.pdf. Also see Centers for Medicare & Medicaid Services (October 31, 2022). Calendar Year 2023 Fee Guidance for the Federal Independent Dispute Resolution Process under the No Surprises Act. https://www.cms.gov/cciio/resources/regulations-and-guidance/downloads/cy2023-fee-guidance-federal-independent-dispute-resolution-process-nsa.pdf. 129 The details of the calculation of the number of disputes are provided at 88 FR 65893. ******** The Departments sought comment on these costs and assumptions. The Departments received comments on these assumptions. Several commenters suggested that the Departments' estimate of 225,000 closed disputes is too low. A few commenters suggested that the Departments are underestimating utilization of the Federal IDR process and recommended that the Departments analyze the available data from States implementing similar policies before the No Surprises Act. Several commenters disagreed with the assumption used to calculate the 225,000 closed disputes, which assumed that TMA IV 's vacatur of batching regulations and guidance would reduce the volume of disputes by 25 percent. As discussed in section II.A of this preamble, after consideration of comments, the Departments are finalizing the administrative fee using the estimated total number of administrative fees paid to certified IDR entities, rather than the projected total number of closed disputes, to estimate the number of administrative fees to be paid under the administrative fee methodology. Federal IDR process data show that the monthly average number of administrative fees paid to certified IDR entities between February 2023 and July 2023 was 41,000. The Departments project this monthly average forward by 12 months to estimate 492,000 administrative fees paid in a year. After consideration of public comments, the Departments are modifying the proposed assumptions and cost estimates as follows. If the current administrative fee were to remain applicable, the parties would pay approximately $24.6 million in administrative fees annually (492,000 administrative fees paid x $50 per party per dispute). As stated in section II.A of this preamble, the estimated $24.6 million in administrative fee collections if the Departments were to retain the current $50 administrative fee would be inadequate for the Departments to carry out the Federal IDR process in 2024, as they estimate the expenditures to be made in 2024 to be approximately $56.6 million. As the Departments are now finalizing an administrative fee amount of $115 per party per dispute for disputes initiated on or after the effective date of these rules, the Departments estimate that the parties will pay approximately $56.6 million in administrative fees annually beginning in 2024 (492,000 administrative fees paid x $115 per party per dispute), which is sufficient to cover the estimated annual expenditures of approximately $56.6 million, assuming the number of administrative fees paid remains stable year over year and the administrative fee amount is not subsequently changed through notice and comment rulemaking. Therefore, the costs associated with this policy are approximately $32.0 million ($56.6 million minus $24.6 million if the status quo were to continue). b. Certified IDR Entity Fee Ranges The Departments are finalizing the proposal to set the certified IDR entity fee ranges for single and batched determinations, with a tiered fee range for batched determinations that exceed 25 line items, in notice and comment rulemaking for disputes initiated on or after the effective date of these rules in response to the opinion and order in TMA IV to ensure that interested parties are sufficiently notified and provided an opportunity to comment on the certified IDR entity fee ranges. The certified IDR entity fee range for single determinations for disputes initiated on or after the effective date of these rules is $200 to $840. The certified IDR entity fee range for batched disputes initiated on or after the effective date of these rules is $268 to $1,173. Further, the tiered fee range for batched determination for disputes initiated on or after the effective date of these rules is $75 to $250. While the certified IDR entities are responsible for setting their fees for single and batched determinations, the Departments acknowledge that the changes to the certified IDR entity fee ranges may impact the cost to the parties to participate in the Federal IDR process. The Departments anticipate that the vacatur of batching standards by the District Court's opinion and order in TMA IV could result in initiating parties submitting single and batched disputes in proportions similar to those prior to the issuance of the August 2022 guidance, which interpreted the now-vacated standards for batching qualified IDR items or services. Based on internal data relating to disputes initiated prior to the establishment of the now vacated batching criteria that were released in August 2022, approximately 70 percent of disputes at the time were single disputes and approximately 30 percent were batched disputes. 130 The Departments anticipate that, as a result of TMA IV, initiating parties will return to the batching practices they engaged in prior to issuance of the August 2022 guidance, such as initiating a higher proportion of batched disputes and including more items or services within those batched disputes. ******** 130 The Departments estimate that currently approximately 80 percent of disputes are single disputes and 20 percent of disputes are batched disputes, and the Departments anticipate that this ratio will return to 70 percent of disputes being single disputes and 30 percent of disputes being batched disputes beginning in calendar year 2024. ******** Based on internal Federal IDR process data, the Departments estimate that certified IDR entities collect a certified IDR entity fee for approximately 135,000 disputes annually. 131 Therefore, for the purposes of this analysis, the Departments estimate that certified IDR entities will collect certified IDR entity fees for approximately 94,500 single disputes and 40,500 batched disputes annually (135,000 x 0.70 and 135,000 x 0.30, respectively). The Departments acknowledge that each party must pay a certified IDR entity fee to the certified IDR entity no later than the time that party submits its offer. However, because the non-prevailing party is ultimately responsible for the full certified IDR entity fee, which is retained by the certified IDR entity for the IDR services it performed, it is the Departments' position that providing a per-dispute calculation reasonably captures the overall cost of the dispute with respect to the certified IDR entity fee without implicating false precision on the amount of certified IDR entity fee costs that initiating and non-initiating parties ultimately may incur. ******** 131 While the administrative fee must be paid by the disputing party for any dispute for which a certified IDR entity is selected, the certified IDR entity fee is only assessed for disputes that are determined eligible for the Federal IDR process. ******** To develop a reasonable estimate for the certified IDR entity fee amount for both single and batched disputes, the Departments assume that the certified IDR entities will set single determination fixed fees that approximate the median value of the finalized fee range and will set batched determination fixed fees that approximate the 3rd quartile of the finalized fee range. 132 Therefore, for the purposes of this analysis, the Departments estimate that the typical single determination fixed fee (range $200-$840) will be approximately $520, and that the typical batched determination fixed fee (range $268-$1,173) will be approximately $947. At an estimated cost of $520 per single determination for approximately 94,500 single determinations annually, the Departments estimate that single determinations will cost disputing parties approximately $49,140,000 annually ($520 x 94,500). At an estimated cost of $947 per batched determination for approximately 40,500 batched determinations annually, the Departments estimate that batched determinations will cost disputing parties approximately $38,353,500 annually ($947 x 40,500). ******** 132 The Departments anticipate that, due to the uncertainty around batching practices as a result of the TMA IV opinion and order, certified IDR entities will likely choose to increase their batched determination fee. Therefore, using the 75 th percentile of the proposed fee range to calculate the cost of batched determinations provides a reasonable approximation of the expected increase. ******** Further, the Departments estimate that using the finalized tiered fee range for batched determinations, certified IDR entities will set and apply a fixed fee that approximates the average of the proposed range ($75-$250) for batched determinations based on the number of line items. The Departments estimate that certified IDR entities will typically set their tiered fee at approximately $163. The Departments acknowledge the uncertainty surrounding the number of line items that may be submitted in batched disputes due to the TMA IV opinion and order. However, to produce an estimate, and for the purposes of this analysis, the Departments estimate that of the total estimated 40,500 batched disputes, approximately 4,455 batched determinations will potentially be subject to at least 2 applications of the tiered fee ($163 x 2 = $326). 133 The Departments therefore estimate that this subset of approximately 4,455 batched determinations exceeding 25 line items will cost disputing parties approximately $1,452,330 annually ($326 x 4,455). In total, assuming the number of disputes remains stable year over year, the Departments estimate the parties will pay approximately $89 million in certified IDR entity fees annually in accordance with the finalized policies ($49,140,000 for single determinations + $38,353,500 for batched determinations + $1,452,330 for the subset of batched determinations subject to the tiered fee). ******** 133 Based on internal data the Departments estimate that approximately 11 percent of batched disputes submitted prior to the establishment of the batching criteria released in August 2022 exceeded 25 line items. For this reason, we project that a similar number of batched disputes with number of line items exceeding 25 line items will be submitted due to TMA IV. ******** The calendar year 2023 certified IDR entity fee ranges for single determinations and batched determinations are $200-$700 and $268-$938, respectively. Certified IDR entities currently charge a median fixed fee of $549 for single determinations and $770 for batched determinations in 2023. Therefore, for approximately 108,000 single determinations and 24,840 batched determinations (not subject to the batched percentage fee amount) annually, 134 if current certified IDR entity fixed fees remained applicable, the Departments estimate that the parties would pay approximately $59,292,000 for single determinations ($549 x 108,000) and $19,126,800 for batched determinations ($770 x 24,840). Current guidance permits certified IDR entities to charge a batching percentage on batched determinations based on the number of line items. 135 For the purposes of this analysis, the Departments assume that a subset of approximately 8 percent of batched determinations, or 2,160 determinations, potentially subject to the batched percentages would receive at least a 120 percent increase from the median batched determination fixed fee ($770 x 1.20 = $924). As such, the Departments estimate that the parties would pay approximately $1,995,840 for this subset of batched determinations potentially subject to a batching percentage (2,160 x $924), resulting in a total cost of approximately $80 million under the current calendar year 2023 certified IDR entity fee structure ($59,292,000 for single determinations + $19,126,800 for batched determinations + $1,995,840 for the subset of batched determinations subject to the tiered fee). Therefore, taking into account the current costs to the parties associated with the current certified IDR entity fee structure, the total cost to the parties associated with this policy is approximately $9 million ($89 million as finalized minus $80 million if the status quo fee ranges were to continue). ******** 134 The Departments estimate that 80 percent of disputes are single disputes and 20 percent are batched disputes (135,000 x 0.80 and 135,000 x 0.20, respectively). For the purposes of this analysis, the Departments estimate that a subset of approximately 8 percent, or 2,160 batched disputes would be subject to a batching percentage (27,000 x 0.08). 135 Without the need to seek further approval, to account for the differential in the workload of batched determinations, a certified IDR entity may charge the following percentages of its approved certified IDR entity batched determination fee ("batching percentage") for batched determinations, which are based on the number of line items initially submitted in the batch: - 2-20 line items: 100 percent of the approved batched determination fee; - 21-50 line items: 110 percent of the approved batched determination fee; - 51-80 line items: 120 percent of the approved batched determination fee; and - 81 line items or more: 130 percent of the approved batched determination fee. See Centers for Medicare & Medicaid Services (October 31, 2022). Calendar Year 2023 Fee Guidance for the Federal Independent Dispute Resolution Process under the No Surprises Act. https://www.cms.gov/cciio/resources/regulations-and-guidance/downloads/cy2023-fee-guidance-federal-independent-dispute-resolution-process-nsa.pdf. ******** The Departments sought comment on these costs and assumptions. The Departments did not receive comments on these costs or assumptions and are finalizing them as proposed. 3. Uncertainties It is unclear whether the Federal IDR process will experience the same operating conditions when these rules are effective compared to the current state, such as the number of disputes initiated, future policy changes finalized after future notice and comment rulemaking, or increased or decreased costs by the Departments to carry out the Federal IDR process. Due to the need to take point-in-time estimates of volume and expenditures for the purposes of developing the analyses in the preamble to these rules, there is inherent uncertainty in the estimates in these analyses as the data are constantly changing. It is difficult to project the impact on the administrative fee amount charged to the parties if the Federal IDR process landscape changes. Although the Departments have analyzed the Federal IDR process data available to inform their projections, it is uncertain whether the trends in these data will remain applicable in the future. At the same time, the Departments do not know what impact the changes to the Federal IDR process as a result of the District Court's opinions and orders in TMA IV and TMA III will have on the number of disputes initiated and the time it will take certified IDR entities to close those disputes. The Departments continue to monitor trends in the Federal IDR process and will make any necessary changes through future notice and comment rulemaking. 4. Regulatory Review Cost Estimation If regulations impose administrative costs on entities, such as the time needed to read and interpret rules, regulatory agencies should estimate the total cost associated with regulatory review. Based on comments received for the July 2021 interim final rules and October 2021 interim final rules, the Departments estimate that more than 2,100 entities will review these final rules, including 1,500 issuers, 205 third party administrators (TPAs), and at least 395 other interested parties (for example, State insurance departments, State legislatures, industry associations, advocacy organizations, and providers and provider organizations). The Departments acknowledge that this assumption may understate or overstate the number of entities that will review these final rules. Using the median hourly wage rate from the Bureau of Labor Statistics for a Lawyer (Code 23-1011) to account for average labor costs (including a 100 percent increase for the cost of fringe benefits and other indirect costs), the Departments estimate that the cost of reviewing these final rules will be $130.52 per hour. 136 The Departments estimate, based on an estimated rule length of approximately 35,000 words and an average reading speed of 200 to 250 words per minute, that it will take each reviewing entity approximately 2.33 hours to review these final rules, with an associated cost of approximately $304.11 (2.33 hours x $130.52 per hour). Therefore, the Departments estimate that the total burden to review these final rules will be approximately 4,893 hours (2,100 reviewers x 2.33 hours per reviewer), with an associated cost of approximately $638,631 (2,100 reviewers x $304.11 per reviewer). ******** 136 U.S. Bureau of Labor Statistics (May 1, 2022). May 2022 National Occupational Employment and Wage Estimates. https://www.bls.gov/oes/current/oes_nat.htm. ******** The Departments sought comments in the IDR Fees proposed rules on this approach to estimating the total burden and cost for interested parties to read and interpret the IDR Fees proposed rules, which is the same approach used to estimate the total burden and cost for interested parties to read and interpret these final rules. The Departments did not receive comments on this approach and cost. The Departments are finalizing these estimates as proposed. E. Regulatory Alternatives - Departments of Health and Human Services and Labor In developing these final rules, the Departments considered various alternative approaches. 1. Administrative Fee Amount and Methodology (26 CFR 54.9816-8(d)(2), 29 CFR 2590.716-8(d)(2), and 45 CFR 149.510(d)(2)) In its TMA IV opinion and order, the District Court indicated that notice and comment rulemaking is necessary to set the administrative fee, and the Departments are of the view that alternative approaches would lead to unnecessary uncertainty. In addition, providing a description of the methodology used to calculate the fee amount and proposing the administrative fee amount in the IDR Fees proposed rules would increase transparency for the parties and provide interested parties the opportunity to be included in the fee setting process. The Departments considered that guidance has historically been used to set the administrative fee amount based on concerns that the requirement to collect fees sufficient to fund the Federal IDR process. The lead time required to set the fee amount in notice and comment rulemaking could constrain the Departments' responsiveness to program needs and artificially inflate the administrative fee amount due to the need to ensure adequate funding of the process. However, in light of TMA IV, the increased transparency and opportunity for interested parties to provide feedback on the administrative fee methodology and amount outweighed the potential concern that the administrative fee might be artificially inflated by the need to make conservative estimates to set the administrative fee amount further in advance through notice and comment rulemaking. The Departments considered proposing other administrative fee policies in the IDR Fees proposed rules, such as those proposed in the IDR Operations proposed rules. 137 However, as discussed in section II.A of this preamble, the Departments were unable to propose those policies in the IDR Fees proposed rules because they are much more comprehensive than the fee-related policies proposed in the IDR Fees proposed rules and would require more time to develop and implement if finalized. There is an urgency to publish these final rules to be effective as close to January 1, 2024 as possible due to the need to sufficiently fund the Federal IDR process in 2024. As discussed in sections I.E and II.A of these final rules, the current $50 administrative amount is insufficient to satisfy the statutory requirement that the total amount of fees paid for a year be estimated to be equal to the amount of expenditures estimated to be made by the Departments for the year in carrying out the Federal IDR process. Therefore, the Departments deferred those substantial changes to the Federal IDR process and administrative fee structure and collection procedures to the IDR Operations proposed rules, which are aimed at improving Federal IDR process operations and making the process more accessible. ******** 137 88 FR 75744. ******** 2. Certified IDR Entity Fee Ranges (26 CFR 54.9816-8(e)(2), 29 CFR 2590.716-8(e)(2), and 45 CFR 149.510(e)(2)) The Departments considered maintaining the current policy that the allowable ranges for certified IDR entity fees would be set in guidance yearly instead of through notice and comment rulemaking. The Departments considered whether continuing to set the certified IDR entity fee ranges in guidance would preserve necessary flexibility for the certified IDR entities to choose their fixed fees within the allowable ranges and submit those fees for approval to the Departments, and would allow the Departments time to review and approve each certified IDR entity's fees and publish them in advance of the year to which the fees apply. The Departments concluded that publishing the fee ranges in guidance could be a more expedient process compared to rulemaking because of the lack of required comment period; however, establishing the fee ranges through notice and comment rulemaking would not prevent the Departments from reviewing and approving each certified IDR entity's fixed fee amounts in a timely manner. The Departments are of the view that there would be no impact to the ability of the certified IDR entities to select their fees from the established ranges if those ranges were published through notice and comment rulemaking. Further, setting the certified IDR entity fee ranges through guidance does not allow interested parties to engage through the submission of public comments, while the notice and comment rulemaking process increases transparency and will afford an opportunity for the Departments to consider feedback from interested parties on the appropriateness of proposed fee ranges. F. Paperwork Reduction Act These final rules are not subject to the requirements of the Paperwork Reduction Act of 1995, 138 because the Departments anticipate that fewer than 10 certified IDR entities will submit requests to update their certified IDR entity fees an additional time during the calendar year based on current experience operating the Federal IDR process, and they do not contain any other collection of information as defined in 44 U.S.C. 3502(3). Therefore, clearance by OMB under the Paperwork Reduction Act of 1995 is not required. ******** 138 44 U.S.C. 3501 et seq. ******** G. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) (5 U.S.C. 601, et seq.) requires agencies to analyze options for regulatory relief of small entities and to prepare a final regulatory flexibility analysis to describe the impact of these final rules on small entities, unless the head of the agency can certify that the rule would not have a significant economic impact on a substantial number of small entities. The RFA generally defines a "small entity" as (1) a proprietary firm meeting the size standards of the Small Business Administration (SBA), (2) a not-for-profit organization that is not dominant in its field, or (3) a small government jurisdiction with a population of less than 50,000. States and individuals are not included in the definition of "small entity." The Departments use a change in revenues of more than 3 to 5 percent as their measure of significant economic impact on a substantial number of small entities. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small governmental jurisdictions. The Secretaries of Labor, the Treasury, and Health and Human Services certify that these final rules will not have a significant economic impact on a substantial number of small entities, as presented in the analysis in the following subsections of this preamble. 1. Small Entities Regulated The provisions in these final rules will affect plans (or their TPAs), 139 health insurance issuers offering group or individual health insurance coverage, and providers, facilities, and providers of air ambulance services. ******** 139 The Departments expect that most self-insured group health plans will work with a TPA to meet the requirements. ******** For purposes of analysis under the RFA, 140 the Departments consider an employee benefit plan with fewer than 100 participants to be a small entity. 141 The basis of this definition is found in section 104(a)(2) of ERISA, 142 which permits the Secretary of Labor to prescribe simplified annual reports for plans that cover fewer than 100 participants. Under section 104(a)(3), 143 the Secretary may also provide for exemptions or simplified annual reporting and disclosure for welfare benefit plans. Under the authority of section 104(a)(3), 144 the Department of Labor has previously issued simplified reporting provisions and limited exemptions from reporting and disclosure requirements for small plans, including unfunded or insured welfare plans, which cover fewer than 100 participants and satisfy certain requirements. 145 While some large employers have small plans, small plans are generally maintained by small employers. Thus, the Departments are of the view that assessing the impact of these final rules on small plans is an appropriate substitute for evaluating the effect on small entities. The definition of a small entity considered appropriate for this purpose differs, however, from a definition of a small business based on size standards issued by the SBA 146 in accordance with the Small Business Act. 147 ******** 140 5 U.S.C. 601, et seq. 141 The Department of Labor consulted with the Small Business Administration Office of Advocacy in making this determination, as required by 5 U.S.C. 603(c) and 13 CFR 121.903(c) in a memo dated June 4, 2020. 142 29 U.S.C. 1024(a)(2). 143 29 U.S.C. 1024(a)(3). 144 Id. 145 29 CFR 2520.104-20, 2520.104-21, 2520.104-41, 2520.104-46, and 2520.104b-10. 146 13 CFR 121.201 (2011). 147 15 U.S.C. 631 et seq. (2011). ******** In 2021, there were 1,500 issuers in the U.S. health insurance market 148 and 205 TPAs. 149 Health insurance issuers are generally classified under the North American Industry Classification System (NAICS) code 524114 (Direct Health and Medical Insurance Carriers). According to SBA size standards, 150 entities with average annual receipts of $47 million or less are considered small entities for this NAICS code. The Departments expect that few, if any, insurance companies underwriting health insurance policies fall below these size thresholds. Based on data from Medical Loss Ratio (MLR) annual report submissions for the 2021 MLR reporting year, approximately 87 out of 483 issuers of health insurance coverage nationwide had total premium revenue of $47 million or less. 151 However, it should be noted that also based on MLR data, over 77 percent of these small companies belong to larger holding groups, and many, if not all, of these small companies, are likely to have non-health lines of business that would result in their revenues exceeding $47 million. The Departments are of the view that the same assumptions also apply to TPAs that would be affected by these proposed rules. 152 To produce a conservative estimate, for the purposes of this analysis, the Departments assume 4.1 percent, or 62 issuers and 8 TPAs, of the total of 1,500 health insurance issuers and 205 TPAs across the country, are considered small entities. 153 ******** 148 Centers for Medicare & Medicaid Services (2022). Medical Loss Ratio Data and System Resources. https://www.cms.gov/CCIIO/Resources/Data-Resources/mlr. 149 Non-issuer TPAs based on data derived from the 2016 benefit year reinsurance program contributions. 150 United States Small Business Administration (March 17, 2023). Table of Size Standards. https://www.sba.gov/document/support--table-size-standards. 151 Centers for Medicare & Medicaid Services (2022). Medical Loss Ratio Data and System Resources. https://www.cms.gov/CCIIO/Resources/Data-Resources/mlr. 152 The Departments are of the view that most TPAs are also issuers. 153 These numbers are calculated as follows: 77 percent of small companies belong to larger holding groups, so 23 percent do not and would be small entities. 87 issuers x 0.23 = 20. 20 / 483 = 4.1 percent. Applying the 4.1 percent to 1,500 issuers and 205 TPAs total = 62 small issuers and 8 small TPAs. ******** These final rules also affect health care providers and facilities due to the proposed requirements related to the certified IDR entity and administrative fees. The Departments estimate that 140,270 physicians, on average, bill on an out-of-network basis annually. 154 The number of small physician providers is estimated based on the SBA's size standards. The size standard applied for providers is NAICS 62111 (Offices of Physicians), for which a business with less than $16 million in receipts is considered to be small. By this standard, the Departments estimate that 47.2 percent or 66,207 physicians are considered small under the SBA's size standards. 155 The size standard for facilities is NAICS 62211 (General Medical and Surgical Hospitals), for which a business with less than $47 million in receipts is considered to be small. By this standard, the Departments estimate that 43.5 percent or 1,113 facilities are considered small under the SBA's size standards. 156 These final rules are also expected to affect non-physician providers who bill on an out-of-network basis. The Departments lack data on the number of non-physician providers who will be impacted by these final rules. ******** 154 See 86 FR 56051 for more information on this estimate. 155 Based on data from the NAICS Association for NAICS code 62111, the Departments estimate the percent of businesses within the industry of Offices of Physicians with less than $16 million in annual sales. United States Census Bureau (May 2021). 2017 SUSB Annual Data Tables by Establishment Industry. https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html. 156 Based on data from the NAICS Association for NAICS code 62211, the Departments estimate the percent of businesses within the industry of General Medical and Surgical Hospitals with less than $47 million in annual sales. United States Census Bureau (May 2021). 2017 SUSB Annual Data Tables by Establishment Industry. https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html. ******** The Departments do not have the same level of data for the air ambulance subsector. In 2020, the total revenue of providers of air ambulance services was estimated to be $4.2 billion, with 1,114 air ambulance bases. 157 This results in an industry average of $3.8 million per air ambulance base. Based on a 2020 USC-Brookings Schaeffer report on air ambulance services, 158 by 2017, large private equity firms controlled roughly two-thirds of the air ambulance market. ******** 157 ASPE Office of Health Policy (September 10, 2021). Air Ambulance Use and Surprise Billing. https://aspe.hhs.gov/sites/default/files/2021-09/aspe-air-ambulance-ib-09-10-2021.pdf. 158 Adler, L., Hannick, K., and Lee, S. "High Air Ambulance Charges Concentrated in Private Equity-Owned Carriers." USC-Brookings Schaffer Initiative for Health Policy. October 13, 2020. https://www.brookings.edu/articles/high-air-ambulance-charges-concentrated-in-private-equity-owned-carriers/. ******** Although based on the Departments' experience operating the Federal IDR process, significantly fewer than 67,320 small providers and facilities have accessed the process to date, 159 the Departments lack adequate data to better inform the number of small providers impacted by these final rules. Therefore, although the estimate of 67,320 small providers and facilities is likely a significant overestimate of the number of small providers and facilities impacted by these final rules, the Departments use this number of small providers and facilities in this analysis to be conservative. 160 ******** 159 See U.S. Department of Health and Human Services, U.S. Department of Labor, and U.S. Department of the Treasury, Partial Report on the Federal Independent Dispute Resolution (IDR) Process, October 1 - December 31, 2022. (n.d.). https://www.cms.gov/files/document/partial-report-idr-process-octoberdecember-2022.pdf. 160 Based on the Departments' experience operating the Federal IDR process, the estimate of 67,320 small providers and facilities is likely a significant overestimate, and therefore the Departments assume that this estimate accounts for any non-physician providers who may be impacted by these rules for whom the Departments lack data to estimate. ******** Additionally, as discussed in the Partial Report on the Federal Independent Dispute Resolution (IDR) Process, October 1 - December 31, 2022, the top 10 initiating parties (or entities acting on behalf of initiating parties) are large companies that initiate approximately 85 percent of disputes, and the top 10 non-initiating parties are large companies that are initiated against in approximately 95 percent of disputes. 161 Therefore, for purposes of this analysis, the Departments assume that only 15 percent of all disputes involve small providers. The 5 percent of all disputes that do not involve the top 10 non-initiating parties could involve any of the 1,695 issuers and TPAs that are not the top 10 non-initiating parties (1,500 issuers and 205 TPAs total - 10 top non-initiating parties = 1,695 remaining issuers and TPAs). The Departments assume that the proportion of small issuers and TPAs to non-top 10 issuers and TPAs is the same as the proportion of disputes involving small issuers and TPAs to disputes involving non-top 10 issuers and TPAs, as the volume of disputes issuers and TPAs are involved in should be proportional to the size of their enrollment. Taking into consideration these estimates of the small entities, the policies in these rules that result in an increased burden to small entities are described below. ******** 161 Top initiating parties represent hundreds of individual providers across multiple states. Top non-initiating parties operate across multiple states and market segments. See U.S. Department of Health and Human Services, U.S. Department of Labor, and U.S. Department of the Treasury, Partial Report on the Federal Independent Dispute Resolution (IDR) Process, October 1 - December 31, 2022. (n.d.). https://www.cms.gov/files/document/partial-report-idr-process-octoberdecember-2022.pdf. ******** 2. Compliance Costs The Departments are finalizing the policy to establish the administrative fee amount in notice and comment rulemaking and are finalizing that the administrative fee amount for disputes initiated on or after the effective date of these rules is $115 per party per dispute. The annual burden per small provider or facility associated with this policy is $115, 162 and the annual burden per small issuer/TPA is $805. 163 For more details, please refer to the Regulatory Impact Analysis in these final rules. ******** 162 492,000 administrative fees paid / 2 types of parties = 246,000 administrative fees paid by providers. 246,000 administrative fees paid by providers - 85 percent (209,100) administrative fees paid for disputes initiated by the top 10 initiating parties = 36,900 administrative fees paid for disputes initiated by other initiating parties. 36,900 disputes / 67,320 small providers and facilities = approximately 0.5 disputes initiated per small provider or facility annually. For simplicity and to be conservative, the Departments assume 1 dispute per provider or facility. 1 dispute x $115 per dispute = $115 per small provider or facility. 163 492,000 administrative fees paid / 2 types of parties = 246,000 administrative fees paid by issuers/TPAs. 246,000 administrative fees paid by issuers/TPAs - 95 percent (233,700) administrative fees paid for disputes initiated against the top 10 non-initiating parties = 12,300 administrative fees paid for disputes initiated against other non-initiating parties. 12,300 disputes / 1,695 issuers/TPAs = approximately 7 disputes per small issuer/TPA annually. 7 disputes x $115 per dispute = $805. ******** The Departments are finalizing the policy to establish the certified IDR entity fee ranges in notice and comment rulemaking and are finalizing that the ranges are $200-$840 for single determinations and $268-$1,173 for batched determinations, with a $75-$250 tiered fee range for disputes that contain more than 25 line items. The annual burden per small provider or facility associated with this policy is $657, 164 and the annual burden per small issuer/TPA is $1,971. 165 For more details, please refer to the Regulatory Impact Analysis in these final rules. ******** 164 Data from the first full year of Federal IDR process operations show that initiating parties prevail in approximately 70 percent of disputes. See Centers for Medicare & Medicaid Services (April 27, 2023). Federal Independent Dispute Resolution Process - Status Update. Therefore, as the prevailing party's certified IDR entity fee is refunded per 26 CFR 54.9816-8T(d)(1)(ii), 29 CFR 2590.716-8(d)(1)(ii), and 45 CFR 149.510(d)(1)(ii), initiating parties only pay the certified IDR entity fee for 30 percent of disputes, while non-initiating parties pay for the other 70 percent. https://www.cms.gov/files/document/federal-idr-processstatus-update-april-2023.pdf. The Departments estimate based on internal data that certified IDR entity fees are paid for approximately 135,000 disputes annually. Of those 135,000 disputes, the Departments estimate that 30 percent (or 40,500) have their certified IDR entity fees paid by providers/facilities, and 70 percent (or 94,500) have their certified IDR entity fees paid by issuers/TPAs. Of the 40,500 disputes for which the certified IDR entity fee is paid by providers or facilities, 85 percent (or 34,425) are paid by the top 10 initiating parties. The remaining 15 percent (or 6,075) are paid by other initiating parties. 6,075 disputes / 67,320 small providers and facilities = less than 1 certified IDR entity fee paid per small provider or facility. For simplicity and to be conservative, the Departments assume 1 certified IDR entity fee paid per small provider or facility. The average certified IDR entity fee across both single and batched disputes, including the tiered batched fee, in 2024 is $657 as calculated in accordance with these final rules. 165 Of the 94,500 disputes that have their certified IDR entity fees paid by issuers, 95 percent (or 89,775) are paid by the top 10 non-initiating parties. The remaining 5 percent (or 4,725) are paid by other non-initiating parties. 4,725 disputes / 1,695 issuers/TPAs = approximately 3 certified IDR entity fees paid per small issuer/TPA. The average certified IDR entity fee across both single and batched disputes, including the tiered batched fee, in 2024 is $657 as calculated in accordance with these final rules. 3 disputes x $657 per dispute = $1,971 per small issuer/TPA. ******** Thus, the per-entity annual cost for small providers and facilities is $772, and the per-entity annual cost for small issuers and TPAs is $2,776. The total estimated annual cost for small providers and facilities is $51,971,040, and the total estimated annual cost for small issuers and TPA is $194,320. See Tables 2 and 3. TABLE 2: Detailed Annual Costs for Small Entities TABLE 3: Aggregate Annual Costs for Small Entities 3. Analysis and Certification Statement The annual cost per small provider or facility of $772 is approximately 0.07 percent of the average annual receipts per small provider and approximately 0.04 percent of the average annual receipts per small facility. The Departments anticipate that small providers and facilities would be unlikely to initiate disputes and thereby incur these costs unless they anticipate prevailing in the dispute and receiving payment from plans or issuers that exceed the costs incurred to initiate the dispute. Additionally, data from the public reports on the Federal IDR process released to date by the Departments show that providers and facilities prevail in approximately 70 percent of disputes. 166 Therefore, small providers and facilities are likely to experience an increase in receipts commensurate or larger than the increase in costs. ******** 166 See U.S. Department of Health and Human Services, U.S. Department of Labor, and U.S. Department of the Treasury, Partial Report on the Federal Independent Dispute Resolution (IDR) Process, October 1 - December 31, 2022. (n.d.). https://www.cms.gov/files/document/partial-report-idr-process-octoberdecember-2022.pdf. ******** The annual cost per small issuer/TPA of $2,776 is approximately 0.15 percent of the average annual receipts per small issuer/TPA. While small issuers/TPAs could pass on these increased costs to consumers in the form of higher premiums (or for TPAs, higher administration fees), resulting in an increase in receipts commensurate with the increase in costs, the actual increase in costs and subsequent impact on revenue would be de minimis as the annual cost per small issuer/TPA is so small. Additionally, the Departments anticipate that by batching qualified IDR items and services, there may be a reduction in the per-service cost of the Federal IDR process to providers of certain services and specialties, and potentially the aggregate administrative costs, because the Federal IDR process is likely to exhibit at least some economies of scale. 167 ******** 167 Fielder, M., Adler, L., Ippolito, B. (March 16, 2021). Recommendations for Implementing the No Surprises Act. U.S.C.-Brookings Schaeffer on Health Policy. https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/ 2021/ 03/ 16/ recommendations-for-implementing-the-no-surprises-act/. ******** As its measure of significant economic impact on a substantial number of small entities, HHS uses a change in revenue of more than 3 to 5 percent. The Departments are of the view that this threshold will not be reached by the requirements in these final rules, given that the annual per-entity cost of $2,776 per small issuer/TPA represents 0.15 percent of the average annual receipts for a small issuer/TPA and the annual per-entity cost of $772 per small provider/facility represents 0.07 percent and 0.04 percent of the average annual receipts for a small provider or facility, respectively. 168 Therefore, the Secretaries of Labor, the Treasury, and Health and Human Services hereby certify that these final rules will not have a significant economic impact on a substantial number of small entities. ******** 168 United States Census Bureau (March 2020). 2017 SUSB Annual Data Tables by Establishment Industry, Data by Enterprise Receipt Size. https://www.census.gov/data/tables/2020/econ/susb/2020-susb-annual.html. ******** The Departments sought comment on this analysis and sought information on the number of small plans (or TPAs), issuers, providers, and facilities that may be affected by the provisions in the IDR Fees proposed rules. The Departments did not receive comments on this analysis. The Departments received comments on the impact of the provisions in the IDR Fees proposed rules on small providers and respond to those comments in section II of this preamble. In addition, section 1102(b) of the Social Security Act requires the Departments to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 603 of the RFA. 169 For purposes of section 1102(b) of the Act, the Departments define a small rural hospital as a hospital that is located outside of a metropolitan statistical area and has fewer than 100 beds. These final rules are not subject to section 1102 of the Act because the IDR Fees proposed rules were not proposed under title XVIII, title XIX, or part B of title XI of the Act, and therefore section 1102(b) of the Act does not apply. ******** 169 5 U.S.C. 603. ******** H. Special Analyses - Department of the Treasury Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required. Pursuant to section 7805(f) of the Code, 170 these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business. ******** 170 26 U.S.C. 7805(f). ******** I. Unfunded Mandates Reform Act Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 171 requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a proposed rule or any final rule for which a general notice of proposed rulemaking was published that includes any Federal mandate that may result in expenditures in any 1 year by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. That threshold is approximately $177 million in 2023. As discussed earlier in the RIA, plans, issuers, TPAs, and providers, facilities, and providers of air ambulance services will incur costs to comply with the provisions of these final rules. The Departments estimate the combined impact on State, local, or tribal governments and the private sector will not be above the threshold. ******** 171 2 U.S.C. 1511. ******** J. Federalism Executive Order 13132 outlines the fundamental principles of federalism. It requires adherence to specific criteria by Federal agencies in formulating and implementing policies that have "substantial direct effects" on the States, the relationship between the National Government and States, or on the distribution of power and responsibilities among the various levels of government. Federal agencies issuing regulations that have these federalism implications must consult with State and local officials and describe the extent of their consultation and the nature of the concerns of State and local officials in the preamble to the IDR Fees proposed rules. The Departments do not anticipate that these final rules will have federalism implications or limit the policy-making discretion of the States in compliance with the requirement of Executive Order 13132. State and local government health plans may be subject to the Federal IDR process where a specified State law or All-Payer Model Agreement does not apply. The No Surprises Act authorizes States to enforce the new requirements, including those related to balance billing, for issuers, providers, facilities, and providers of air ambulance services, with HHS enforcing only in cases where the State has notified HHS that the State does not have the authority to enforce or is otherwise not enforcing, or HHS has made a determination that a State has failed to substantially enforce the requirements. However, in the Departments' view, the federalism implications of these final rules are substantially mitigated because some States have their own process for determining the total amount payable under a plan or coverage for out-of-network emergency services and to out-of-network providers for patient visits to in-network facilities for non-emergency services. Where a State has a specified State law, the State law, rather than the Federal IDR process, will apply. In compliance with the requirement of Executive Order 13132 that agencies examine closely any policies that may have federalism implications or limit the policy making discretion of the States, the Departments have engaged in efforts to consult with and work cooperatively with affected States, including participating in conference calls with and attending conferences of the National Association of Insurance Commissioners and consulting with State insurance officials on an individual basis. While developing these rules, the Departments attempted to balance the States' interests in regulating health insurance issuers with the need to ensure market stability. By doing so, the Departments complied with the requirements of Executive Order 13132. In accordance with Federal law, a summary of these rules may be found at https://www.regulations.gov/. List of Subjects 26 CFR Part 54 Excise taxes, Pensions, Reporting and recordkeeping requirements. 29 CFR Part 2590 Continuation coverage, Disclosure, Employee benefit plans, Group health plans, Health care, Health insurance, Medical child support, Reporting and recordkeeping requirements. 45 CFR Part 149 Balance billing, Health care, Health insurance, Reporting, and recordkeeping requirements, Surprise billing. Douglas W. O'Donnell, Deputy Commissioner for Services and Enforcement, Internal Revenue Service. Lily L. Batchelder, Assistant Secretary of the Treasury (Tax Policy), Department of the Treasury. Lisa M. Gomez Assistant Secretary, Employee Benefits Security Administration, Department of Labor. Xavier Becerra, Secretary, Department of Health and Human Services. DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 54 For the reasons stated in the preamble, the Department of the Treasury and the IRS amend 26 CFR part 54 as set forth below: PART 54 -- PENSION EXCISE TAXES 1. The authority citation for part 54 is amended by adding an entry for§ 54.9816-8 in numerical order to read in part as follows: Authority: 26 U.S.C. 7805 * * * Section 54.9816-8 also issued under 26 U.S.C. 9816. 2. Section 54.9816-8 is amended by revising paragraphs (a), (b), (c) introductory text, (d), and (e) and adding headings for paragraphs (f) and (g) to read as follows:§ 54.9816-8 Independent dispute resolution process. (a) Scope and definitions. For further guidance, see§ 54.9816-8T(a). (b) Determination of payment amount through open negotiation and initiation of the Federal IDR process. For further guidance, see§ 54.9816-8T(b). (c) Federal IDR process following initiation. For further guidance, see§ 54.9816-8T(c) introductory text through (c)(3). (d) Costs of IDR process --(1) Certified IDR entity fee. For further guidance, see§ 54.9816-8T(d)(1). (2) Administrative fee. (i) For further guidance, see§ 54.9816-8T(d)(2)(i). (ii) The administrative fee amount will be established through notice and comment rulemaking no more frequently than once per calendar year in a manner such that the total administrative fees paid for a year are estimated to be equal to the amount of expenditures estimated to be made by the Secretaries of the Treasury, Labor, and Health and Human Services for the year in carrying out the Federal IDR process. The administrative fee amount will remain in effect until changed by notice and comment rulemaking. For disputes initiated on or after [INSERT DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER ], the administrative fee amount is $115 per party per dispute. (3) Severability. (i) Any provision of this paragraph (d) or paragraphs (e)(2)(vii) and (viii) of this section held to be invalid or unenforceable as applied to any person or circumstance shall be construed so as to continue to give the maximum effect to the provision permitted by law, including as applied to persons not similarly situated or to dissimilar circumstances, unless such holding is that the provision of this paragraph (d) or paragraphs (e)(2)(vii) and (viii) is invalid and unenforceable in all circumstances, in which event the provision shall be severable from the remainder of this paragraph (d) or paragraphs (e)(2)(vii) and (viii) and shall not affect the remainder thereof. (ii) The provisions in this paragraph (d) and paragraphs (e)(2)(vii) and (viii) of this section are intended to be severable from each other. (e) Certification of IDR entity --(1) In general. For further guidance see§ 54.9816-8T(e)(1). (2) Requirement s. (i) For further guidance, see§ 54.8616-8T(e)(2)(i) through (vi). (ii) through (vi) [Reserved] (vii) Provide, no more frequently than once per calendar year, a fixed fee for single determinations and a separate fixed fee for batched determinations, as well as additional fixed tiered fees for batched determinations, if applicable, within the upper and lower limits for each, as established by the Secretary in notice and comment rulemaking. The certified IDR entity fee ranges established by the Secretary in rulemaking will remain in effect until changed by notice and comment rulemaking. The certified IDR entity may not charge a fee outside the limits set forth in rulemaking unless the certified IDR entity or IDR entity seeking certification receives advance written approval from the Secretary to charge a fixed fee beyond the upper or lower limits by following the process described in paragraph (e)(2)(vii)(A) of this section. A certified IDR entity may also seek advance written approval from the Secretary to update its fees one additional time per calendar year by meeting the requirements described in paragraph (e)(2)(vii)(A). The Secretary will approve a request to charge a fixed fee beyond the upper or lower limits for fees as set forth in rulemaking or to update the fixed fee during the calendar year if, in their discretion, they determine the information submitted by a certified IDR entity or IDR entity seeking certification demonstrates that the proposed change to the certified IDR entity fee would ensure the financial viability of the certified IDR entity or IDR entity seeking certification and would not impose on parties an undue barrier to accessing the Federal IDR process. (A) In order for the certified IDR entity or IDR entity seeking certification to receive the Secretary's written approval to charge a fixed fee beyond the upper or lower limits for fees as set forth in rulemaking or to update the fixed fee during the calendar year, the certified IDR entity or IDR entity seeking certification must submit to the Secretary, in the form and manner specified by the Secretary: ( 1 ) The fixed fee the certified IDR entity or IDR entity seeking certification believes is appropriate for the certified IDR entity or IDR entity seeking certification to charge; ( 2 ) A description of the circumstances that require the alternative fixed fee, or that require a change to the fixed fee during the calendar year, as applicable; and ( 3 ) A detailed description that reasonably explains how the alternative fixed fee or the change to the fixed fee during the calendar year, as applicable, will be used to mitigate the effects of those circumstances. (B) [Reserved] (viii) For disputes initiated on or after [INSERT DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER ], certified IDR entities are permitted to charge a fixed certified IDR entity fee for single determinations within the range of $200 to $840, and a fixed certified IDR entity fee for batched determinations within the range of $268 to $1,173, unless a fee outside such ranges is approved by the Secretary, pursuant to paragraph (e)(2)(vii)(A) of this section. As part of the batched determination fee, certified IDR entities are permitted to charge an additional fixed tiered fee within the range of $75 to $250 for every additional 25 line items within a batched dispute, beginning with the 26th line item. The ranges for the certified IDR entity fees for single and batched determinations will remain in effect until changed by notice and comment rulemaking. (ix) For further guidance, see§ 54.9816-8T(e)(2)(ix) through (xii). (x) through (xii) [Reserved] (f) Reporting of information relating to the Federal IDR process. * * * * * * * * (g) Extension of time periods for extenuating circumstances. * * * * * * * * 3. Section 54.9816-8T is amended by: a. Revising paragraph (d)(2)(ii); b. Adding paragraph (d)(3); c. Removing the semicolon at the end of paragraphs (e)(2)(iii) and (vi) and adding a period in its place; d. Revising paragraph (e)(2)(vii); e. Redesignating paragraphs (e)(2)(viii) through (xi) as paragraphs (e)(2)(ix) through (xii); f. Adding new paragraph (e)(2)(viii); g. Removing the semicolon at the end of newly redesignated paragraphs (e)(2)(ix) and (x) and adding a period in its place; and h. Removing "; and" at the end of newly redesignated paragraph (e)(2)(xii) and adding a period in its place. The revisions and additions read as follows:§ 54.9816-8T Independent dispute resolution process (temporary). * * * * * (d) * * * (2) * * * (ii) For further guidance, see§ 54.9816-8(d)(2)(ii). (3) Severability. For further guidance, see§ 54.9816-8(d)(3). (e) * * * (2) * * * (vii) For further guidance, see§ 54.9816-8(e)(2)(vii). (viii) For further guidance, see§ 54.9816-8(e)(2)(viii). * * * * * DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Chapter XXV For the reasons stated in the preamble, the Department of Labor amends 29 CFR part 2590 as set forth below: PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS 4. The authority citation for part 2590 continues to read as follows: Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-1183, 1181 note, 1185, 1185a-n, 1191, 1191a, 1191b, and 1191c; sec. 101(g), Pub. L. 104-191, 110 Stat. 1936; sec. 401(b), Pub. L. 105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), Pub. L. 110-343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Pub. L. 111-148, 124 Stat. 119, as amended by Pub. L. 111-152, 124 Stat. 1029; Division M, Pub. L. 113-235, 128 Stat. 2130; Pub. L. 116-260 134 Stat. 1182; Secretary of Labor's Order 1-2011, 77 FR 1088 (Jan. 9, 2012). 5. Section 2590.716-8 is amended by: a. Revising paragraph (d)(2)(ii); b. Adding paragraph (d)(3); c. Removing the semicolon at the end of paragraphs (e)(2)(iii) and (vi) and adding a period in its place; d. Revising paragraph (e)(2)(vii); e. Redesignating paragraphs (e)(2)(viii) through (xi) as paragraphs (e)(2)(ix) through (xii); f. Adding new paragraph (e)(2)(viii); g. Removing the semicolon at the end of newly redesignated paragraphs (e)(2)(ix) and (x) and adding a period in its place; and h. Removing "; and" at the end of newly redesignated paragraph (e)(2)(xii) and adding a period in its place. The revisions and additions read as follows:§ 2590.716-8 Independent dispute resolution process. * * * * * (d) * * * (2) * * * (ii) The administrative fee amount will be established through notice and comment rulemaking no more frequently than once per calendar year in a manner such that the total administrative fees paid for a year are estimated to be equal to the amount of expenditures estimated to be made by the Secretaries of the Treasury, Labor, and Health and Human Services for the year in carrying out the Federal IDR process. The administrative fee amount will remain in effect until changed by notice and comment rulemaking. For disputes initiated on or after [INSERT DATE 30 DAYS AFTER THE DATE OF PUBLICATION IN THE FEDERAL REGISTER ], the administrative fee amount is $115 per party per dispute. (3) Severability. (i) Any provision of this paragraph (d) or paragraphs (e)(2)(vii) and (viii) of this section held to be invalid or unenforceable as applied to any person or circumstance shall be construed so as to continue to give the maximum effect to the provision permitted by law, including as applied to persons not similarly situated or to dissimilar circumstances, unless such holding is that the provision of this paragraph (d) or paragraphs (e)(2)(vii) and (viii) is invalid and unenforceable in all circumstances, in which event the provision shall be severable from the remainder of this paragraph (d) or paragraphs (e)(2)(vii) and (viii) and shall not affect the remainder thereof. (ii) The provisions in this paragraph (d) and paragraphs (e)(2)(vii) and (viii) of this section are intended to be severable from each other. (e) * * * (2) * * * (vii) Provide, no more frequently than once per calendar year, a fixed fee for single determinations and a separate fixed fee for batched determinations, as well as an additional fixed tiered fee for batched determinations, if applicable, within the upper and lower limits for each, as established by the Secretary in notice and comment rulemaking. The certified IDR entity fee ranges established by the Secretary in rulemaking will remain in effect until changed by notice and comment rulemaking. The certified IDR entity may not charge a fee outside the limits set forth in rulemaking unless the certified IDR entity or IDR entity seeking certification receives advance written approval from the Secretary to charge a fixed fee beyond the upper or lower limits by following the process described in paragraph (e)(2)(vii)(A) of this section. A certified IDR entity may also seek advance written approval from the Secretary to update its fees one additional time per calendar year by meeting the requirements described in paragraph (e)(2)(vii)(A). The Secretary will approve a request to charge a fixed fee beyond the upper or lower limits for fees as set forth in rulemaking, or to update the fixed fee during the calendar year if, in their discretion, they determine the information submitted by a certified IDR entity or IDR entity seeking certification demonstrates that the proposed change to the certified IDR entity fee would ensure the financial viability of the certified IDR entity or IDR entity seeking certification and would not impose on parties an undue barrier to accessing the Federal IDR process. (A) In order for the certified IDR entity or IDR entity seeking certification to receive the Secretary's written approval to charge a fixed fee beyond the upper or lower limits for fees as set forth in rulemaking or to update the fixed fee during the calendar year, the certified IDR entity or IDR entity seeking certification must submit to the Secretary, in the form and manner specified by the Secretary: ( 1 ) The fixed fee the certified IDR entity or IDR entity seeking certification believes is appropriate for the certified IDR entity or IDR entity seeking certification to charge; ( 2 ) A description of the circumstances that require the alternative fixed fee, or that require a change to the fixed fee during the calendar year, as applicable; and ( 3 ) A detailed description that reasonably explains how the alternative fixed fee or the change to the fixed fee during the calendar year, as applicable, will be used to mitigate the effects of those circumstances. (B) [Reserved] (viii) For disputes initiated on or after [INSERT DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER ], certified IDR entities are permitted to charge a fixed certified IDR entity fee for single determinations within the range of $200 to $840, and a fixed certified IDR entity fee for batched determinations within the range of $268 to $1,173, unless a fee outside such ranges is approved by the Secretary pursuant to paragraph (e)(2)(vii)(A) of this section. As part of the batched determination fee, certified IDR entities are permitted to charge an additional fixed tiered fee within the range of $75 to $250 for every additional 25 line items within a batched dispute, beginning with the 26th line item. The ranges for the certified IDR entity fees for single and batched determinations will remain in effect until changed by notice and comment rulemaking. * * * * * DEPARTMENT OF HEALTH AND HUMAN SERVICES 49 CFR Subtitle A For the reasons stated in the preamble, the Department of Health and Human Services amends 45 CFR part 149 as set forth below: PART 149--SURPRISE BILLING AND TRANSPARENCY REQUIREMENTS 6. The authority citation for part 149 continues to read as follows: Authority: 42 U.S.C. 300gg-92 and 300gg-111 through 300gg-139, as amended. 7. Section 149.510 is amended by: a. Revising paragraph (d)(2)(ii); b. Adding paragraph (d)(3); c. Removing the semicolon at the end of paragraphs (e)(2)(iii) and (vi) and adding a period in its place; d. Revising paragraph (e)(2)(vii); e. Redesignating paragraphs (e)(2)(viii) through (xi) as paragraphs (e)(2)(ix) through (xii); f. Adding new paragraph (e)(2)(viii); g. Removing the semicolon at the end of newly redesignated paragraphs (e)(2)(ix) and (x) and adding a period in its place; and h. Removing "; and" at the end of newly redesignated paragraph (e)(2)(xii) and adding a period in its place. The revisions and additions read as follows:§ 149.510 Independent dispute resolution process. * * * * * (d) * * * (2) * * * (ii) The administrative fee amount will be established through notice and comment rulemaking no more frequently than once per calendar year in a manner such that the total administrative fees paid for a year are estimated to be equal to the amount of expenditures estimated to be made by the Secretaries of the Treasury, Labor, and Health and Human Services for the year in carrying out the Federal IDR process. For disputes initiated on or after [INSERT DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER ], the administrative fee amount is $115 per party per dispute. (3) Severability. (i) Any provision of this paragraph (d) or paragraphs (e)(2)(vii) and (viii) of this section held to be invalid or unenforceable as applied to any person or circumstance shall be construed so as to continue to give the maximum effect to the provision permitted by law, including as applied to persons not similarly situated or to dissimilar circumstances, unless such holding is that the provision of this paragraph (d) or paragraphs (e)(2)(vii) and (viii) is invalid and unenforceable in all circumstances, in which event the provision shall be severable from the remainder of this paragraph (d) or paragraphs (e)(2)(vii) and (viii) and shall not affect the remainder thereof. (ii) The provisions in this paragraph (d) and paragraphs (e)(2)(vii) and (viii) of this section are intended to be severable from each other. (e) * * * (2) * * * (vii) Provide, no more frequently than once per calendar year, a fixed fee for single determinations and a separate fixed fee for batched determinations, as well as an additional fixed tiered fee for batched determinations, if applicable, within the upper and lower limits for each, as established by the Secretary in notice and comment rulemaking. The certified IDR entity fee ranges established by the Secretary in rulemaking will remain in effect until changed by notice and comment rulemaking. The certified IDR entity may not charge a fee outside the limits set forth in rulemaking unless the certified IDR entity or IDR entity seeking certification receives advance written approval from the Secretary to charge a fixed fee beyond the upper or lower limits by following the process described in paragraph (e)(2)(vii)(A) of this section. A certified IDR entity may also seek advance written approval from the Secretary to update its fees one additional time per calendar year by meeting the requirements described in paragraph (e)(2)(vii)(A). The Secretary will approve a request to charge a fixed fee beyond the upper or lower limits for fees as set forth in rulemaking or to update the fixed fee during the calendar year if, in their discretion, they determine the information submitted by a certified IDR entity or IDR entity seeking certification demonstrates that the proposed change to the certified IDR entity fee would ensure the financial viability of the certified IDR entity or IDR entity seeking certification and would not impose on parties an undue barrier to accessing the Federal IDR process. (A) In order for the certified IDR entity or IDR entity seeking certification to receive the Secretary's written approval to charge a fixed fee beyond the upper or lower limits for fees as set forth in rulemaking or to update the fixed fee during the calendar year, the certified IDR entity or IDR entity seeking certification must submit to the Secretary, in the form and manner specified by the Secretary: ( 1 ) The fixed fee the certified IDR entity or IDR entity seeking certification believes is appropriate for the certified IDR entity or IDR entity seeking certification to charge; ( 2 ) A description of the circumstances that require the alternative fixed fee, or that require a change to the fixed fee during the calendar year, as applicable; and ( 3 ) A detailed description that reasonably explains how the alternative fixed fee or the change to the fixed fee during the calendar year, as applicable, will be used to mitigate the effects of those circumstances. (B) [Reserved] (viii) For disputes initiated on or after [INSERT DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER ], certified IDR entities are permitted to charge a fixed certified IDR entity fee for single determinations within the range of $200 to $840, and a fixed certified IDR entity fee for batched determinations within the range of $268 to $1,173, unless a fee outside such ranges is approved by the Secretary, pursuant to paragraph (e)(2)(vii)(A) of this section. As part of the batched determination fee, certified IDR entities are permitted to charge an additional fixed tiered fee within the range of $75 to $250 for every additional 25 line items within a batched dispute, beginning with the 26th line item. The ranges for the certified IDR entity fees for single and batched determinations will remain in effect until changed by notice and comment rulemaking. * * * * * (Filed by the Office of the Federal Register on December 18, 2023, 4:15 p.m., and published in the issue of the Federal Register for December 21, 2023, 88 F.R. 88494)

Private Letter Ruling Number: 202329006 Internal Revenue Service April 25, 2023 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202329006 Release Date: 7/21/2023 Index Number: 475.08-00, 9100.00-00, 9100.10-01 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:FIP:B03 PLR-120645-22 Date: April 25, 2023 Dear ******: This letter responds to a request for a private letter ruling Taxpayer filed with the Internal Revenue Service ("the Service") on Date 10. Taxpayer's letter requested an extension of time under § 301.9100 of the Procedure and Administration Regulations ("the Regulations") to make an election under § 475(f)(1) of the Internal Revenue Code ("the Code") to use the mark-to-market method of accounting, effective for the taxable year that ended Date 5. FACTS Taxpayer is an individual whose work experience has varied. Taxpayer's regular and recurring income consists solely of investment income. Taxpayer represents that it also has engaged in securities trading. The income Taxpayer made in Year 2 included a of tax-exempt interest, b of taxable interest, and c of dividends, of which d were qualified dividends. For Year 2, Taxpayer reported no salaries, wages, tips, etc. or other business income on the Form 1040, U.S. Individual Income Tax Return. During Year 2, Taxpayer realized approximately e of capital losses from securities trading activity. The vast majority of the losses were realized after Date 1, the due date for making a mark-to-market election under § 475(f)(1) for Year 2. Further, Taxpayer represents that in Date 2, after the due date for making a mark-to-market election under § 475(f)(1) for Year 2, Taxpayer started to employ a strategy for trading in certain securities. Taxpayer's strategy worked well until Date 3 or Date 4, at which point Taxpayer began to incur capital losses. Taxpayer continued to trade and incur capital losses in those securities through Date 5, and into Date 6. Taxpayer's acquisitions of the securities within the wash sale period described in § 1091(a) triggered the wash sale rules, which disallowed the capital losses incurred by Taxpayer during Month 1 of Year 2. The application of the wash sale rules caused the disallowed capital losses incurred during Year 2 to not be applied to offset the aggregate capital gains incurred in Year 2. Accordingly, Taxpayer reported on Taxpayer's Year 2 federal income tax return a capital gain of f. 1 ******** 1 Taxpayer represents that the wash sale disallowance from Taxpayer's trading activity was g, and the net capital gain from Taxpayer's trading activity, taking into account the wash sale disallowance, was h. ******** Taxpayer indicates that Taxpayer discovered the wash sale issue when Taxpayer visited the website of Taxpayer's brokerage firm on or about Date 7 and saw the wash sale loss posted in Taxpayer's brokerage firm account. Taxpayer temporarily ceased securities trading activities on or about Date 7. During Date 8, Taxpayer received a Form 1099 from Taxpayer's brokerage firm for Year 2 detailing and confirming the large amount of capital gains realized during that year as well as the substantial amount of capital losses disallowed for that year because of the application of the wash sale rules. Upon receipt of the Year 2 Form 1099, Taxpayer contacted Tax Advisor, a certified public accountant and Taxpayer's regular tax advisor for the previous several years. Taxpayer's customary practice regarding the filing of federal income tax returns was to forward to Tax Advisor all the information for each taxable year, including the Forms 1099 related to Taxpayer's securities trading. Tax Advisor would then prepare the necessary returns. Taxpayer claims that during the email exchange with Tax Advisor following Taxpayer's receipt of the Year 2 Form 1099, Taxpayer learned for the first time of the possibility of making an election under § 475(f)(1) to use the mark-to-market method of accounting. Accordingly, Taxpayer indicates that Taxpayer was not aware that Taxpayer's trading activity during Year 2 might have enabled Taxpayer to claim that Taxpayer was a trader eligible to make an election under § 475(f)(1) effective for Year 2. 2 ******** 2 Based on the information supplied by Taxpayer, whether Taxpayer's trading activity during Year 2 was sufficiently regular, frequent, and continuous for Taxpayer to have been considered engaged in the trade or business of being a trader in securities for purposes of § 475(f)(1) may be an issue. ******** Taxpayer states that although Tax Advisor knew of the extent and nature of Taxpayer's securities trading activities, Tax Advisor nevertheless failed to mention to Taxpayer the possibility of Taxpayer making a timely § 475(f)(1) election for Year 2. Consequently, Taxpayer asserts that Tax Advisor, being aware of Taxpayer's tax situation and securities trading activities, failed to advise Taxpayer properly and adequately regarding the federal income tax treatment of Taxpayer's securities trading activities. In Tax Advisor's affidavit, however, Tax Advisor states that Tax Advisor was familiar with the provisions of § 475, including making an election under § 475(f)(1) to use the mark-to-market method of accounting, but did not discuss the possibility with Taxpayer of Taxpayer making an election under § 475(f)(1) because Tax Advisor "did not think [Taxpayer] qualified for said election." To make a timely § 475(f)(1) election for Year 2, Taxpayer had to make the § 475(f)(1) election by Date 1, the unextended due date of Taxpayer's federal income tax return for Year 1. A significant portion of Taxpayer's securities trading activities during Year 2 occurred after Date 1. Indeed, Taxpayer's brokerage firm statement for the last month of Year 2 indicates that Taxpayer traded shares in the securities referred to above more than j times during that period. Accordingly, Taxpayer continued to engage in securities trading after Date 1 and claims that Taxpayer became aware of the existence of a § 475(f)(1) election during Date 8. At some point during Year 3, after learning of the availability of a § 475(f)(1) election and the consequences of Taxpayer's wash sales in Year 2, Taxpayer realized that it would have been beneficial for Taxpayer to have made a § 475(f)(1) election with a Year 2 effective date. Taxpayer represents that as a "protective" measure, Taxpayer made a timely § 475(f)(1) election for Year 3 no later than Date 9, the due date for the timely filing of Taxpayer's Year 2 federal income tax return. Taxpayer, however, did not file a request for an extension of time under § 301.9100-3 to make a late § 475(f)(1) election effective for Year 2 until Date 10. LAW AND ANALYSIS Taxpayer is not entitled to relief under § 301.9100 to make a late § 475(f)(1) election because Taxpayer did not act reasonably and in good faith, and granting relief would prejudice the interests of the Government. Relief under § 301.9100 to make a late § 475(f)(1) election is denied Section 475(f)(1) provides that a taxpayer engaged in a trade or business as a trader in securities may elect to apply the mark-to-market method of accounting to securities held in connection with such trade or business. Section 7805(d) provides that, except to the extent otherwise provided by the Code, any election shall be made at such time and in such manner as the Secretary shall prescribe. Rev.Proc. 99-17, 1999-1 C.B. 503, sets forth the exclusive procedures for a taxpayer who is a trader in securities to make an election under § 475(f) to apply the mark-to-market method of accounting. Under section 5.03 of that revenue procedure, a taxpayer must file an election statement not later than the due date (without regard to any extension) of the original federal income tax return for the taxable year immediately preceding the election year and must attach the statement either to that return or, if applicable, to a request for an extension of time to file that return. Section 5.04 of Rev.Proc. 99-17 sets forth the requirements for the statement. The statement must describe the election being made, the first taxable year for which the election is effective, and, in the case of an election under § 475(f), the trade or business for which the election is made. Section 4 of Rev.Proc. 99-17 provides that an election under § 475(f) determines the method of accounting that an electing taxpayer is required to use for federal income tax purposes for securities subject to the election. Once a valid election is made, the taxpayer is required to use a mark-to-market method of accounting under § 475. Section 4 of Rev.Proc. 99-17 also provides that if a taxpayer fails to change the taxpayer's method of accounting to comply with the election, then the taxpayer is on an impermissible method. Section 6.01 of Rev.Proc. 99-17 3 provides that a change in a taxpayer's method of accounting is a change in method of accounting to which the provisions of §§ 446 and 481 and the Income Tax Regulations promulgated thereunder apply. Section 6.03 of Rev.Proc. 99-17 generally provides that if a taxpayer changes its method of accounting under section 6.01 of Rev.Proc. 99-17, the taxpayer must take into account the net amount of the § 481(a) adjustment over the applicable period. ******** 3 Section 6 of Rev.Proc. 99-17 was superseded by Rev.Proc. 99-49, 1999-2 C.B. 725. ******** Rev.Proc. 2015-13, 2015-5 I.R.B. 419, sets forth the general procedures under § 446(e) to obtain the consent of the Commissioner to change a method of accounting for federal income tax purposes, including the procedures to obtain the automatic consent of the Commissioner to change a method of accounting listed in Rev.Proc. 2019-43, 2019-48 I.R.B. 1107. Section 24.01 of Rev.Proc. 2019-43 includes in the List of Automatic Changes to which the automatic change procedures in Rev.Proc. 2015-13 apply a request for a trader in securities that has made a § 475(f)(1) election to change the trader's method of accounting for securities to use the mark-to-market method of accounting under § 475. 4 Section 24.01(4) of Rev.Proc. 2019-43 refers to section 5 of Rev.Proc. 99-17 for the requirements to make a § 475(f)(1) election. ******** 4 Rev.Proc. 2019-43 is the automatic method change revenue procedure that applied to the year that Taxpayer's election would have been effective, had it been timely filed. ******** Under section 7.02 of Rev.Proc. 2015-13, unless otherwise provided in a specific change listed in Rev.Proc. 2019-43, a taxpayer making a change in method of accounting must apply § 481(a) and take into account the § 481(a) adjustment in the manner provided in section 7.03 of Rev.Proc. 2015-13. Section 24.01 of Rev.Proc. 2019-43 does not contain an exception to the rule in section 7.02 of Rev.Proc. 2015-13. Accordingly, the change in method of accounting as a result of a § 475(f)(1) election to use the mark-to-market method of accounting is made with a § 481(a) adjustment. Section 301.9100-1(c) provides, in part, that the Commissioner has discretion to grant a reasonable extension of time to make a regulatory election (defined in § 301.9100-1(b) as an election whose due date is prescribed by regulations published in the Federal Register, or by a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin). Section 301.9100-1(b) defines the term election to include a request to change an accounting method. Section 301.9100-3 sets forth rules that the Commissioner must use to determine whether the Commissioner will grant an extension of time for regulatory elections that do not meet the requirements of § 301.9100-2 for an automatic extension. Generally, a taxpayer must provide sufficient evidence to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that the grant of relief will not prejudice the interests of the Government. Except as provided in § 301.9100-3(b)(3), § 301.9100-3(b)(1) provides rules for determining when a taxpayer is deemed to have acted reasonably and in good faith. Section 301.9100-3(b)(1)(i) provides that a taxpayer will be deemed to have acted reasonably and in good faith if the taxpayer requests relief under § 301.9100-3 before the failure to make the regulatory election is discovered by the Service. Section 301.9100-3(b)(3) provides rules as to when a taxpayer is deemed to have not acted reasonably and in good faith. Section 301.9100-3(b)(3)(iii) provides that a taxpayer is deemed to have not acted reasonably and in good faith if specific facts have changed since the due date for making the election that make the election advantageous to a taxpayer. In such a case, the Service will grant relief only when the taxpayer provides strong proof that the taxpayer's decision to seek relief did not involve hindsight. Section 301.9100-3(c) provides that the Commissioner will grant a reasonable extension of time to make a regulatory election only when the interests of the Government will not be prejudiced by the granting of relief. Section 301.9100-3(c)(1)(i) provides that the interests of the Government are prejudiced if granting relief would result in a taxpayer having a lower tax liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made (taking into account the time value of money). Section 301.9100-3(c)(2) provides special rules for accounting method regulatory elections. Section 301.9100-3(c)(2)(ii) provides that the interests of the Government are deemed to be prejudiced except in unusual and compelling circumstances if the accounting method regulatory election for which relief is requested requires an adjustment under § 481(a) (or would require an adjustment under § 481(a) if the taxpayer changed to the method of accounting for which relief is requested in a taxable year subsequent to the taxable year the election should have been made). (a) Taxpayer did not act reasonably and in good faith Section 301.9100-3(b)(3)(iii) provides that a taxpayer is deemed to have not acted reasonably and in good faith if specific facts have changed since the due date for making the election that make the election advantageous to a taxpayer. In such a case, the Service will grant relief only when the taxpayer provides strong proof that the taxpayer's decision to seek relief did not involve hindsight. To make a timely § 475(f)(1) election for the taxable year that ended Date 5, Taxpayer would have had to make the election by Date 1, the unextended due date of Taxpayer's Year 1 federal income tax return. Taxpayer's request for a late filing of the § 475(f)(1) election was not made until Date 10. This late filing provided Taxpayer the benefit of over k months of hindsight to review and consider the results of Taxpayer's securities trading transactions and to determine whether Taxpayer would have benefited by making the election. If Taxpayer had made a timely § 475(f) election, Taxpayer would not have had the benefit of knowing the results of Taxpayer's securities transactions after the election's due date, and Taxpayer would not have had this time to act on that knowledge. Accordingly, Taxpayer gained a benefit from hindsight because Taxpayer was able to determine the effect of making a § 475(f)(1) election beginning with Year 2, armed with the benefit of knowing the results of Taxpayer's securities trading activities for over k months following the due date for making the election. Moreover, Taxpayer did not provide strong proof showing that Taxpayer's decision to seek relief to make a late election did not involve hindsight. 5 Accordingly, under § 301.9100-3(b)(3), Taxpayer is deemed to have not acted reasonably and in good faith. ******** 5 Taxpayer did not offer factual proof on this point. Rather, Taxpayer only argued that Taxpayer would have timely made the election even without knowledge of the factual developments that made the election advantageous. ******** (b) Granting Relief Would Prejudice the Interests of the Government Under § 301.9100-3(c)(2)(ii), the interests of the Government are deemed to be prejudiced, except in unusual and compelling circumstances, if the accounting method regulatory election for which relief is requested requires an adjustment under § 481(a) (or would require an adjustment under § 481(a) if the taxpayer changed to the method of accounting for which relief is requested in a taxable year subsequent to the taxable year the election should have been made). Taxpayer has not presented unusual and compelling circumstances for Taxpayer's failure to timely make a § 475(f)(1) election. Since a § 475(f)(1) election is an accounting method regulatory election that requires a § 481(a) adjustment, the interests of the Government are deemed to be prejudiced because Taxpayer has failed to present unusual and compelling circumstances to justify granting the requested relief. CONCLUSION Based on the facts and representations submitted, we conclude that Taxpayer has not satisfied the requirements to justify granting an extension of time under § 301.9100-3 to make an election under § 475(f)(1) to use the mark-to-market method of accounting, effective for the taxable year that ended Date 5. Specifically, Taxpayer has failed to demonstrate that Taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the Government. Accordingly, Taxpayer's request for an extension of time to make an election under § 475(f)(1) to use the mark-to-market method of accounting for the taxable year that ended Date 5 is denied. Except as expressly provided herein, no opinion is expressed or implied concerning the federal income tax consequences of the transactions described above. In particular, no opinion is expressed or implied as to whether Taxpayer's securities trading activities constitute those of a trader in securities eligible to make the election under § 475(f)(1) to use the mark-to-market method of accounting. This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. In accordance with the terms of a power of attorney on file in this office, a copy of this letter is being sent to your authorized representatives. Sincerely, ______________________________ Jason D. Kristall Branch Chief, Branch 3 Office of the Associate Chief Counsel (Financial Institutions & Products) Enclosures: Copy of this letter Copy for section 6110 purposes cc:

Private Letter Ruling Number: 202343010 Internal Revenue Service July 27, 2023 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202343010 Release Date: 10/27/2023 Index Number: 2501.00-00, 2601.00-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:04 PLR-102051-23 Date: July 27, 2023 Dear ******: This letter responds to your authorized representative's letter dated December 27, 2022, and subsequent correspondence, requesting rulings concerning the federal gift and generation-skipping transfer tax consequences of a court-approved settlement agreement. FACTS The facts submitted and representations made are as follows. Settlor died testate on Date 1, a date prior to September 25, 1985. Settlor's Will consists of the original instrument dated Date 2, a first codicil dated Date 3, a second codicil dated Date 4, a third codicil dated Date 5, and a fourth codicil dated Date 6 (collectively, Settlor's Will). At his death, Article Fourth of Settlor's Will created separate trusts for the benefit of his three children, Child 1, Child 2, and Child 3 (collectively, Children), their spouses, and their descendants: Trust A for the benefit of Child 1; Trust B for the benefit of Child 2; and Trust C for the benefit of Child 3. In addition to the trusts for the primary benefit of Children, Article Third of Settlor's Will created a marital trust for Settlor's wife, Spouse, which granted Spouse a testamentary general power of appointment over any trust property remaining in the marital trust at the time of her death. Spouse exercised her power of appointment under Article VII of Spouse's Will, dated Date 7, with a first codicil dated Date 8 (collectively, Spouse's Will). Pursuant to Spouse's Will, upon Spouse's death on Date 9, the remaining property of the marital trust was divided into three separate trusts for the benefit of Children, their spouses, and their descendants: Trust D for the benefit of Child 1; Trust E for the benefit of Child 2; and Trust F for the benefit of Child 3. Section 8 of Article VI of Spouse's Will provides that to the extent not specifically stated otherwise, all trusts created by Spouse's Will would be governed by the provisions of Settlor's Will. Child 3 died on Date 10, leaving no surviving spouse or descendants. Upon Child 3's death, the property held in Trust C was divided into two equal shares and each share distributed to Trust A and Trust B. Similarly, the property of Trust F was divided into two equal shares and each share distributed to Trust D and Trust E. On Date 11, pursuant to a State Court order, Trust D for the primary benefit of Child 1 was divided into six separate trusts for the benefit of Child 1's six children and their respective descendants, as well as Child 1 and Child 1's spouse: Trust D1 for the benefit of Grandchild 1; Trust D2 for the benefit of Grandchild 2; Trust D3 for the benefit of Grandchild 3; Trust D4 for the benefit of Grandchild 4; Trust D5 for the benefit of Grandchild 5; and Trust D6 for the benefit of Grandchild 6. On Date 12, pursuant to a State Court order, Trust A for the primary benefit of Child 1 was divided into six separate trusts for the benefit of Child 1's six children and their respective descendants, as well as Child 1 and Child 1's spouse: Trust A1 for the benefit of Grandchild 1; Trust A2 for the benefit of Grandchild 2; Trust A3 for the benefit of Grandchild 3; Trust A4 for the benefit of Grandchild 4; Trust A5 for the benefit of Grandchild 5; and Trust A6 for the benefit of Grandchild 6. In a companion State Court order on the same date, Trust B for the primary benefit of Child 2 and Trust E for the primary benefit of Child 2, were divided into two separate trusts for the benefit of Child 2's two children, Grandchild 7 and Grandchild 8 and their respective descendants, as well as Child 2 and Child 2's spouse. The divided trusts were subsequently merged into two trusts known as Trust BE1 for the benefit of Grandchild 7 and Trust BE2 for the benefit of Grandchild 8. Article Fourth of Settlor's Will governs the distribution provisions of Trust A, Trust B, Trust D, Trust E, Trusts A1 through A6, Trusts D1 through D6, and Trusts BE1 and BE2 (collectively, the Family Trusts). Until a trust for whom a grandchild is named terminates, the Trustee has discretion to make distributions of income from such trust to the grandchild. The portion of income not distributed may be accumulated or may be distributed to the grandchild's spouse, the surviving parents of the grandchild, and the descendants of grandchild, in whole or in part, in the discretion of the Trustee. Trustee has unfettered discretion to make distributions of principal to a grandchild for whom a trust is established. A trust for whom a grandchild is named shall terminate upon the later to occur of the death of the grandchild or the grandchild's spouse, if any, and at such time the share for such grandchild shall be distributed to the descendants of such grandchild, per stirpes. Section 4 of Article Fifth of Settlor's Will provides that any trust established pursuant to Settlor's Will shall cease and terminate upon the expiration of twenty-one years after the death of the last surviving of Settlor's descendants who were in being at the time of Settlor's death, and if at the expiration of this period any property is still held in trust, such property shall immediately be distributed to and among the persons receiving or entitled to have the benefit of the income therefrom in equal s hares. Pursuant to Article Fourth of Settlor's Will, if a grandchild of Settlor dies without a living spouse or descendants, the trust principal of such grandchild's trust will be distributed to Settlor's other descendants. Section 3 of Article Fifth of Settlor's Will provides as follows: The words "children" and "descendants" shall be deemed to refer to issue of the body born in lawful wedlock and to children adopted by legal proceedings of public record and to their children and descendants so defined. Of Settlor's eight grandchildren, Grandchild 5 and Grandchild 7 currently have biological descendants. Grandchild 2 adopted Adoptee 1 and Grandchild 3 adopted Adoptee 2 and Adoptee 3. Each adopted individual was adopted after reaching the age of majority (collectively, Adult Adoptees). The Trustee of each Family Trust is Trust Company. On Date 13, Trustee filed a petition with the State Court requesting an order construing the terms "children" and "descendants" under Section 3 of Article Fifth of Settlor's Will to determine whether individuals adopted as adults qualify as "descendants" under Settlor's Will. A controversy exists among the descendants of Settlor as to whether the Adult Adoptees are "descendants" of Settlor under Settlor's Will. If the Adult Adoptees are considered descendants of Settlor, the number of potential remainder beneficiaries increases and affects the per stirpital shares at the time of final distribution of the Family Trusts. On Date 14, State Court issued a memorandum opinion and order for evidentiary hearing to determine whether Grandchild 2 and/or Grandchild 3 functioned as parents to the Adult Adoptees before they reached age 18, based on State Law 1, which was enacted after Settlor's date of death. Grandchild 1, joined by other family members, filed a motion for summary judgment and amendment of the Date 14 order in objection to the State Court's application of State Law 1 rather than the law at the time of Settlor's date of death. State Law 1 provides that in construing a dispositive provision of a transferor who is not the adoptive parent, an adoptee is not considered the child of the adoptive parent unless the adoptive parent functioned as a parent of the adoptee before the adoptee reached 18 years of age. State Law 2 provides that the effective date of the title of State Law 1 is Date 15, a date that is after Settlor's date of death, and applies to any proceedings in court then pending or thereafter commenced regardless of the time of the death of decedent except to the extent that in the opinion of the court the former procedure should be made applicable in a particular case in the interest of justice or because of infeasibility of application of the procedure of the title. Over several years, the interested parties engaged in substantial litigation and other proceedings in preparation for trial, including filing cross motions for summary judgment, extensive discovery, and voluntary mediation. Based on the issue before State Court, the outcome of the litigation would be that the Adult Adoptees are determined to be or not be descendants of Settlor. After several attempts to resolve the contested issues, on Date 16 the parties entered into a Settlement Agreement resolving the litigation regarding the status of the Adult Adoptees as descendants of Settlor. The Settlement Agreement was revised on Date 17 (Revised Settlement Agreement). Both the Settlement Agreement and the Revised Settlement Agreement were approved by order of State Court and contingent upon receipt of a favorable private letter ruling from the Internal Revenue Service (IRS). All parties to the agreement were represented by legal counsel. The Revised Settlement Agreement provides for certain payments to and for the benefit of Adoptee 1. It provides that the amount of $a will be distributed outright and in cash to Adoptee 1 from Trusts A1 through A6 and Trusts D1 through D6 (each trust distributing $b). In addition, the amount of $a will be distributed outright and in cash to Grandchild 2 (adoptive parent of Adoptee 1) from Trust A2 and Trust D2 (each trust for the primary benefit of Grandchild 2 and each distributing $c), whereupon Grandchild 2, as settlor and transferor, will immediately establish (and contribute the $a in cash to) a special needs trust for the primary benefit of Adoptee 1. Finally, the amount of $d will be distributed outright and in cash to Adoptee 1 from Trust A2 and Trust D2 (each trust distributing $e). Upon receipt of cash in the amounts of $a and $d, Adoptee 1, as settlor and transferor, will immediately establish (and contribute the sum of $a and $d in cash to) a revocable trust for his primary benefit. The Revised Settlement Agreement provides for certain payments to and for the benefit of Adoptee 2 and Adoptee 3. It provides that the amount of $a will be distributed outright and in cash to each of Adoptee 2 and Adoptee 3 from Trusts A1 through A6 and Trusts D1 through D6 (each distributing $b). Further, after the cash distributions to Adoptee 2 and Adoptee 3 are made, the assets then making up Trust A3 and Trust D3 (collectively referred to going forward as the Grandchild 3 Settlement Trusts), each for the primary benefit of Grandchild 3 (adoptive parent of Adoptee 2 and Adoptee 3), will be kept separate and segregated from the assets of any other Family Trust. No further additions shall be made to the Grandchild 3 Settlement Trusts from any other Family Trust by reason of the death of any beneficiary of those other Family Trusts. Except for certain excluded property related to agricultural land and business interests in entities whose primary holding is agricultural land (Excluded Property), Adoptee 2 and Adoptee 3 are the named beneficiaries of the Grandchild 3 Settlement Trusts. Upon the death of the survivor of Child 1's spouse, Grandchild 3, and Grandchild 3's spouse, the remaining assets of the Grandchild 3 Settlement Trusts, less the Excluded Property, will be distributed in equal shares to Adoptee 2 and Adoptee 3, or all to the survivor. Adoptee 2 and Adoptee 3 have a testamentary power to appoint such individual's respective share of the Grandchild 3 Settlement Trusts to or for the benefit of such individual's spouse or descendants. If Adoptee 2 or Adoptee 3 does not exercise such power of appointment but has living descendants, the Trustee shall distribute such individual's respective share to such descendants, per stirpes. Any asset appointed under the terms of the Revised Settlement Agreement (including the assets of the Grandchild 3 Settlement Trusts) may not extend the time for vesting of that asset beyond a period of twenty-one years after the death of the last surviving descendant of Settlor who was in being on Date 18. Any remaining assets of the Grandchild 3 Settlement Trusts not otherwise distributed (including the Excluded Property) shall be distributed according to Settlor's Will without regard to any surviving Adult Adoptees or their descendants. Under the Revised Settlement Agreement, all claims by the Adult Adoptees with regard to Settlor and Settlor's Spouse's trusts and estates are resolved and, after obtaining a favorable private letter ruling from the IRS, Trustee will agree to dismiss the petition filed in State Court with prejudice and all parties will agree that State Court can enter the dismissal without awarding costs to any party and without further notice. It is represented that each Family Trust was irrevocable on September 25, 1985, and that there were no additions, constructive or actual, after that date. You have requested the following rulings: 1. The Revised Settlement Agreement, the State Court order approving the Revised Settlement Agreement, and the implementation and distributions made in accordance with the Revised Settlement Agreement, will not cause any of the Family Trusts to lose their status as trusts exempt from GST tax for purposes of chapter 13 of the Code. 2. Entering into the Revised Settlement Agreement will not cause any party to the Settlement Agreement to be treated as having made a gift to any other individual for purposes of chapter 12 of the Code. LAW AND ANALYSIS Ruling 1 Section 2601 imposes a tax on every generation-skipping transfer (GST), which is defined under § 2611 as a taxable distribution, a taxable termination, and a direct skip. Under § 1433(a) of the Tax Reform Act of 1986 (Act) and § 26.2601-1(a) of the Generation-Skipping Transfer Tax Regulations, the GST tax is generally applicable to GSTs made after October 22, 1986. However, under § 1433(b)(2)(A) of the Act and § 26.2601-1(b)(1)(i), the tax does not apply to a transfer under a trust (as defined in § 2652(b)) that was irrevocable on September 25, 1985, but only to the extent that such transfer is not made out of corpus added to the trust after September 25, 1985 (or out of income attributable to corpus so added). Section 26.2601-1(b)(4) provides rules for determining when a modification, judicial construction, settlement agreement, or trustee action with respect to a trust that is exempt from the GST tax under § 26.2601-1(b)(1), (b)(2), or (b)(3) will not cause the trust to lose its exempt status. The rules of § 26.2601-1(b)(4) are applicable only for purposes of determining whether an exempt trust retains its exempt status for GST tax purposes. They do not apply in determining, for example, whether the transaction results in a gift subject to gift tax, or may cause the trust to be included in the gross estate of a beneficiary, or may result in the realization of capital gain for purposes of § 1001. Section 26.2601-1(b)(4)(i)(B) provides that a court-approved settlement of a bona fide issue regarding the administration of a trust or the construction of terms of the governing instrument will not cause an exempt trust to be subject to the provisions of chapter 13, if -- ( 1 ) The settlement is the product of arm's length negotiations; and ( 2 ) The settlement is within the range of reasonable outcomes under the governing instrument and applicable state law addressing the issues resolved by the settlement. A settlement that results in a compromise between the positions of the litigating parties and reflects the parties' assessments of the relative strengths of their positions is a settlement that is within the range of reasonable outcomes. In the present case, each Family Trust was created and was irrevocable before September 25, 1985. It is represented that no additions, constructive or actual, have been made to any of the Family Trusts on or after September 25, 1985. Consequently, each Family Trust is currently exempt from GST tax. In this case, each party was represented by separate legal counsel. The prospective beneficiaries had distinct and adverse economic and administrative interests. The parties were involved in protracted and substantial litigation to resolve the issue of the identity of Settlor's descendants under Settlor's Will. Settlement negotiations were carried out over several years until the Revised Settlement Agreement was reached. The parties have obtained State Court approval of the Revised Settlement Agreement pending the issuance of this private letter ruling. We conclude that the Revised Settlement Agreement constitutes a settlement of a bona fide issue regarding construction of the terms "children" and "descendants" in Settlor's Will. We further conclude that the terms of the Revised Settlement Agreement are the product of arm's length negotiations. Finally, we conclude that the Revised Settlement Agreement represents a compromise between the positions of the interested parties and reflects the assessments of the relative strengths of their positions; therefore, we additionally conclude that the Revised Settlement Agreement is within the range of reasonable outcomes under the governing instrument and the applicable State law addressing the issues resolved by the Revised Settlement Agreement. Accordingly, based on the facts submitted and the representations made, we rule that the Revised Settlement Agreement, the State Court order approving the Revised Settlement Agreement, and the implementation and distributions made in accordance with the Revised Settlement Agreement, will not cause any of the Family Trusts to lose their status as trusts exempt from GST tax for purposes of chapter 13 of the Code. Ruling 2 Section 2501 imposes a tax for each calendar year on the transfer of property by gift during such calendar year by any individual. Section 2511 provides that the tax imposed by § 2501 applies whether the transfer is in trust or otherwise, direct or indirect, and whether the property transferred is real or personal, tangible or intangible. Section 25.2511-1(c)(1) of the Gift Tax Regulations provides that any transaction in which an interest in property is gratuitously passed or conferred upon another, regardless of the means or device employed, constitutes a gift subject to tax. Whether an agreement settling a dispute is effective for gift tax purposes depends on whether the settlement is based on a valid enforceable claim asserted by the parties and, to the extent feasible, produces an economically fair result. See Ahmanson Foundation v. United States, 674 F.2d 761, 774-775 (9 th Cir. 1981). Thus, state law must be examined to ascertain the legitimacy of each party's claim. A settlement that fairly reflects the relative merits and economic values of the various claims asserted by the parties and reaches a settlement that is within a range of reasonable settlements will not result in a transfer for gift tax purposes. As discussed above, the Revised Settlement Agreement represents the resolution of a bona fide controversy among the family members as beneficiaries of Settlor's Will. All interested parties have been represented in the proceedings that culminated in the Court Order approving the Revised Settlement Agreement. Further, based on the facts as presented, the terms of the Revised Settlement Agreement are the product of arm's length negotiations among all the interested parties. We conclude that the Revised Settlement Agreement reflects the rights of the parties under the applicable law of State that would be applied by the highest court of State. Accordingly, based on the facts submitted and representations made, we rule that implementation of the Revised Settlement Agreement will not result in a gift under § 2501 by the parties to the Revised Settlement Agreement. Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative. The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. Sincerely, Karlene M. Lesho Karlene M. Lesho Chief, Branch 4 Office of Associate Chief Counsel (Passthroughs and Special Industries) Enclosures Copy for § 6110 purposes cc:

Treasury Decision 9996 Internal Revenue Service 2024-22 I.R.B. 1317 26 CFR 26.2642-7: Relief under section 2642(g)(1) T.D. 9996 DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 26, 301, and 602 Relief Provisions Respecting Timely Allocation of GST Exemption and Certain GST Elections AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final rule. SUMMARY: This document contains final regulations that provide guidance describing the circumstances and procedures under which an extension of time will be granted to make certain allocations and elections related to the generation-skipping transfer (GST) tax. The statutory provision underlying these rules was enacted as part of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The guidance affects individuals (or their estates) who failed to make a timely allocation of GST exemption, a timely election out of the GST automatic allocation rules, or certain other timely GST elections. DATES: Effective date: These regulations are effective on May 6, 2024. Applicability date: For dates of applicability, see§§26.2642-7(j), 301.9100-2(f)(2), and 301.9100-3(g)(2). FOR FURTHER INFORMATION CONTACT: Mayer R. Samuels at (202) 317-6859 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background This document contains final regulations in 26 CFR parts 26, 301, and 602 that provide guidance on the application of section 2642(g)(1) of the Internal Revenue Code (Code), which describes the circumstances and procedures under which an extension of time will be granted to make certain allocations and elections related to the GST tax. Congress added section 2642(g)(1) to the Code by enacting section 564 of the EGTRRA, Public Law 107-16, section 564, 115 Stat. 91 (2001). Section 2642(g)(1) directs the Secretary of the Treasury or her delegate (Secretary) to issue regulations prescribing the circumstances and procedures under which an extension of time will be granted to make an allocation of GST exemption, as described in section 2631 of the Code, to a transfer, and the following three elections under section 2632 of the Code: (1) an election under section 2632(b)(3) not to have the deemed (automatic) allocation of GST exemption apply to a direct skip (generally, a transfer subject to gift or estate tax made to a person more than one generation below the transferor); (2) an election under section 2632(c)(5)(A)(i) not to have the deemed (automatic) allocation of GST exemption apply to an indirect skip or to transfers made to a particular trust; and (3) an election under section 2632(c)(5)(A)(ii) to treat any trust as a GST trust for purposes of section 2632(c). In determining whether to grant relief, section 2642(g)(1) directs that all relevant circumstances be considered, including evidence of intent contained in the trust instrument or the instrument of transfer. The legislative history accompanying section 2642(g)(1) indicates that Congress believed that, in appropriate circumstances, an individual should be granted an extension of time to allocate GST exemption regardless of whether any period of limitations had expired. Those circumstances include situations in which the taxpayer intended to allocate GST exemption and the failure to allocate the exemption was inadvertent. H.R. Conf. Rep. No. 107-84, 202 (2001). After the enactment of section 2642(g)(1), the IRS issued Notice 2001-50 (2001-2 CB 189), which provided guidance for transferors seeking an extension of time to make an allocation of GST exemption or an election described in sections 2632(b)(3) or (c)(5). Notice 2001-50 provides, generally, that relief will be granted under§301.9100-3 of the Procedure and Administration Regulations (regarding requests of extensions of time for certain regulatory elections) if the taxpayer satisfies the requirements of those regulations and establishes to the satisfaction of the Commissioner of Internal Revenue or his delegate (Commissioner) that the taxpayer acted reasonably and in good faith and that a grant of the requested relief will not prejudice the interests of the government. If relief is granted under§301.9100-3 and the allocation is made, the amount of GST exemption allocated to the transfer is the Federal gift or estate tax value of the property as of the date of the transfer and the allocation is effective as of the date of the transfer. Notice 2001-50 will be made obsolete upon the publication of this Treasury decision in the Federal Register. On August 2, 2004, the IRS issued Rev. Proc. 2004-46 (2004-2 CB 142), which provides a simplified alternate method to obtain an extension of time to allocate GST exemption in certain situations. Generally, this method is available only with respect to an inter vivos transfer to a trust from which a GST may be made and only if each of the following requirements is met: (1) The transfer qualified for the gift tax annual exclusion under section 2503(b) of the Code; (2) the sum of the amount of the transfer and all other gifts by the transferor to the donee in the same year did not exceed the applicable annual exclusion amount for that year; (3) no GST exemption was allocated to the transfer; (4) the taxpayer has unused GST exemption to allocate to the transfer as of the filing of the request for relief; and (5) no taxable distributions or taxable terminations have occurred as of the filing of the request for relief. On August 9, 2004, the IRS issued Rev. Proc. 2004-47 (2004 CB 169), which provides alternative relief for taxpayers who failed to make a reverse qualified terminable interest property (QTIP) election on an estate tax return. On April 17, 2008, proposed regulations (REG-147775-06) were published in the Federal Register (73 FR 20870). The proposed regulations provided guidance on the application of section 2642(g)(1) by identifying the standards that the IRS will apply in determining whether to grant a transferor or a transferor's estate an extension of time to make an allocation of GST exemption, as described in section 2631, to property transferred by the transferor and the following three elections under section 2632: (1) an election under section 2632(b)(3) not to have the automatic allocation of GST exemption apply to a direct skip; (2) an election under section 2632(c)(5)(A)(i) not to have the automatic allocation of GST exemption apply to an indirect skip or to transfers made to a particular trust; and (3) an election under section 2632(c)(5)(A)(ii) to treat any trust as a GST trust for purposes of section 2632(c). In addition to proposing these standards, the proposed regulations included procedural requirements for establishing eligibility for the requested relief, including identification of the various persons from whom affidavits would be required. In order to evaluate the necessity for and determine the burden imposed by the requirement to produce affidavits under proposed§26.2642-7(h), the proposed regulations requested comments specifically as to (1) whether the affidavits are necessary for the proper performance of the functions of the IRS, including whether the information provided by the affidavits will have practical utility, (2) the accuracy of the estimated burden associated with preparing the affidavits, (3) how the quality, utility, and clarity of the information to be provided by the affidavits may be enhanced, (4) how the burden of providing the affidavits may be minimized, including through the application of automated collection techniques or other forms of information technology, and (5) estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide the affidavits. The proposed regulations also identified situations that do not satisfy the standards for granting relief, and thus when the IRS will not grant the requested relief. The IRS received a total of five comments, three of which explicitly addressed the procedural requirements of proposed§26.2642-7(h), redesignated in the final regulations as§26.2642-7(i). After careful consideration of the comments received on the proposed regulations, this Treasury decision adopts the proposed regulations with clarifying changes and additional modifications in response to comments as described in the Summary of Comments and Explanation of Revisions. Relief provided under section 2642(g)(1) will be granted through the IRS private letter ruling program. Section 301.9100-1 generally provides that the Commissioner has the discretion to grant a reasonable extension of time under the rules set forth in§§301.9100-2 and 301.9100-3 to make a regulatory election under all subtitles of the Code, except subtitles E, G, H, and I (section 9100 provisions). On and after the date of publication of these final regulations, relief under section 2642(g)(1) no longer will be granted under§301.9100-3. In addition, because these final regulations provide a replacement for the automatic six-month extension under§301.9100-2(b) without substantive difference, the extension under§301.9100-2(b) no longer will be available to transferors or transferor's estates qualifying for relief under proposed§26.2642-7(h)(1), redesignated in the final regulations as§26.2642-7(i)(1), on and after the date of publication of these final regulations. Accordingly, the final regulations amend§§301.9100-2(b) and 301.9100-3 to provide that relief under section 2642(g)(1) cannot be obtained through the provisions of§§301.9100-2(b) and 301.9100-3. However, requests that are pending with the IRS on the date of publication of these final regulations will continue to be processed under the section 9100 provisions unless the taxpayer requesting relief opts to withdraw the request and instead seek relief under these final regulations. In that case, the taxpayer's user fee will be refunded and a new user fee will be required with the new request. Furthermore, the procedures contained in Revenue Procedure 2004-46 and Revenue Procedure 2004-47 will remain effective for transferors within the scope of those revenue procedures. The Department of the Treasury (Treasury Department) and the IRS are mindful that the proposed regulations were issued 16 years ago on April 17, 2008. Insofar as there have been no intervening legislative or regulatory changes regarding allocations of GST exemption or GST elections and because the issues addressed by the commenters on the proposed regulations continue to remain relevant, the Treasury Department and the IRS have determined that a new notice of proposed rulemaking or a further opportunity for public comment would be unlikely to generate different comments and, moreover, would unnecessarily delay further this rulemaking to the continued detriment of taxpayers seeking relief. In addition, the IRS has a ruling position that, because of the provisions of the 2008 proposed regulations, relief cannot be granted in certain otherwise appropriate situations until the 2008 proposed regulations have been superseded by the issuance of these final regulations. For such situations, the issuance of a new notice of proposed rulemaking or a reopening of the comment period would further delay, and in some cases prevent, the grant of needed relief to taxpayers. The Treasury Department and the IRS currently are developing a new rulemaking that will complement these final regulations. In contrast to these final regulations, which address the standards for granting relief under section 2642(g)(1) for a failure to make a timely allocation or election, the forthcoming proposed regulations would address the practical effect of a grant of relief and would clarify the interplay between affirmative allocations and automatic allocations. Paragraphs in these final regulations have been reserved to accommodate the forthcoming proposed regulations. Summary of Comments and Explanation of Revisions I. Scope of Authority to Issue Regulations Section 2642(g)(1) gives the Secretary the authority to issue regulations setting forth the "circumstances and procedures" under which extensions of time will be granted to make certain allocations of GST exemption and elections, taking into consideration all relevant circumstances, including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the Secretary deems relevant. Section 2642(g)(1) makes the late allocations and elections referenced in that section eligible for consideration for relief. Because deadlines prescribed by statute are not eligible for relief under§301.9100-3, section 2642(g)(1)(B) concludes with the sentence, for purposes of determining whether to grant relief under this paragraph, the time for making the allocation (or election) shall be treated as if not expressly prescribed by statute. Some commenters maintained that this sentence, creating eligibility for a grant of relief, limits the authority of the Treasury Department and the IRS to issue regulations that provide standards for relief that are more restrictive than those under§301.9100-3. Neither the statute nor its legislative history suggests that the standards for relief under section 2642(g)(1) are required to be equivalent or limited to the standards set forth in§301.9100-3, nor is there any implication that the enactment of section 2642(g) prohibits or forecloses the possibility of any future change to the regulatory standards in§301.9100-3. Nevertheless, the final regulations adopt burden reducing provisions as explained later in this preamble. II. Proposed§26.2642-7(d)(2) - Reasonableness and Good Faith Proposed§26.2642-7(d)(2) provides a nonexclusive list of circumstances (the underlying facts of which may be either helpful or harmful to the taxpayer's request for relief) that the IRS will consider in determining whether the transferor or the transferor's executor acted reasonably and in good faith. Commenters requested that the Treasury Department and the IRS modify proposed§26.2642-7(d)(2) to provide that the transferor or the executor of the transferor's estate will be deemed to have acted reasonably and in good faith if the taxpayer establishes the existence of any one of the various factors listed in§26.2642-7(d)(2). Alternatively, commenters requested that§26.2642-7(d)(2) be clarified to denote the sufficiency or relative importance of the factors listed. Section 2642(g)(1) directs the Treasury Department and the IRS to issue regulations that "prescribe such circumstances and procedures" under which the IRS will grant relief. Since the enactment of section 2642(g) and through the IRS private letter ruling program, the IRS has applied a facts and circumstances methodology in considering requests for relief. Given the inherent complexity of the GST exemption rules, no single factor can be determinative. While§301.9100-3(b)(1) deems the reasonableness and good faith requirements to have been met if the taxpayer establishes any one of the factors therein, that rule is expressly made subject to the requirement of the absence of the use of hindsight and the other factors described in§301.9100-3(b)(3) and (c), and thus is not a one-factor test. Accordingly, proposed§26.2642-7(d)(2) seeks to delineate the many factors implicit in such a facts and circumstances inquiry, and the final regulations adopt the same methodology. The IRS's experience with requests for relief under section 2642(g)(1) indicates that no one factor has more importance in all cases than any other factor. Further, the satisfaction of one factor alone may or may not be sufficient, in the context of the facts and circumstances of that particular taxpayer, to persuade the IRS that relief under section 2642(g)(1) is warranted. Therefore, the recommendation to allow one factor to be determinative has not been adopted in the final regulations. Nevertheless, the final regulations clarify that not all of these factors may be relevant in a particular situation (and those that are not relevant would not need to be addressed in the request for relief). In addition, based on all the facts and circumstances, a single factor listed in§26.2642-7(d)(2) may (or may not) be determinative. Section 301.9100-3(b)(1)(i) provides that a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer requests relief before the failure to make the regulatory election is discovered by the IRS. A commenter requested that this circumstance be added to the factors listed in this provision. Thus, a taxpayer would be considered to have acted reasonably and in good faith if the taxpayer's request for relief was filed before the failure to make the allocation or regulatory election is discovered by the IRS. For purposes of section 2642(g)(1), the Treasury Department and the IRS have determined that this circumstance is not material because, in the context of a request for relief under section 2642(g)(1), the Treasury Department and the IRS believe that the party that first discovers the failure to make the allocation or election (be it the IRS or the taxpayer) generally has no correlation with the taxpayer's good faith or reasonable action. Particularly because of the significant length of time that often elapses between the transfer and the discovery of a missed GST election or allocation, the discovery by the IRS does not necessarily signify a lack of good faith or reasonable action by the taxpayer. At the same time, the taxpayer's discovery generally does not guarantee the existence of good faith and reasonable action by the taxpayer. Therefore, this factor has not been added to the final regulations. However, a delay in requesting relief, after the need for relief is discovered, may have an adverse effect on the availability of relief. See, for example, the circumstances described in§26.2642-7(d)(3)(ii) and (e)(3). III. Proposed§26.2642-7(d)(2)(iv) -- Consistency Proposed§26.2642-7(d)(2)(iv) provides that one of the factors to be considered in determining whether the taxpayer has acted reasonably and in good faith is whether the transferor acted consistently with regard to the allocation of the transferor's GST exemption. Section 26.2642-7(d)(2)(iv) is designed to elicit information relevant to the intent of the transferor with regard to allocating exemption or making an election. For instance, a transferor's pattern of allocating GST exemption in an amount equal to the value of transfers to a trust in three or more years (whether or not consecutive) tends to support an assumption that the transferor intended to have that trust be exempt from GST tax and thus supports a presumed intent to allocate exemption to a transfer to that same trust taking place in a year in which an allocation in fact was not made. A commenter requested that this provision be clarified to provide that the enactment of the statute itself be deemed to be a change in circumstance that could explain any post-enactment deviations from pre-enactment decisions regarding the allocation of GST exemption. In response to this comment,§26.2642-7(d)(2)(iv) has been modified in the final regulations to confirm that relief under this provision will not be denied merely because a pattern does not exist or because the existing pattern changed at some point, whether in response to the enactment of a statute or to some other factor unrelated to either a lack of reasonableness or good faith or prejudice to the interests of the government. IV. Proposed§26.2642-7(d)(3) -- Prejudice to the Interests of the Government One commenter queried the placement of two of the factors under§26.2642-7(d)(3) pertaining to whether a grant of relief would prejudice the interests of the government. These two factors are (i) the extent to which the requested relief is an attempt to benefit from hindsight, and (ii) the extent to which a delay in the filing of the request for relief was an attempt to deprive the IRS of sufficient time to challenge the claimed identity of the transferor of the transferred property that is the subject of the request for relief, the value of that transferred property for Federal gift or estate tax purposes, or any other aspect of the transfer that is relevant for Federal gift or estate tax purposes. The commenter recommended that these two factors, to the extent they deal with the transferor's subjective intentions, be moved from proposed§26.2642-7(d)(3) to proposed§26.2642-7(d)(2), which relates to reasonableness and good faith. While these two factors may reflect unreasonableness or bad faith on the part of the transferor or the transferor's executor, each of these factors also represents an instance in which granting relief would prejudice the interests of the government. Therefore, the Treasury Department and the IRS have not adopted this suggestion in the final regulations. V. Proposed§26.2642-7(d)(3)(i) - Hindsight Proposed§26.2642-7(d)(3)(i) provides, in part, that one of the relevant factors in determining whether the government's interests would be prejudiced is whether the grant of the requested relief would permit an economic advantage or other benefit that would not have been available if the allocation or election had been timely made. A commenter suggested that the definition of the term "economic advantage" is vague and may be overbroad, in that no request for relief is ever made unless the grant of relief will be advantageous to the taxpayer by producing an economic advantage in the form of a reduction of tax liability. This provision, however, is intended to limit the reference to economic advantage to an advantage that may not have been available through a timely allocation or election. One example of an economic advantage that would not have been available at the time of a timely allocation of GST exemption would be a request to allocate exemption to only one of two trusts (specifically, to the trust with the greater appreciation) if the two trusts were created on the same date with the same beneficiaries but with different assets. Therefore, the Treasury Department and the IRS have not adopted this suggestion in the final regulations. VI. Proposed§26.2642-7(d)(3)(ii) -- Timing of the Request for Relief Proposed§26.2642-7(d)(3)(ii) provides, in part, that the expiration of any period of limitations on the assessment or collection of transfer taxes prior to the filing of a request for relief will not by itself prohibit a grant of relief. The proposed regulation further states that the combination of the expiration of a period of limitations with the fact that the asset or interest was valued with the use of a valuation discount will not by itself prohibit a grant of relief. A commenter indicated that the relevance of the use of valuation discounts and the period of limitations in determining whether to grant section 2642(g)(1) relief is not clear. The commenter stated that the use of valuation discounts that are consistent with established valuation methods neither prejudices the government nor constitutes an act of bad faith and therefore should not be considered, even in combination with other factors, in determining whether relief should be granted. The commenter also stated that any consideration given to the expiration of the period of limitations is contrary to the legislative history of section 2642(g), which clearly directs that the IRS is to disregard the expiration of any period of limitations in considering requests for relief. The commenter maintains that the IRS should not use hindsight to deny relief simply because the IRS failed to challenge the valuation of transferred property or any other aspect of the transaction reported on a return prior to the expiration of a limitations period. The sentences of proposed§26.2642-7(d)(3)(ii) that discuss the expiration of the period of limitations and the use of valuation discounts as factors that are considered for relief are removed from the final regulations. Section 26.2642-7(d)(3)(iv) is added to the final regulations to confirm that, subject to the considerations related to the timing of the request for relief described in§26.2642-7(d)(3)(ii), the expiration of the period of limitations on the assessment or collection of transfer taxes prior to the filing of a request for relief generally is not relevant to the determination of whether the requirements for a grant of relief under section 2642(g)(1) have been met. Section 26.2642-7(d)(3)(iv) provides, however, that if the IRS concludes that the value of the transferred asset or assets as reported by the transferor or the executor of the transferor's estate on the Federal gift or estate tax return was so understated that it is likely to have satisfied the definition of a "gross valuation misstatement" as defined in section 6662(h)(2)(C) of the Code, the IRS will consider the purported transfer tax undervaluation in determining whether a grant of relief would prejudice the interests of the government. This provision is tied to the definition of a gross valuation misstatement to confirm that the perceived understatement in value would have to be exceptional in degree to raise the possibility of prejudice to the interests of the government. This provision is relevant only if the period of limitations on assessment or collection for transfer tax purposes expired before the filing of the request for relief. VII. Proposed§26.2642-7(d)(3)(iii) -- Intervening Taxable Events Proposed§26.2642-7(d)(3)(iii) provides that the occurrence and effect of an intervening taxable termination or taxable distribution will be considered in determining whether the interests of the government would be prejudiced by granting relief. The proposed regulations further state that the interests of the government may be prejudiced if a taxable termination or taxable distribution occurred between the time for making a timely allocation of GST exemption or a timely election described in section 2632(b)(3) or (c)(5) and the time at which the request for relief under this section was filed. A commenter requested that this language be removed from the final regulations and replaced with a sentence or example indicating that the existence of a GST tax liability when relief is requested is not relevant in determining whether relief under section 2642(g)(1) will be granted. Alternatively, the commenter requested that the final regulations provide that these rules not apply if the period of limitations on the assessment of resulting GST tax has not expired when relief is requested. In addition, the commenter requested that the final regulations provide transferors with the option of paying the GST tax resulting from the taxable termination or taxable distribution occurring prior to submission of the request for relief, or of forfeiting any refund of GST tax to which the transferor otherwise would be entitled upon the grant of relief. These recommendations have not been adopted in the final regulations. Although an intervening taxable distribution or taxable termination itself does not necessarily bar a grant of relief under section 2642(g)(1), it may be relevant in identifying the existence of hindsight or in ascertaining the intent of the transferor. In addition, the difficulty and complexity of making all of the related adjustments caused by a grant of relief (including, for example, the grantor's willingness to pay any GST tax liability and any transfer tax consequences of that payment), some of which might also impact other taxpayers, will be a factor to be considered in determining whether the government's interests would be prejudiced. VIII. Proposed§26.2642-7(e)(1) -- Timely Allocations and Elections Proposed§26.2642-7(e)(1) provides that relief will not be granted to decrease or revoke a timely allocation of GST exemption as described in§26.2632-1(b)(4)(ii)(A)( 1 ), or to revoke an election under section 2632(b)(3) or (c)(5) made on a timely filed Federal gift or estate tax return. Section 2631(b) provides that an allocation of GST exemption under section 2631(a), once made, is irrevocable. No statute, however, provides that an election made under section 2632(b)(3) or (c)(5) is irrevocable. Accordingly, proposed§26.2642-7(e)(1), redesignated in the final regulations as§26.2642-7(e)(2), does not include the statement that relief is not available to revoke an election under section 2632(b)(3) or (c)(5) made on a timely filed Federal gift or estate tax return. Such relief may be available provided that the requirements of§26.2642-7 of these final regulations are satisfied. Further, as described below, the final regulations, as they pertain to timely allocations, include three narrow exceptions that allow for relief from affirmative allocations of GST exemption. Proposed§26.2642-7(e)(1), redesignated in the final regulations as§26.2642-7(e)(2), has been further modified to clarify that the allocation and election referred to is an affirmative (not an automatic) allocation or election. The Treasury Department and the IRS will address the effect of a grant of relief on automatic allocations in future guidance to be issued under section 2642(g). A commenter indicated that it is not clear whether proposed§26.2642-7(e)(1) also applies to allocations of GST exemption with respect to transfers made at death. This rule has been clarified in the final regulations to encompass transfers made at death and confirms that relief will not be granted to decrease or revoke an affirmative allocation (as opposed to an automatic allocation) of GST exemption, regardless of whether the transfer or the allocation of exemption was made during a transferor's life or upon the transferor's death. The commenter further requested that the provision be modified to provide that affirmative allocations (as opposed to automatic allocations) of exemption or elections made on a timely filed estate tax return of the estate of a decedent dying prior to 2001 be exempted from this provision because section 2642(g)(1) relief was not available before December 31, 2000. Although this recommendation has not been adopted in the final regulations for all such allocations of exemption, relief from the problem raised by this comment is provided by the third of the exceptions included in the final regulations, as described in the following paragraphs. The final regulations have been modified to include three narrow exceptions that allow for relief from affirmative allocations and elections. The first exception is that an allocation of GST exemption to a transfer or a trust (other than a charitable lead annuity trust (CLAT) or a trust subject to an estate tax inclusion period (ETIP) before the termination of the lead interest or ETIP, respectively) is void to the extent that the amount allocated exceeds the amount necessary to obtain an inclusion ratio of zero. See§26.2632-1(b)(4)(i). (The allocation of exemption to a CLAT upon its creation may turn out to be insufficient or excessive for the purpose of making the CLAT fully GST exempt, but the allocation will not be voided. The allocation of exemption to a trust subject to an ETIP does not become irrevocable until the termination of the ETIP.) The second exception is that an allocation is void if the allocation is made with respect to a trust that, at the time of the allocation, has no GST potential with respect to the transferor making the allocation. For this purpose, a trust has GST potential even if the possibility of a GST is so remote as to be negligible. See§26.2632-1(b)(4)(i). The third exception is that a late allocation (as defined in section 2642(b)(3)) will be deemed to be void as part of the relief granted under section 2642(g) if the late allocation was made in an effort to mitigate the tax consequences of the missed allocation that is the subject of the grant of relief and that was not eligible for relief prior to the enactment of section 2642(g)(1). Specifically, such a late allocation is deemed to be void if (1) prior to December 31, 2000, a transfer was made to a trust with GST potential with respect to the transferor; (2) a timely allocation of GST exemption to the trust was not made; (3) prior to December 31, 2000, a late allocation of GST exemption was made to the trust; (4) the late allocation is disclosed as part of the request for relief or during the IRS's consideration of that request; and (5) relief under section 2642(g)(1) is granted to make a timely allocation to the transfer made prior to December 31, 2000. Finally, the commenter questioned what effect a grant of relief under section 2642(g)(1) has on a timely allocation (whether affirmative or automatic) of the same transferor's GST exemption to a transfer made subsequent to the transfer for which relief is requested. The commenter suggested that, if relief is granted under section 2642(g)(1) to timely allocate GST exemption to an earlier transfer, the GST exemption timely allocated (whether affirmatively or automatically) to a later transfer could be reduced or eliminated. The commenter suggested that the grant of relief for the earlier transfer could be conditioned on payment of the GST tax that may be due if the inclusion ratio with respect to the subsequent transfer is increased by the grant of relief. The Treasury Department and the IRS believe that, because the response to this comment may go beyond the scope of the proposed regulations, this issue is among those they intend to address in subsequent guidance. IX. Proposed§26.2642-7(f) -- Period of Limitations Under Section 6501 Proposed§26.2642-7(f), redesignated in the final regulations as§26.2642-7(g), provides that a request for relief does not reopen, suspend, or extend the period of limitations on assessment or collection of any estate, gift, or GST tax under section 6501 of the Code. Thus, the IRS may request that the transferor or the transferor's executor consent under section 6501(c)(4) to an extension of the period of limitations on assessment or collection of any or all gift and GST taxes. A commenter requested that the references to gift tax be removed from this provision, apparently in an effort to eliminate the possibility that the grant of relief might be conditioned on the taxpayer's agreement to extend the gift tax period of limitations. The commenter's rationale for this request is that the request for relief relates only to the GST tax. The references to gift tax in this provision, however, complement§26.2642-7(d)(3)(ii) of the final regulations, in effect, by allowing the taxpayer to avoid a finding of prejudice to the interests of the government by agreeing to an extension of the gift tax period of limitations. An agreement to extend the period of limitations is voluntary and declining to agree to an extension would not necessarily mean that relief would be denied, but it is a factor that may be taken into consideration. By retaining this reference to the gift tax, the government would be given adequate time to consider the reported identity of the transferor, the valuation of the transferred interest that will eventually determine the amount of GST exemption that may be allocated to the transfer, or any other aspect of the transfer that is relevant for Federal gift or estate tax purposes. Therefore, this reference has not been deleted from the final regulations. A taxpayer who seeks relief under section 2642(g)(1) will not be regarded as having filed a claim for refund or credit merely by requesting such relief. X. Proposed§26.2642-7(h)(2) and (3) -- Affidavits and Declarations Commenters recommended against requiring affidavits that provide more information than is required under§301.9100-3(e)(2) and (3). One commenter characterized the proposed procedural requirements as more burdensome than the corresponding procedural requirements under the section 9100 provisions and stated that these "more burdensome" requirements for relief are inconsistent with the statutory mandate in section 2642(g). Since the enactment of section 2642(g), the IRS has issued a significant number of private letter rulings granting relief under section 2642(g)(1). After considering the circumstances in the requests, the IRS has concluded that certain information in addition to that specified in§301.9100-3(e)(2) and (3) is necessary to determine whether relief should be granted. Accordingly, based on the IRS's experience in evaluating such requests for relief, the Treasury Department and the IRS have not adopted this recommendation in the final regulations. Another commenter maintained that the affidavits required by proposed§26.2642-7(h) are not necessary for the proper performance of the functions of the IRS and, therefore, the quality, utility, and clarity of the information to be provided by the affidavits cannot be enhanced. In support, the commenter argued that the affidavits demand more substantiation from taxpayers than is contemplated by section 2642(g)(1)(B). In addition, the commenter asserted that the IRS can grant relief under section 2642(g)(1) without requiring these affidavits if the IRS focuses on the government's interest and the transferor's intent as evidenced in the transfer documents and other supporting documents. Finally, the commenter stated that the IRS could determine from the documents previously filed with the IRS that the period of limitations had expired or that a taxable termination or distribution had occurred, both factors that may be indicative of prejudice to the government. In the course of issuing private letter rulings under§301.9100-3, the IRS has determined that, while transfer instruments and other relevant documents provided by the transferor or the transferor's executor provide useful information, these documents do not necessarily provide all of the information needed to evaluate properly a request for relief under section 2642(g)(1). Accordingly, the final regulations retain the requirement that requests for relief include detailed affidavits. However, after consideration of the comments and review of the proposed regulations, the Treasury Department and the IRS have modified the regulations by decreasing the amount of information required in affidavits in order to replicate more closely the requirements of§301.9100-3(e)(2) and (3). As a result, the final regulations reduce the burden the proposed regulations would have imposed. Commenters also requested a narrowing of the categories of individuals from whom affidavits will be required. In addition to individuals involved in the preparation of the tax return, proposed§26.2642-7(h)(3) also includes in this group each tax professional who advised or was consulted on "any aspect of the transfer" or on the trust, and each agent or legal representative of the transferor who participated "in the transaction." Commenters noted that this group may include advisors, agents, or legal representatives of the transferor who had nothing to do with preparing the return or with the decision or failure to allocate exemption or to make an election on that return. In response to these comments, the Treasury Department and the IRS have modified the regulations by narrowing the categories of individuals required to submit affidavits under proposed§26.2642-7(h)(3), redesignated in the final regulations as§26.2642 - 7(i)(4). Specifically, the final regulations do not include in this group of required affiants any tax professional unless that professional participated in or provided advice with regard to the GST tax exemption allocation or election, or with regard to the preparation of the return. As a result, the final regulations reduce the burden the proposed regulations would have imposed. The final regulations, however, also have been modified to confirm that the IRS, consistent with current procedures in the IRS private letter ruling program, may require affidavits and copies of writings from persons not included in the more narrow group described in§26.2642-7(i)(4) in cases in which the IRS believes additional information is required or would be helpful in making the determination as to whether relief under section 2642(g)(1) will be granted. XI. Proposed§26.2642-7(h)(3)(iii) - Affidavits of Other Parties Proposed§26.2642-7(h)(3)(iii) provides that a party making an affidavit must attach to each affidavit copies of any writing (including, without limitation, notes and e-mails) and other contemporaneous documents within the possession of the affiant relevant to the transferor's intent with regard to the application of GST tax to the transaction. A commenter requested that this provision be modified to provide that a lawyer or accountant is not deemed to possess any documents that are in the possession of his or her law firm or accounting firm. In response to this comment, this provision of the final regulations, redesignated in the final regulations as§26.2642-7(i)(4)(iii), clarifies that the writings to be submitted under these regulations are those that the affiant discovers by conducting, in good faith, a reasonably diligent search of records in the possession of or accessible to the affiant, or subject to the affiant's control. A reasonably diligent search generally would include, without limitation, a review of the records in the possession or control of the affiant or the firm with which the affiant is employed or associated relating to the transaction or tax return at issue. XII. Proposed§26.2642-7(h)(3)(v) - Death or Incapacity Proposed§26.2642-7(h)(3)(v) provides that, if a person who would be required to provide an affidavit under proposed§26.2642-7(h)(3)(i) has died or is not competent, the transferor or the transferor's executor must include a statement to that effect in the affidavit of that transferor or executor. A commenter suggested that this proposed provision would require the transferor or the transferor's executor to determine the competency of a person and that such a requirement would be inappropriate. Further, the commenter noted that, in addition to death and incompetence, serious physical illness or other physical impairment also could render a person unable to provide an affidavit. The commenter recommended that this provision be modified to provide that the transferor or the transferor's executor may satisfy the requirements of this provision with a statement that such transferor or executor, despite his or her best efforts in good faith, was unable to obtain the affidavit required under proposed§26.2642-7(h)(3)(i) and an explanation of the basis for the transferor's or executor's conclusion, based on his or her best knowledge and reasonable belief that such affidavit was not obtainable. The corresponding provision in the final regulations (§26.2642-7(i)(4)(vi)) has been modified to apply to persons who have died or who are unwilling or unable to provide the required affidavit at the time relief is requested. For purposes of this provision, the term unwilling refers to a person who does not (other than one who is unable to) provide the required affidavit, despite the best efforts of the transferor or the transferor's executor, made in good faith, to obtain the required affidavit. The unwillingness of certain persons to provide an affidavit, however, may be considered by the IRS in determining whether or not to grant the requested relief. In addition, for purposes of this provision, the term unable refers to a permanent condition such as physical or mental incapacity that prevents a person from providing the required affidavit, but not a temporary condition such as a temporary physical or mental incapacity or a person's inability due to a leave of absence, travel, or a contractual requirement such as a confidentiality agreement. XIII. User Fee and Estimated Burden A commenter noted that taxpayers have to pay a user fee when seeking relief under section 2642(g)(1) through the IRS private letter ruling program. The commenter proposed that, given the complexity of the rules and the frequency of changes to the rules, relief under section 2642(g)(1) should be granted without charging a user fee. The commenter noted that, under other circumstances, the IRS has developed simplified procedures that do not necessitate a private letter ruling request and suggested that the compliance burden would be eased significantly if a simplified procedure to administer relief under section 2642(g)(1) were developed. The Treasury Department and the IRS believe that the most efficient way to address these requests for relief continues to be through the IRS private letter ruling program. The user fee is imposed to recover the government's full cost for providing the service. The Treasury Department and the IRS agree that the compliance burden would be eased significantly if it was possible to develop a simplified procedure to administer relief under section 2642(g)(1). For instance, Rev. Proc. 2004-46 (2004-2 CB 142) and Rev. Proc. 2004-47 (2004-2 CB 169) identify situations in which the Treasury Department and the IRS believe that relief may be granted without adversely affecting the interests of the government. See§601.601(d)(2)(ii)( b ). The Treasury Department and the IRS are prepared to issue additional revenue procedures or other guidance when they identify situations for which simplified or automatic relief under section 2642(g)(1) would be appropriate and administrable. Until such guidance is issued, however, the IRS private letter ruling program will continue to allow the IRS to obtain and evaluate the information necessary to identify such situations. The user fee would follow the same schedule and amount as rulings under§301.9100-1. See Appendix A of Rev. Proc. 2024-1, 2024-1 I.R.B. 1, 85. The IRS had estimated in the proposed regulations that the annual burden to prepare the affidavits was two hours. Many commenters mentioned that the estimated burden was drastically underestimated due to the numerous requirements of the proposed regulations. In response to these comments, the IRS has reconsidered this estimate of the annual burden and has increased the estimated annual burden to 20 hours. Effect on Other Documents Notice 2001-50, 2001-2 CB 189, is obsolete as of May 6, 2024. Special Analyses I. Regulatory Planning and Review Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required. II. Paperwork Reduction Act In accordance with the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. (PRA), information collection requirements contained in these final regulations are in§26.2642 - 7(i)(3) and (4). These provisions require transferors or the executors of transferors' estates to provide one or more affidavits when requesting relief under section 2642(g)(1) of the Internal Revenue Code. The IRS will use the information in the affidavits to determine whether to grant a transferor or a transferor's estate an extension of time to (1) allocate GST exemption as defined in section 2631, (2) elect under section 2632(b)(3) not to have the automatic allocation of GST exemption apply to a direct skip, (3) elect under section 2632(c)(5)(A)(i) not to have the automatic allocation of GST exemption apply to an indirect skip or to transfers made to a particular trust, and (4) elect under section 2632(c)(5)(A)(ii) to treat any trust as a GST trust for purposes of section 2632(c). The reporting burden associated with the information collection in the final regulations are included in the aggregate burden estimates for OMB control number 1545-2116. The estimated number of respondents, who are mainly attorneys representing the taxpayers, for each year is estimated to be 50. The estimated burden for each respondent to prepare the private letter ruling request and the accompanying affidavits is 20 hours per respondent. Thus, the total annual burden is estimated to be 1000 hours. It should be noted that the burden is not an annual burden for each taxpayer, as taxpayers do not need to request a private letter ruling each year. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number. Books or records relating to a collection of information must be retained as long as their contents might become material in the administration of any Internal Revenue law. Generally, tax returns and tax information are confidential, as required by 26 U.S.C. 6103. III. Regulatory Flexibility Act It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. The applicability of these regulations is limited to individuals (or their estates) and trusts, which are not small entities as defined by the Regulatory Flexibility Act (5 U.S.C. 601). Although it is anticipated that there may be a beneficial economic impact for some small entities, including entities that provide tax and legal services that assist individuals in the IRS private letter ruling program, any benefit to those entities would be indirect. Further, this indirect benefit will not affect a substantial number of these small entities because only a limited number of individuals (or their estates) and trusts would submit a private letter ruling request under this rule. Therefore, only a small fraction of tax and legal services entities would generate business or benefit from this rule. Accordingly, a regulatory flexibility analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business and no comments were received in response. IV. Unfunded Mandates Reform Act Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or Tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. This rule does not include any Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector in excess of that threshold. V. Executive Order 13132: Federalism Executive Order 13132 (entitled "Federalism") prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on State and local governments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. These proposed regulations do not have federalism implications and do not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order. Drafting Information The principal author of these regulations is Mayer R. Samuels, Office of the Associate Chief Counsel (Passthroughs and Special Industries), IRS. However, other personnel from the Treasury Department and the IRS participated in their development. List of Subjects 26 CFR Part 26 Estate taxes, Reporting and recordkeeping requirements. 26 CFR Part 301 Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements. 26 CFR Part 602 Reporting and recordkeeping requirements. Adoption of Amendments to the Regulations Accordingly, the Treasury Department and the IRS amend 26 CFR parts 26, 301, and 602 as follows: PART 26--GENERATION-SKIPPING TRANSFER TAX REGULATIONS UNDER THE TAX REFORM ACT OF 1986 Paragraph 1. The authority citation for part 26 is amended by adding an entry for§26.2642-7 in numerical order to read in part as follows: Authority: 26 U. S. C. 7805 * * * * * * * * Section 26.2642-7 also issued under 26 U.S.C. 2642(g). * * * * * Par. 2. Section 26.2642-7 is added to read as follows:§26.2642-7 Relief under section 2642(g)(1). (a) In general. Under section 2642(g)(1)(A) of the Internal Revenue Code (Code), the Secretary of the Treasury or her delegate (Secretary) has the authority to issue regulations describing the circumstances in which a transferor, as defined in section 2652(a) of the Code, or the executor of a transferor's estate, as defined in section 2203 of the Code, will be granted an extension of time to allocate generation-skipping transfer (GST) exemption as described in section 2642(b)(1) and (2). The Secretary also has the authority to issue regulations describing the circumstances under which a transferor or the executor of a transferor's estate will be granted an extension of time to make the elections described in section 2632(b)(3) and (c)(5) of the Code. Section 2632(b)(3) provides that an election may be made by or on behalf of a transferor not to have the transferor's GST exemption automatically allocated under section 2632(b)(1) to a direct skip, as defined in section 2612(c), made by the transferor during life. Section 2632(c)(5)(A)(i) provides that an election may be made by or on behalf of a transferor not to have the transferor's GST exemption automatically allocated under section 2632(c)(1) to an indirect skip, as defined in section 2632(c)(3)(A), or to any or all transfers made by such transferor to a particular trust. Section 2632(c)(5)(A)(ii) provides that an election may be made by or on behalf of a transferor to treat any trust as a GST trust, as defined in section 2632(c)(3)(B), for purposes of section 2632(c) with respect to any or all transfers made by that transferor to the trust. This section generally describes the factors that the Internal Revenue Service (IRS) will consider when an extension of time is sought by or on behalf of a transferor to timely allocate GST exemption or to make an election under section 2632(b)(3) or (c)(5). If the time period for an automatic six-month extension under paragraph (i)(1) of this section has passed, relief provided under this section can be requested through the IRS private letter ruling program. See paragraph (i) of this section. (b) Effect of relief --(1) In general. If an extension of time to allocate GST exemption is granted under this section, the allocation of GST exemption, once made, will be considered effective as of the date of the transfer. Further, the amount of the transferor's GST exemption required to be allocated in order to produce a zero inclusion ratio solely with regard to that transfer will be the value of the property transferred for purposes of chapter 11 or chapter 12 of the Code as of the date of the transfer. If an extension of time to elect out of the automatic allocation of GST exemption under section 2632(b)(3) or (c)(5)(A)(i) is granted under this section, the election, once made, will be considered effective as of the date of and immediately prior to the transfer. If an extension of time to elect to treat any trust as a GST trust under section 2632(c)(5)(A)(ii) is granted under this section, the election, once made, will be considered effective as of the date of and immediately prior to the first (or each) transfer covered by that election. See paragraph (h) of this section with regard to preserving a taxpayer's eligibility for a refund generated by a grant of relief, if applicable. (2) [Reserved] (3) Effect on other transfers. Except as otherwise provided in paragraph (e)(2)(ii) of this section, an allocation of exemption or an election made pursuant to a grant of relief under this section does not reduce or eliminate any affirmative allocation or void any election made with respect to any other transfer occurring contemporaneously with or subsequent to the transfer or transfers for which relief has been granted. (c) Limitation on relief. The amount of GST exemption that may be allocated to a transfer as the result of relief granted under this section in no event may exceed the amount of the transferor's unused GST exemption under section 2631(c) of the Code as of the date of the transfer. Thus, if, by the time of the making of the allocation or election pursuant to relief granted under this section, the GST exemption amount under section 2631(c) has increased to an amount in excess of the amount in effect for the date of the transfer, no portion of the increased amount may be applied to that earlier transfer by reason of the relief granted under this section. (d) Basis for determination --(1) In general. Requests for relief under this section will be granted when and to the extent that the transferor or the executor of the transferor's estate provides evidence (including the affidavits described in paragraph (i) of this section) establishing to the satisfaction of the IRS that the transferor or the executor of the transferor's estate acted reasonably and in good faith, and that the grant of relief will not prejudice the interests of the government. Paragraphs (d)(2) and (3) of this section set forth nonexclusive lists of factors the IRS will consider in determining whether this standard of reasonableness, good faith, and lack of prejudice to the interests of the government has been met so that such relief will be granted. In making this determination, the IRS will consider those factors set forth in paragraphs (d)(2) and (3) of this section, as well as all other facts and circumstances not specifically set forth herein that are relevant to the particular situation. Paragraph (e) of this section sets forth some situations in which this standard is not met and, as a result, in which relief under this section will not be granted. (2) Reasonableness and good faith. The following is a nonexclusive list of factors that will be considered in determining whether the transferor or the executor of the transferor's estate acted reasonably and in good faith for purposes of this section. Not all of these factors may be relevant in a particular situation (and those that are not relevant are not required to be addressed in the request for relief made in accordance with paragraph (i) of this section). Further, it is possible that the evidence relating to any one of these factors, in the context of all of the facts and circumstances of the particular situation, may be sufficient to persuade the IRS that the grant of relief under section 2642(g)(1) would be appropriate. However, as a general rule, no single factor (whether listed or not) will be determinative in all cases. The factors are as follows: (i) Intent. The intent of the transferor to timely allocate GST exemption to a transfer or to timely make an election under section 2632(b)(3) or (c)(5), as evidenced in the trust instrument, the instrument of transfer, or other relevant documents contemporaneous with the transfer, such as Federal gift and estate tax returns and correspondence. This may include evidence of the intended GST tax status of the transfer or the trust (for example, exempt, non-exempt, or partially exempt), or more explicit evidence of intent with regard to the allocation of GST exemption or the election under section 2632(b)(3) or (c)(5). (ii) Intervening events. Intervening events beyond the control of the transferor or of the executor of the transferor's estate that caused the failure to allocate GST exemption to a transfer or the failure to make an election under section 2632(b)(3) or (c)(5). (iii) Lack of awareness. Lack of awareness, despite the exercise of reasonable diligence, by the transferor or the executor of the transferor's estate of the need to allocate GST exemption to the transfer, taking into account the experience of the transferor or the executor of the transferor's estate and the complexity of the GST tax issue, as the cause of the failure to allocate GST exemption to a transfer or to make an election under section 2632(b)(3) or (c)(5). (iv) Consistency. Consistency by the transferor with regard to the allocation of the transferor's GST exemption to one or more trusts or skip persons. For example, the transferor's consistent pattern of allocation of GST exemption to transfers (whether or not made in consecutive years) to skip persons or to a particular trust, or the transferor's consistent pattern of electing not to have the automatic allocation of GST exemption apply to transfers (whether or not made in consecutive years), will be taken into consideration. Evidence of consistency may be less relevant if there has been a change of circumstances or a change of trust beneficiaries that otherwise would explain a deviation from prior GST exemption allocation decisions. Relief under this section will not be denied merely because a pattern of allocation or election does not exist or because the existing pattern changed at some point, whether in response to the enactment of section 2642(g) or to some other factor unrelated to either a lack of reasonableness or good faith or prejudice to the interests of the government. (v) Qualified tax professional. Reasonable reliance by the transferor or the executor of the transferor's estate on the advice of a qualified tax professional retained or employed by one or both of them and either the failure of the tax professional, or, in reliance on or consistent with (or in the absence of) that tax professional's advice, the failure of the transferor or the executor, to allocate GST exemption to the transfer or to make an election described in section 2632(b)(3) or (c)(5). Reliance on a qualified tax professional will not be considered to have been reasonable if the transferor or the executor of the transferor's estate knew or should have known that the professional either-- (A) Was not competent to render advice on the GST exemption; or (B) Was not aware of all relevant facts. (3) Prejudice to the interests of the government. The following is a nonexclusive list of factors that will be considered to determine whether the interests of the government would be prejudiced for purposes of this section: (i) Hindsight. An attempt to benefit from hindsight will be deemed to prejudice the interests of the government. A factor relevant to this determination is whether the grant of the requested relief would permit an economic advantage or other benefit that would not have been available if the allocation or election had been timely made. For example, there may be prejudice if a grant of the requested relief would permit an economic advantage or other benefit that results from the selection of one out of a number of alternatives (other than whether or not to make an allocation or election) that were available at the time the allocation or election could have been timely made, if hindsight makes the selected alternative more beneficial than the other alternatives. Prejudice also would exist if the transferor failed to make the allocation or election in order to wait to see (thus, with the benefit of hindsight) whether making an allocation of exemption or election would be more beneficial than not making the allocation or election. For instance, assume that a transferor funds several trusts with different property interests on the same date, and does not allocate GST exemption to any trust. Several years later, the transferor seeks relief to allocate GST exemption to the trust that enjoyed the greatest asset appreciation and thus constitutes the most effective use of the transferor's GST exemption. Relief will not be granted because the transferor attempted to benefit from hindsight and thereby acquire an economic advantage. (ii) Timing of the request for relief. The timing of the request for relief will be considered in determining whether the interests of the government would be prejudiced by granting relief under this section. The interests of the government would be prejudiced if delay by the transferor or the executor of the transferor's estate in the filing of the request for relief was intended to deprive the IRS of a sufficient period of time in which to challenge any element of the transfer that is the subject of the request for relief, such as the value of the transferred property for Federal gift or estate tax purposes, the claimed identity of the transferor of the transferred property, or any other aspect of the transfer that is relevant for Federal gift or estate tax purposes. For this purpose, such intent will be presumed, but may be rebutted by evidence persuasive to the IRS of the existence of other reasons for or circumstances causing the delay. (iii) Intervening taxable events. The occurrence and effect of an intervening taxable termination or taxable distribution will be considered in determining whether and to what extent the interests of the government would be prejudiced by a grant of relief under this section. The interests of the government may be prejudiced if a taxable termination or a taxable distribution occurred between the time for making a timely allocation of GST exemption or a timely election described in section 2632(b)(3) or (c)(5) and the time at which the request for relief under this section was filed. The impact of a grant of relief on (and the difficulty of adjusting) the GST tax consequences of that intervening termination or distribution will be considered in determining whether the occurrence of a taxable termination or taxable distribution constitutes prejudice. (iv) Closed years. Subject to the considerations described in paragraph (d)(3)(ii) of this section, the expiration of any period of limitations on the assessment or collection of transfer taxes prior to the filing of a request for relief under this section generally is not relevant to the determination of whether the requirements for a grant of relief under this section have been met. If that period has expired, however, and if the IRS concludes that the value of the transferred asset or assets as reported on a Federal gift or estate tax return by the transferor or the executor of the transferor's estate is likely to have satisfied the definition of a gross valuation misstatement as defined in section 6662(h)(2)(C) of the Code, the IRS will consider the purported undervaluation in determining whether a grant of relief will prejudice the interests of the government. (e) Situations in which the standard of reasonableness, good faith, and lack of prejudice to the interests of the government has not been met --(1) In general. Relief under this section will not be granted if the IRS determines that the transferor or the executor of the transferor's estate has not acted reasonably and in good faith, or that the grant of relief would prejudice the interests of the government. The following situations illustrate some circumstances in which the standard of reasonableness, good faith, and lack of prejudice to the interests of the government has not been met, and as a result, in which relief under this section will not be granted. (2) Affirmative allocations --(i) In general, relief will not be granted under this section to the extent that it would decrease or revoke an affirmative (but not automatic) allocation of GST exemption under section 2632(a) or 2642(b) that was made on a Federal gift or estate tax return, regardless of whether the transfer or the allocation of exemption was made during the transferor's life or upon the transferor's death. (ii) There are three exceptions to this general rule, as follows. No request for relief is required for either of the first two exceptions: (A) An allocation of GST exemption is void to the extent the amount allocated exceeds the amount necessary to obtain an inclusion ratio of zero with respect to the property transferred or to the trust. This provision does not apply to charitable lead annuity trusts, nor does it apply to an allocation made to a trust subject to an estate tax inclusion period before the termination of that period. See§26.2632-1(b)(4)(i). (B) An allocation is void if the allocation is made with respect to a trust that, at the time of the allocation, has no GST potential with respect to the transferor making the allocation. For this purpose, a trust has GST potential even if the possibility of a GST is so remote as to be negligible. See§26.2632-1(b)(4)(i). (C) A late allocation of GST exemption, as described in section 2642(b)(3), to a transfer or to a trust will be deemed void upon the grant of relief under this section if-- ( 1 ) Prior to December 31, 2000, a transfer is made that is subject to GST tax or to a trust that has GST potential with respect to the transferor; ( 2 ) A timely allocation of GST exemption was not made to the transfer or the trust, and this missed allocation was not eligible for relief prior to the enactment of section 2642(g)(1); ( 3 ) Prior to December 31, 2000, a late allocation of GST exemption was made to the transfer or the trust; ( 4 ) The late allocation is disclosed as part of the request for relief or during the IRS's consideration of that request; and ( 5 ) Relief under this section is granted to make a timely allocation to the transfer or the trust described in paragraph (e)(2)(ii)(C)( 1 ) of this section. (3) Timing. Relief will not be granted with regard to a transfer reported on the transferor's gift tax return in the situation in which the transferor filed the request for relief shortly after the expiration of the period during which an assessment of gift tax could be made with respect to that transfer, the IRS reasonably concludes that the transferor intentionally delayed that filing for the purpose of preventing an IRS examination of the reported value of the property subject to that transfer or the claimed identity of the transferor or other fact relevant for transfer tax purposes, and the transferor is unable to produce evidence sufficient to convince the IRS that the filing delay was attributable to some other reason or purpose. (4) Failure after being accurately informed. Relief will not be granted under this section if the decision made by the transferor or the executor of the transferor's estate (who had been accurately informed in all material respects by a qualified tax professional retained or employed by either (or both) of them with regard to the allocation of GST exemption or an election described in section 2632(b)(3) or (c)(5)) was reflected or implemented by the action or inaction that is the subject of the request for relief. (5) Hindsight. Relief under this section will not be granted if the IRS determines that the requested relief is an attempt to benefit from hindsight by waiting to see which of multiple transfers, made at substantially the same time but consisting of different property interests, enjoyed the greatest appreciation and thus would constitute the most effective use of the transferor's GST exemption. (f) [Reserved] (g) Period of limitations under section 6501. A request for relief under this section does not reopen, suspend, or extend the period of limitations on assessment or collection of any estate, gift, or GST tax under section 6501 of the Code. The IRS may request that the transferor or the transferor's executor consent, under section 6501(c)(4) and prior to the expiration of that period of limitations, to an extension of the period of limitations on assessment or collection of any or all gift and GST taxes for the transfer or transfers that are the subject of the requested relief. The transferor or the transferor's executor has the right to refuse to extend the period of limitations, or to limit any such extension to particular issues or to a particular period of time. See section 6501(c)(4)(B). Because a consent to an extension (whether or not limited) may eliminate prejudice to the interests of the government described in paragraphs (d)(3)(ii) and (e)(3) of this section, a refusal to consent to an extension is a factor that may adversely impact the availability of the requested relief. (h) Refunds. The filing of a request for relief under section 2642(g)(1) with the IRS does not constitute a claim for refund or credit of an overpayment and no implied right to refund will arise from the filing of such a request for relief. Similarly, the filing of such a request for relief does not extend the period of limitations under section 6511 of the Code for filing a claim for refund or credit of an overpayment. If the grant of relief under section 2642(g)(1) results in the decrease of a trust's inclusion ratio or a reduction in the amount of a direct skip, and thus in a potential claim for refund or credit of an overpayment of tax, no such refund or credit will be allowed to the taxpayer or to the taxpayer's estate if the period of limitations under section 6511 for filing a claim for a refund or credit of the Federal gift, estate, or GST tax that was reduced by the granted relief has expired, unless a claim for refund or credit was filed before the expiration of that period. The taxpayer or the taxpayer's estate is responsible for preserving any potential claim for refund or credit. (i) Procedural requirements --(1) Automatic 6-month extension. An automatic extension of 6 months from the due date of the gift or estate tax return, or of the Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, of a decedent dying in calendar year 2010, (in each case, excluding extensions) is granted to file a supplemental return or Form 8939 on which the transferor or the executor of the transferor's estate may allocate GST exemption or make an election under section 2632(b)(3) or (c)(5). This extension, however, is available only if the transferor (or the executor of a transferor's estate) both timely filed the gift or estate tax return or the Form 8939 on which the GST exemption should have been allocated or the election should have been made, and, within that 6-month extension period, files a supplemental return or other supplementary filing. On the supplemental return or other filing, the taxpayer must comply with all of the requirements for allocating GST exemption under section 2632 or for making the election under section 2632(b)(3) or (c)(5) for the year the allocation or election should have been made to make a valid allocation or election. Any supplemental return filed pursuant to this paragraph must say FILED PURSUANT TO§26.2642-7(i)(1) on the front page of the return or the Form 8939, and must be sent to the same address that a timely return or Form 8939 on which the allocation or election should have been made would have been sent, subject to address changes in future forms or instructions or guidance published in the Internal Revenue Bulletin. See§601.601(d)(2) of this chapter. No request for a private letter ruling is required and, as a result, no user fee is required to be paid. (2) Private letter ruling program. Except for the automatic 6-month extension provided in paragraph (i)(1) of this section, the relief described in this section is provided through the IRS's private letter ruling program. Requests for relief may be submitted in accordance with the applicable procedures for requests for a private letter ruling. (3) Affidavit and declaration of transferor or the executor of the transferor's estate. (i) The transferor or the executor of the transferor's estate must submit a detailed affidavit describing the events that led to the failure to timely allocate GST exemption to a transfer or the failure to timely elect under section 2632(b)(3) or (c)(5), and the events that led to the discovery of the failure. In situations described in paragraph (i)(4)(vi) of this section, this affidavit also must include the additional information and statements described in that paragraph. If the transferor or the executor of the transferor's estate relied on a tax professional for advice with respect to the allocation or election, the affidavit also must describe-- (A) The scope of the engagement; (B) The responsibilities the transferor or the executor of the transferor's estate believed the professional had assumed; and (C) The extent to which the transferor or the executor of the transferor's estate relied on the professional. (ii) Attached to each affidavit must be copies of any writings (including, without limitation, notes and e-mails) and other contemporaneous documents within the possession or control of the affiant relevant to the determination of the transferor's intent with regard to the application of GST tax to the transaction for which relief under this section is requested. (iii) The affidavit must be accompanied by a dated declaration, signed by the transferor or the executor of the transferor's estate, that states: Under penalties of perjury, I declare that I have examined this affidavit, including any attachments thereto, and to the best of my knowledge and belief, this affidavit, including any attachments thereto, is true, correct, and complete. In addition, under penalties of perjury, I declare that I have examined all the documents included as part of this request for relief, and that, to the best of my knowledge and belief, these documents collectively contain all the relevant facts relating to the request for relief and such facts are true, correct, and complete. (4) Affidavits and declarations from other parties. (i) The transferor or the executor of the transferor's estate must submit detailed affidavits from the individuals specified in paragraphs (i)(4)(i)(A) through (D) of this section and other individuals who have knowledge or information about the events that led to the failure to allocate GST exemption or to elect under section 2632(b)(3) or (c)(5), or to the discovery of the failure. These individuals may include individuals whose knowledge or information is not within the personal knowledge of the transferor or the executor of the transferor's estate. The individuals described in this paragraph must include-- (A) Each agent or legal representative of the transferor who participated in the consideration of, or the decision with regard to, the allocation of GST exemption or the election under section 2632(b)(3) or (c)(5), or the preparation of the return for which relief is being requested; (B) The preparer of the relevant Federal estate or gift tax return or returns; (C) Each individual (including an employee of the transferor or of the executor of the transferor's estate) who provided information or advice with regard to, or otherwise made a significant contribution to, the decision concerning the allocation of GST exemption, the election under section 2632(b)(3) or (c)(5), or the preparation of the relevant Federal estate and/or gift tax return or returns; and (D) Each tax professional who advised or was consulted by the transferor or the executor of the transferor's estate with regard to the allocation of GST exemption, the election under section 2632(b)(3) or (c)(5), or the preparation of the relevant Federal estate or gift tax return or returns. (ii) Each affidavit must describe the scope of the engagement and the responsibilities of the individual as well as the advice or service the individual provided to the transferor or the executor of the transferor's estate. (iii) Attached to each affidavit must be a copy of each writing (including, without limitation, notes and e-mails) and other contemporaneous documents within the possession of the affiant relevant to the transferor's intent or the affiant's advice with regard to the application of GST tax to the transaction for which relief under this section is requested. The documents that the affiant discovers by conducting in good faith a reasonably diligent search of records in the possession of or accessible to the affiant, or subject to the affiant's control, will be sufficient to satisfy the requirements of this paragraph (i)(4)(iii). A reasonably diligent search generally would include, without limitation, a review of the records in the possession or control of the affiant or the firm at which the affiant is employed or associated relating to the transaction or tax return at issue. (iv) The IRS may require additional affidavits from persons not set forth in paragraph (i)(4)(i) of this section as well as additional documents when additional information or documents with respect to a transfer is believed by the IRS to be required or helpful in making its determination as to whether relief under this section should be granted. (v) Each affidavit also must include the name and current address of the affiant, and must be accompanied by a dated declaration signed by the affiant that states: Under penalties of perjury, I declare that I have personal knowledge of the information set forth in this affidavit, including any attachments thereto. In addition, under penalties of perjury, I declare that I have examined this affidavit, including any attachments thereto, and, to the best of my knowledge and belief, the affidavit contains all the relevant facts and the attachments include copies of all relevant writings or other documents resulting from a reasonably diligent search, conducted in good faith, of all records within my possession, accessible to me, or subject to my control, relating to the allocation of GST exemption, the election under section 2632(b)(3) or (c)(5), and the preparation of the tax return at issue in the request for relief filed by or on behalf of [ transferor or executor of transferor's estate ], and such facts and attached documents are true, correct, and complete. (vi) If an individual who would be required to provide an affidavit under paragraph (i)(4)(i) of this section has died or is unwilling or otherwise unable to provide the required affidavit, the affidavit required under paragraph (i)(3) of this section must include a statement to that effect, as well as a statement describing the relationship between that individual and the transferor or the executor of the transferor's estate; the information or knowledge the transferor or the executor of the transferor's estate believes that individual had about the events that led to the failure to make the allocation or the election or to the discovery of that failure; and, in cases other than the death of the individual, a detailed description of the efforts made to obtain the affidavit from the individual. The unwillingness of certain affiants to provide an affidavit, however, may be considered by the IRS in determining whether to grant the requested relief. For purposes of this paragraph (i)(4)(vi), the term unwilling refers to a person who is apparently able but refuses or otherwise fails, despite the best efforts, made in good faith, of the transferor or the transferor's executor, to provide the required affidavit. In addition, for purposes of this paragraph, the term unable refers to a permanent or potentially long-term condition such as physical or mental incapacity that prevents the person from providing the required affidavit, but not a temporary condition such as a temporary physical or mental incapacity or a person's inability due to a leave of absence, travel, or a contractual requirement such as a confidentiality agreement. (5) Additional rules regarding relief. For purposes of relief under paragraphs (i)(1) and (2) of this section, the grant of relief in the form of an extension of time is not a determination that the taxpayer is otherwise eligible to make the election. In addition, notwithstanding the provisions of this section, an extension of time will not be granted under this section if alternative relief is provided by a statute, a regulation published in the Federal Register, or a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin (see§601.601(d)(2) of this chapter). (j) Applicability date. This section applies to requests for relief to which section 2642(g)(1) applies that are filed on or after May 6, 2024, regardless of the date of the transfer. PART 301--PROCEDURE AND ADMINISTRATION Par. 3. The authority citation for part 301 continues to read in part as follows: Authority: 26 U.S.C. 7805. Par. 4. Section 301.9100-2 is amended by adding paragraph (f) to read as follows:§301.9100-2 Automatic extensions. (f) Automatic 6-month extension for certain generation-skipping transfer tax allocations and elections --(1) Availability. Paragraph (b) of this section is not available to obtain an automatic 6-month extension to allocate generation-skipping transfer (GST) exemption to a transfer pursuant to section 2632 or to make an election under section 2632(b)(3) or (c)(5). An automatic 6-month extension to allocate GST exemption under section 2632 or to make an election under section 2632(b)(3) or (c)(5) is available to transferors or the executors of transferors' estates pursuant to§26.2642-7(i)(1) of this chapter if the requirements of that provision are satisfied. (2) Applicability date. Paragraph (f) of this section applies to any gift or estate tax return or Form 8939, Allocation of Increase in Basis for Property Acquired from a Decedent, for which the date prescribed for filing is on or after May 6, 2024 (excluding extensions), regardless of the date of the transfer. Par. 5. Section 301.9100-3 is amended by adding paragraph (g) to read as follows:§301.9100-3 Other extensions. (g) Relief under section 2642(g)(1) --(1) Procedures. The procedures set forth in this section are not applicable for requests for relief under section 2642(g)(1). For requests for relief under section 2642(g)(1), see§26.2642-7 of this chapter. (2) Applicability date. This paragraph (g) applies to requests for relief to which section 2642(g)(1) applies that are filed on or after May 6, 2024, regardless of the date of the transfer. PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT Par. 6. The authority citation for part 602 continues to read as follows: Authority: 26 U.S.C. 7805. Par. 7. In§ 602.101, amend the table in paragraph (b) by adding an entry in numerical order for "§26.2642 - 7(i)(3) and (4)" to read as follows:§602.101 OMB Control numbers. * * * * * (b) * * * Douglas W. O'Donnell Deputy Commissioner. Approved: March 12, 2024 Aviva R. Aron-Dine Acting Assistant Secretary of the Treasury (Tax Policy). (Filed by the Office of the Federal Register May 3, 2024, 8:45 a.m., and published in the issue of the Federal Register for May 6, 2024, 89 FR 37116)

Notice 2022-46 Internal Revenue Service 2022-43 I.R.B. 306 Request for Comments on Credits for Clean Vehicles Notice 2022-46 SECTION 1. PURPOSE The Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) plan to issue guidance under § 30D and § 25E of the Internal Revenue Code (Code), as amended by §§ 13401 and 13402, respectively, of Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA). This notice requests general comments on questions under § 25E and the amendments to § 30D, as well as specific comments involving questions described in section 3 of this notice. Comments received in response to this notice will help to inform development of guidance implementing §§ 30D and 25E. SECTION 2. BACKGROUND.01 Section 30D, Clean Vehicle Credit Section 30D of the Code was originally enacted by § 205(a) of the Energy Improvement and Extension Act of 2008, Division B of Public Law 110-343, 122 Stat. 3765, 3835 (October 3, 2008), to provide a credit for purchasing and placing in service of new qualified plug-in electric drive motor vehicles. Section 30D of the Code has been amended several times since its enactment, most recently by § 13401 of the IRA. In general, the amendments made by § 13401 of the IRA to § 30D of the Code apply to vehicles placed in service after December 31, 2022, except as provided in § 13401(k)(2) through (5) of the IRA. Section 13401(a) of the IRA amends § 30D(b) of the Code to provide a maximum credit of $7,500 per vehicle, consisting of $3,750 in the case of a vehicle that meets certain critical minerals requirements and $3,750 in the case of a vehicle that meets certain battery components requirements. The amendments made by § 13401(a) of the IRA are applicable to vehicles placed in service after the date on which the Secretary of the Treasury or her delegate (Secretary) issues proposed guidance described in new § 30D(e)(3)(B) of the Code (proposed battery guidance date) relating to new critical minerals requirements described in new § 30D(e)(1)(A) and new battery components requirements described in new § 30D(e)(2)(A). See § 13401(k)(3) of the IRA. Section 13401(b) of the IRA amends § 30D(d) of the Code by adding new § 30D(d)(1)(G) and new § 30D(d)(5) applicable to vehicles sold after the date of enactment of the IRA (that is, August 16, 2022). See § 13401(k)(2) of the IRA. Section 30D(d)(1)(G) requires any vehicle eligible for the credit under § 30D to undergo final assembly in North America. For purposes of new § 30D(d)(1)(G), new § 30D(d)(5) defines "final assembly" as the process by which a manufacturer produces a new clean vehicle at, or through the use of, a plant, factory, or other place from which the vehicle is delivered to a dealer or importer with all component parts necessary for the mechanical operation of the vehicle included with the vehicle, whether or not the component parts are permanently installed in or on the vehicle. Section 13401(c) of the IRA further amends § 30D(d) of the Code by making the credit applicable to "new clean vehicles," instead of "new qualified plug-in electric drive motor vehicles," for vehicles placed in service after December 31, 2022. As amended by § 13401(c) and (g)(2) of the IRA, § 30D(d)(1) of the Code defines a "new clean vehicle" as a motor vehicle that satisfies the following eight requirements set forth in § 30D(d)(1)(A) through (H) of the Code: (A) The original use of the motor vehicle must commence with the taxpayer. (B) The motor vehicle must be acquired for use or lease by the taxpayer and not for resale. (C) The motor vehicle must be made by a qualified manufacturer. (D) The motor vehicle must be treated as a motor vehicle for purposes of title II of the Clean Air Act. (E) The motor vehicle must have a gross vehicle weight rating of less than 14,000 pounds. (F) The motor vehicle must be propelled to a significant extent by an electric motor which draws electricity from a battery that has a capacity of not less than 7 kilowatt hours, and is capable of being recharged from an external source of electricity. (G) The final assembly of the motor vehicle must occur within North America. (H) The person who sells any vehicle to the taxpayer must furnish a report to the taxpayer and to the Secretary containing the following six items: (i) The name and taxpayer identification number of the taxpayer. (ii) The vehicle identification number of the vehicle, unless, in accordance with any applicable rules promulgated by the Secretary of Transportation, the vehicle is not assigned such a number. (iii) The battery capacity of the vehicle. (iv) Verification that original use of the vehicle commences with the taxpayer. (v) The maximum credit under § 30D allowable to the taxpayer with respect to the vehicle. (vi) In the case of a taxpayer who makes an election to transfer the credit under § 30D(g)(1) (described below), any amount described in § 30D(g)(2)(C) which has been provided to such taxpayer. The Secretary may prescribe the time and manner of the report. Section 13401(c) of the IRA further amends § 30D(d)(3) of the Code to replace the term "manufacturer" with "qualified manufacturer" applicable to vehicles placed in service after December 31, 2022. As amended by the IRA, § 30D(d)(3) of the Code defines a "qualified manufacturer" as any manufacturer (within the meaning of the regulations prescribed by the Administrator of the Environmental Protection Agency for purposes of the administration of title II of the Clean Air Act (42 U.S.C. 7521 et seq.)) that enters into a written agreement with the Secretary under which such manufacturer agrees to make periodic written reports to the Secretary (at such times and in such manner as the Secretary may provide) providing vehicle identification numbers and such other information related to each vehicle manufactured by such manufacturer as the Secretary may require. Section 13401(c) of the IRA adds new § 30D(d)(6) to the Code, which includes in the definition of the term "new clean vehicle" applicable to vehicles placed in service after December 31, 2022, any "new qualified fuel cell motor vehicle" (as defined in § 30B(b)(3)) that meets the requirements under § 30D(d)(1)(G) and (H). Section 13401(c) of the IRA also makes conforming amendments to § 30D(a) and (b)(1) of the Code to allow a credit for the taxable year with respect to each "new clean vehicle" placed in service by a taxpayer during the taxable year and after December 31, 2022. Section 13401(d) of the IRA eliminates the manufacturer limitation on the number of vehicles eligible for the § 30D credit by striking former § 30D(e) applicable to vehicles sold after December 31, 2022. See § 13401(k)(5) of the IRA. Section 13401(e) of the IRA provides new critical minerals requirements and new battery components requirements in new § 30D(e) applicable to vehicles placed in service after the proposed battery guidance date. New § 30D(e)(1)(A) provides that the critical minerals requirement with respect to the battery from which the electric motor of a vehicle draws electricity is satisfied if the percentage of the value of the applicable critical minerals (as defined in § 45X(c)(6)) contained in such battery that were (i) extracted or processed in the United States, or in any country with which the United States has a free trade agreement in effect, or (ii) recycled in North America, is equal to or greater than the applicable percentage (as certified by the qualified manufacturer, in such form or manner as prescribed by the Secretary). The applicable percentage for the critical minerals requirement is set forth in § 30D(e)(1)(B)(i) through (v) of the Code and varies based on when the vehicle is placed in service. In the case of a vehicle placed in service after the proposed battery guidance date and before January 1, 2024, the applicable percentage is 40 percent. In the case of a vehicle placed in service during calendar year 2024, 2025, and 2026, the applicable percentage is 50 percent, 60 percent, and 70 percent, respectively. In the case of a vehicle placed in service after December 31, 2026, the applicable percentage is 80 percent. Section 13401(e) of the IRA amends § 30D(e)(2)(A) of the Code applicable to vehicles placed in service after the proposed battery guidance date to provide that the battery components requirement with respect to the battery from which the electric motor of a vehicle draws electricity is satisfied if the percentage of the value of the components contained in such battery that were manufactured or assembled in North America is equal to or greater than the applicable percentage (as certified by the qualified manufacturer, in such form or manner as prescribed by the Secretary). The applicable percentage for the battery components requirement is set forth in § 30D(e)(2)(B)(i) through (vi) of the Code and varies based on when the vehicle is placed in service. In the case of a vehicle placed in service after the proposed battery guidance date and before January 1, 2024, the applicable percentage is 50 percent. In the case of a vehicle placed in service during calendar year 2024 or 2025, the applicable percentage is 60 percent. In the case of a vehicle placed in service during calendar year 2026, 2027, and 2028, the applicable percentage is 70 percent, 80 percent, and 90 percent, respectively. In the case of a vehicle placed in service after December 31, 2028, the applicable percentage is 100 percent. New § 30D(e)(3)(A) of the Code authorizes the Secretary to issue such regulations or other guidance as the Secretary determines necessary to carry out the purposes of new § 30D(e), including regulations or other guidance which provides for requirements for recordkeeping or information reporting for purposes of administering the new critical minerals requirements and new battery components requirements of new § 30D(e). New § 30D(e)(3)(B) of the Code requires the issuance of proposed guidance with respect to the new critical minerals requirements and new battery components requirements under new § 30D(e) not later than December 31, 2022. As amended by § 13401(e) of the IRA, § 30D(d)(7) of the Code excludes, after certain specified dates, vehicles placed in service with batteries containing certain critical minerals or battery components from a foreign entity of concern from the definition of the term "new clean vehicle." In particular, amended § 30D(d)(7) provides that the term "new clean vehicle" does not include (A) any vehicle placed in service after December 31, 2024, with respect to which any of the applicable critical minerals contained in the battery of such vehicle (as described in § 30D(e)(1)(A)) were extracted, processed, or recycled by a foreign entity of concern (as defined in § 40207(a)(5) of the Infrastructure Investment and Jobs Act (42 U.S.C. 18741(a)(5))), or (B) any vehicle placed in service after December 31, 2023, with respect to which any of the components contained in the battery of such vehicle (as described in § 30D(e)(2)(A)) were manufactured or assembled by a foreign entity of concern (as so defined). Section 13401(f) of the IRA adds four new special rules under § 30D(f) applicable to vehicles placed in service after December 31, 2022. New § 30D(f)(8) provides that the § 30D credit is only allowed once with respect to a vehicle, as determined based upon the vehicle identification number of a vehicle, including any vehicle with respect to which the taxpayer elects the application of § 30D(g) (described below). New § 30D(f)(9) provides that no credit is allowed with respect to any vehicle unless the taxpayer includes the vehicle identification number of such vehicle on the return of tax for the taxable year. New § 30D(f)(10)(A) provides that no credit is allowed for any taxable year if (i) the lesser of (I) the modified adjusted gross income of the taxpayer for such taxable year, or (II) the modified adjusted gross income of the taxpayer for the preceding taxable year, exceeds (ii) the threshold amount. New § 30D(f)(10)(B) provides that the threshold amount shall be (i) in the case of a joint return or a surviving spouse (as defined in § 2(a) of the Code), $300,000, (ii) in the case of a head of household (as defined in § 2(b) of the Code), $225,000, and (iii) in the case of any other taxpayer, $150,000. New § 30D(f)(10)(C) defines "modified adjusted gross income" as adjusted gross income increased by any amount excluded from gross income under § 911, 931, or 933. New § 30D(f)(11)(A) provides that no credit is allowed for a vehicle with a manufacturer's suggested retail price in excess of the applicable limitation. New § 30D(f)(11)(B) provides that the applicable limitation for each vehicle classification is as follows: in the case of a van, $80,000; in the case of a sport utility vehicle, $80,000; in the case of a pickup truck, $80,000; and in the case of any other vehicle, $55,000. New § 30D(f)(11)(C) authorizes the Secretary to prescribe such regulations or other guidance as the Secretary determines necessary to determine vehicle classifications using criteria similar to that employed by the Environmental Protection Agency and the Department of the Energy to determine size and class of vehicles. Section 13401(g) of the IRA amends § 30(D)(g) of the Code applicable to vehicles placed in service after December 31, 2023, to provide that, subject to such regulations or other guidance as the Secretary determines necessary, a taxpayer may elect under § 30D(g) to "transfer" a § 30D credit with respect to a new clean vehicle to an eligible entity (transfer election). If the taxpayer who acquires a new clean vehicle makes a transfer election under § 30D(g) with respect to such vehicle, the § 30D credit that would otherwise be allowed to such taxpayer with respect to such vehicle is allowed to the eligible entity specified in such election (and not the taxpayer). Section 30D(g)(2) defines an "eligible entity" with respect to the vehicle for which the credit is allowed as the dealer that sold such vehicle to the taxpayer and that satisfies the following four requirements set forth in § 30D(g)(2)(A) through (D): (A) The dealer, subject to § 30D(g)(4), must be registered with the Secretary for purposes of § 30D(g)(2), at such time, and in such form and manner, as the Secretary prescribes. (B) The dealer, prior to the transfer election and not later than at the time of sale, must have disclosed to the taxpayer purchasing such vehicle (i) the manufacturer's suggested retail price, (ii) the value of the credit allowed and any other incentive available for the purchase of such vehicle, and (iii) the amount provided by the dealer to such taxpayer as a condition of the transfer election. (C) The dealer, not later than at the time of sale, must have paid the taxpayer (whether in cash or in the form of a partial payment or down payment for the purchase of such vehicle) an amount equal to the credit otherwise allowable to such taxpayer. (D) The dealer with respect to any incentive otherwise available for the purchase of a vehicle for which a credit is allowed under § 30D, including any incentive in the form of a rebate or discount provided by the dealer or manufacturer, must have ensured that (i) the availability or use of such incentive does not limit the ability of a taxpayer to make a transfer election and (ii) such election does not limit the value or use of such incentive. Amended § 30D(g)(3) provides that any transfer election cannot be made by the taxpayer any later than the date on which the vehicle for which the § 30D credit is allowed is purchased. Amended § 30D(g)(4) provides that upon determination by the Secretary that a dealer has failed to comply with the requirements described in § 30D(g)(2), the Secretary may revoke the dealer's registration. Amended § 30D(g)(5) provides that with respect to any payment described in § 30D(g)(2)(C), such payment (A) is not includible in the gross income of the taxpayer, and (B) with respect to the dealer, is not deductible under the Code. Section 30D(g)(6) provides that, in the case of any transfer election with respect to any vehicle (A) the requirements of § 30D(f)(1) and (2) apply to the taxpayer who acquired the vehicle in the same manner as if the § 30D credit determined with respect to such vehicle were allowed to such taxpayer, (B) § 30D(f)(6) does not apply, and (C) the requirement of § 30D(f)(9) is treated as satisfied if the eligible entity provides the vehicle identification number of such vehicle to the Secretary in such manner as the Secretary may provide. Amended § 30D(g)(7)(A) provides for the establishment of a program to make advance payments to any eligible entity in an amount equal to the cumulative amount of the credits allowed with respect to any vehicles sold by such entity for which a transfer election described in § 30D(g)(1) has been made. Amended § 30D(g)(7)(B) details that rules similar to the rules of § 6417(d)(6) apply for purposes of any excessive payments. Amended § 30D(g)(8) defines the term "dealer" as a person licensed by a State, the District of Columbia, the Commonwealth of Puerto Rico, any other territory or possession of the United States, an Indian tribal government, or any Alaska Native Corporation (as defined in § 3 of the Alaska Native Claims Settlement Act (43 U.S.C. 1602(m)) to engage in the sale of vehicles. Amended § 30D(g)(9) defines the term "Indian tribal government" as the recognized governing body of any Indian or Alaska Native tribe, band, nation, pueblo, village, community, component band, or component reservation, individually identified (including parenthetically) in the list published most recently as of the date of enactment of § 30D(g) (that is, August 16, 2022) pursuant to § 104 of the Federally Recognized Indian Tribe List Act of 1994 (25 U.S.C. 5131). Amended § 30D(g)(10) provides that in the case of any taxpayer who has made a transfer election with respect to a new clean vehicle and received a payment from an eligible entity, if the §30D credit would otherwise (but for § 30D(g)) not be allowable to such taxpayer pursuant to the application of § 30D(f)(10), the income tax imposed on such taxpayer under chapter 1 of the Code for the taxable year in which such vehicle was placed in service must be increased by the amount of the payment received by such taxpayer. Amended § 30D(h) provides that no credit is allowed with respect to any vehicle placed in service after December 31, 2032. Section 13401(k) of the IRA provides the effective date for the amendments to § 30D of the Code. As noted above, except as provided in § 13401(k)(2) through (5) of the IRA, the amendments made by § 13401 of the IRA apply to vehicles placed in service after December 31, 2022. Section 13401(k)(2) of the IRA provides that the amendments made by § 13401(b) of the IRA relating to final assembly apply to vehicles sold after the date of enactment of the IRA (August 16, 2022). Section 13401(k)(3) of the IRA provides that the amendments made by § 13401(a) and (e) of the IRA relating to the per vehicle dollar limitation and related requirements apply to vehicles placed in service after the date on which the proposed guidance described in new § 30D(e)(3)(B) is issued by the Secretary. Section 13401(k)(4) of the IRA provides that the amendments made by § 13401(g) of the IRA relating to transfers of the § 30D credit apply to vehicles placed in service after December 31, 2023. Section 13401(k)(5) of the IRA provides that the amendment made by § 13401(d) of the IRA eliminating the manufacturer limitation applies to vehicles sold after December 31, 2022. Section 13401(l) of the IRA provides a transition rule for a taxpayer who purchased or entered into a written binding contract to purchase a new qualified plug-in electric drive motor vehicle (as defined in § 30D(d)(1) of the Code, as in effect on the day before the date of enactment of the IRA (August 15, 2022)) after December 31, 2021 and before the date of enactment of the IRA (August 16, 2022), and placed such vehicle in service on or after the date of enactment of the IRA. The transition rule provides that such a taxpayer may elect (at such time, and in such form and manner as the Secretary may prescribe) to treat such vehicle as having been placed in service on the day before the date of enactment of the IRA..02 Section 25E, Previously Owned Clean Vehicles New § 25E of the Code was enacted by § 13402 of the IRA. Section 25E(a) provides that in case of a qualified buyer who during a taxable year, places in service a previously-owned clean vehicle, an income tax credit is allowed for the taxable year equal to the lesser of (1) $4,000, or (2) the amount equal to 30 percent of the sale price with respect to such vehicle (§ 25E credit). Section 25E(b)(1) sets a limitation based on modified adjusted gross income and provides that no credit is allowed for any taxable year if (A) the lesser of (i) the modified adjusted gross income of the taxpayer for such taxable year, or (ii) the modified adjusted gross income of the taxpayer for the preceding taxable year, exceeds (B) the threshold amount. The threshold amount is set forth in § 25E(b)(2) and varies based on a taxpayer's filing status. In the case of a taxpayer filing a joint return or who is a surviving spouse (as defined in § 2(a) of the Code), the threshold amount is $150,000. In the case of a taxpayer who is a head of household (as defined in § 2(b) of the Code), the threshold amount is $112,500. In the case of any other taxpayer, the threshold amount is $75,000. Section 25E(b)(3) defines modified adjusted gross income as adjusted gross income increased by any amount excluded from gross income under § 911, 931, or 933. Section 25E(c) defines certain terms for purposes of the § 25E credit. Section 25E(c)(1) defines "previously-owned clean vehicle" as, with respect to a taxpayer, a motor vehicle that satisfies the following four requirements set forth in § 25E(c)(1)(A) through (D) of the Code: (A) The model year of the motor vehicle is at least 2 years earlier than the calendar year in which the taxpayer acquires such vehicle. (B) The original use of the motor vehicle commences with a person other than the taxpayer. (C) The motor vehicle is acquired by the taxpayer in a qualified sale. (D) The motor vehicle (i) meets the requirements of § 30D(d)(1)(C), (D), (E), (F), and (H) (except for § 30D(d)(1)(H)(iv)), or (ii) is a motor vehicle which (I) satisfies the requirements under § 30B(b)(3)(A) and (B), and (II) has a gross vehicle weight rating of less than 14,000 pounds. Section 25E(c)(2) defines a "qualified sale" as a sale of a motor vehicle (A) by a dealer (as defined in § 30D(g)(8)), (B) for a sale price which does not exceed $25,000, and (C) which is the first transfer since the date of enactment to a qualified buyer other than the person with whom the original use of such vehicle commenced. Section 25E(c)(3) defines "qualified buyer" as, with respect to a sale of a motor vehicle, a taxpayer (A) who is an individual, (B) who purchases such vehicle for use and not for resale, (C) with respect to whom no deduction is allowable with respect to another taxpayer under § 151, and (D) who has not been allowed a credit under § 25E for any sale during the 3-year period ending on the date of the sale of such vehicle. Section 25E(c)(4) defines "motor vehicle" and "capacity" to have the meaning given such terms in § 30D(d)(2) and (4), respectively. Section 25E(d) provides that no credit is allowed under § 25(a) with respect to any vehicle unless the taxpayer includes the vehicle identification number of such vehicle on the return of tax for the taxable year. Section 25E(e) and (f) provide that rules similar to the rules of § 30D(f) (without regard to paragraph (10) or (11) thereof) and the rules of § 30D(g) apply for purposes of § 25E. Section 25E(g) provides that no credit is allowed with respect to any vehicle acquired after December 31, 2032. Section 13402(e) of the IRA provides the effective date for the amendments made by § 13402 of the IRA. In general, except as provided in § 13402(e)(2) of the IRA, the amendments made by § 13402 of the IRA apply to vehicles acquired after December 31, 2022. The amendments made by § 13402(b) of the IRA relating to transfers of the § 25E credit apply to vehicles placed in service after December 31, 2023. SECTION 3. REQUEST FOR COMMENTS The Treasury Department and the IRS request comments on any questions arising from the IRA amendments to § 30D and the enactment of § 25E that should be addressed in guidance. Commenters are encouraged to specify the issues on which guidance is needed most quickly as well as the most important issues on which guidance is needed. In addition to general comments regarding these provisions, the Treasury Department and the IRS request comments that address the following specific questions:.01 Clean Vehicles (§ 30D) (1) Definitions. Section 30D(d)(1)(B) of the Code defines a "new clean vehicle," in part, as a motor vehicle which is acquired for use or lease by the taxpayer and not for resale. As used in this definition, what, if any, guidance is needed as to the meaning of the terms "acquired," "use," and "lease?" (2) Critical Minerals. Section 30D(e)(1) provides the new critical minerals requirements, including the applicable percentage requirements to be phased in over several years. (a) What factors and definitions should be considered to determine the place of extracting or processing such critical minerals, and, in particular, to determine whether extracting or processing occurred in the United States or in any country with which the United States has a free trade agreement in effect? (b) What factors and definitions should be considered to determine the place of recycling such critical minerals and, in particular, to determine whether recycling occurred in North America? (c) What factors and definitions should be considered to determine (i) the total value of the critical minerals contained in a vehicle's battery, and (ii) the percentage of that total value attributable to critical minerals (I) extracted or processed in the United States or a country with which the United States has a free trade agreement in effect, or (II) recycled in North America? (3) Battery Components. Section 30D(e)(2) provides the new battery component requirements, including the applicable percentage requirements to be phased in over several years. (a) What factors should be considered in defining the components of a battery of a clean vehicle? (b) What factors and definitions should be considered to determine the place of manufacture or assembly of the components of a battery of a clean vehicle and, in particular, to determine whether manufacture or assembly occurred in North America? (c) What factors and definitions should be considered to determine (i) the total value of the components contained in the battery of a clean vehicle, and (ii) the percentage of that total value attributable to components that were manufactured or assembled in North America? (4) Applicable Values. The new critical mineral and battery component requirements in § 30D(e) are based on value. What existing battery technology supply chain tracking methodologies or regulatory frameworks should be considered in determining applicable values? (5) Foreign Entity of Concern. Section 30D(d)(7) provides that some vehicles are excluded from the availability of the credit, including when any of the applicable critical minerals contained in the battery were extracted, processed, or recycled by a foreign entity of concern (defined in 42 U.S.C. 18741(a)(5)), or if any of the components contained in the battery of such vehicle were manufactured or assembled by a foreign entity of concern. (a) Is guidance needed to clarify the definition of "foreign entity of concern"? (b) What existing regulatory or guidance frameworks for recordkeeping requirements or supply chain tracking methodologies may be useful for qualified manufacturers to verify that its vehicles are not excluded under § 30D(d)(7)? (6) Recordkeeping and Reporting. (a) In addition to VIN numbers, what additional information should a qualified manufacturer provide to the Secretary to be considered a qualified manufacturer with respect to a particular vehicle, per § 30D(d)(3)? (b) What existing regulatory or guidance frameworks for recordkeeping requirements or information reporting or existing battery technology supply chain tracking methodologies may be useful for developing guidance for qualified manufacturers under § 30D(e)(3)? (c) What information should be included in the report furnished by the seller of the vehicle to the taxpayer and the Secretary under § 30D(d)(1)(H), including the election to transfer the credit under § 30D(g)? (7) Tax-exempt Entities. Section 30D(f)(3) is stricken by § 13401(g) of the IRA with respect to vehicles placed in service after December 31, 2023. How should clean vehicles acquired and used by a tax-exempt entity after this statutory change becomes effective be treated for purposes of § 30D? (8) Registered Dealer and Eligible Entity. (a) What guidance, if any, is needed to determine who is a licensed dealer who can be registered with the Secretary for purposes of the transfer of the credit under § 30D(g)(2), (7), and (8)? (b) What guidance, if any, is needed regarding what circumstances may lead to the revocation of such registration under § 30D(g)(4)? (9) Final Assembly Requirement. Is guidance needed to clarify the definition of the term "final assembly" in § 30D(d)(5) or the area included in the term "North America" for purposes of § 30D(d)(1)(G)? (10) Vehicle Classifications. (a) What, if any, guidance is needed to define how vehicles are classified as vans, sport utility vehicles, pickup trucks, or other designations of vehicles for purposes of the manufacturer's suggested retail price limitation in § 30D(f)(11)? (b) What criteria employed by the Environmental Protection Agency and Department of Energy, or other factors (for example, Department of Transportation motor vehicle type classification) should be considered in determining the designation of such vehicles? (c) Is guidance needed to clarify how the manufacturer's suggested retail price is calculated? (11) Election to Transfer and Advance Payments. (a) What factors should be considered in determining the time and manner of the taxpayer's election under § 30D(g) to transfer the § 30D credit to an eligible entity? (b) Is guidance needed regarding the definition of "taxpayer," such as whether non-individual taxpayers are eligible for the credit under § 30D? (c) If an election to transfer the credit is made by the taxpayer, what issues should be considered regarding the transfer of the § 30D credit? (d) What considerations and factors should be taken into account in determining the time and manner of advance payments made pursuant to §30D(g)(7)(A)? (e) For purposes of § 30D(g), what guidance, if any, is needed regarding a determination by an eligible entity regarding whether a credit is allowable to the taxpayer? (12) Recapture. (a) Is guidance needed to coordinate the application of the excess payment provision under § 30D(g)(7)(B) and the recapture provision under § 30D(g)(10) as between the transferors and transferees of the credit under § 30D(g)? (b) In the event of a recapture event, how should recapture be reported by the taxpayer? (13) Please provide comments on any other terms that may require definition or additional guidance..02 Previously Owned Cleans Vehicle (§ 25E) (1) What, if any, guidance is needed to address how a taxpayer can verify that a vehicle qualifies as a "previously-owned clean vehicle" as defined in § 25E(c)(1)? (2) Section 25E(e) provides that rules similar to the rules of § 30D(f) (without regard to paragraph (10) or (11) thereof) apply for purposes of the § 25E credit. What rules of § 30D(f) should be applied under § 25E(e) without any modification? What rules of § 30D(f) should be applied in modified form for purposes of § 25E and in what way should they be modified? (3) Section 25E(f) provides that rules similar to the rules of § 30D(g) apply for purposes of the § 25E credit. What rules of § 30D(g) should be applied under § 25E(f) without any modification? What rules of § 30D(g) should be applied in modified form for purposes of § 25E and in what way should they be modified? (4) Please provide comments on any other terms that may require definition or additional guidance. SECTION 4. SUBMISSION OF COMMENTS.01 Written comments should be submitted by Friday, November 4, 2022. Consideration will be given, however, to any written comment submitted after Friday, November 4, 2022, if such consideration will not delay the issuance of guidance. The subject line for the comments should include a reference to Notice 2022-46. Comments may be submitted in one of two ways: (1) Electronically via the Federal eRulemaking Portal at www.regulations.gov (type IRS-2022-0046 in the search field on the regulations.gov homepage to find this notice and submit comments). (2) Alternatively, by mail to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2022-46), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C., 20044..02 All commenters are strongly encouraged to submit comments electronically. The Treasury Department and the IRS will publish for public availability any comment submitted electronically and on paper to its public docket on regulations.gov. SECTION 5. RELIANCE ON NOTICE 2009-89 Notice 2009-89, 2009-48 I.R.B. 714 was modified Notice 2016-51, 2016-37 I.R.B. 344, by updating section 6.03 of Notice 2009-89, updating the address to which a manufacturer (or, in the case of a foreign manufacturer, its domestic distributor) sends quarterly reports and/or certifications. Taxpayers may rely on Notice 2009-89, as modified by Notice 2016-51, until additional guidance on these issues is issued. SECTION 6. PROPOSED GUIDANCE FOR CRITICAL MINERAL AND BATTERY COMPONENT REQUIREMENTS For purposes of § 30D(e)(3)(B), the publication of this notice requesting comments is not the publication of proposed guidance with respect to the critical mineral and battery component requirements under § 30D(e). The Treasury Department and the IRS will explicitly identify when they have published proposed guidance with respect to the critical mineral and battery component requirements under § 30D(e). SECTION 7. DRAFTING INFORMATION The principal author of this notice is the Office of Associate Chief Counsel (Passthroughs & Special Industries). However, other personnel from the Treasury Department and the IRS participated in its development. For further information regarding this notice, call the energy security guidance contact number at (202) 317-5254 (not a toll-free number).

Proposed Regulation REG-109348-22 Internal Revenue Service 2023-35 I.R.B. 662 Notice of Proposed Rulemaking Identification of Monetized Installment Sale Transactions as Listed Transactions REG-109348-22 AGENCY: Internal Revenue Service (IRS), Treasury ACTION: Notice of proposed rulemaking and notice of public hearing. SUMMARY: This document contains proposed regulations that would identify monetized installment sale transactions and substantially similar transactions as listed transactions, a type of reportable transaction. Material advisors and participants in these listed transactions would be required to file disclosures with the IRS and would be subject to penalties for failure to disclose. The proposed regulations would affect participants in those transactions as well as material advisors. This document also provides a notice of a public hearing on the proposed regulations. DATES: Comments: Electronic or written comments must be received by October 3, 2023. Public Hearing: The public hearing is scheduled to be held on October 12, 2023, at 10:00 a.m. ET. Pursuant to Announcement 2023-16, 2023-20 I.R.B. 854 (May 15, 2023), the public hearing is scheduled to be conducted in person, but the IRS will provide a telephonic option for individuals who wish to attend or testify at the hearing by telephone. Requests to speak and outlines of topics to be discussed at the public hearing must be received by October 3, 2023. If no outlines are received by October 3, 2023, the public hearing will be cancelled. Requests to attend the public hearing must be received by 5:00 p.m. ET on October 10, 2023. The hearing will be made accessible to people with disabilities. Requests for special assistance during the hearing must be received by 5:00 p.m. ET on October 6, 2023. ADDRESSES: Commenters are strongly encouraged to submit public comments electronically. Submit electronic submissions via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-109348-22) by following the online instructions for submitting comments. Requests for a public hearing must be submitted as prescribed in the "Comments and Requests for a Public Hearing" section. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The Department of the Treasury (Treasury Department) and the IRS will publish for public availability any comments to the IRS's public docket. Send paper submissions to: CC:PA:LPD:PR (REG-109348-22), room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044. FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Jonathan A. Dunlap of the Office of Associate Chief Counsel (Income Tax and Accounting), (202) 317-4718 (not a toll-free number); concerning submissions of comments and requests for hearing, Vivian Hayes at (202) 317-5306 (not a toll-free number) or publichearings@irs.gov (preferred). SUPPLEMENTARY INFORMATION: Background This document contains proposed additions to 26 CFR part 1 (Income Tax Regulations) under section 6011 of the Internal Revenue Code (Code). The additions identify certain transactions as "listed transactions" for purposes of section 6011. I. Disclosure of Reportable Transactions by Participants and Penalties for Failure to Disclose Section 6011(a) generally provides that, when required by regulations prescribed by the Secretary of the Treasury or her delegate (Secretary), "any person made liable for any tax imposed by this title, or with respect to the collection thereof, shall make a return or statement according to the forms and regulations prescribed by the Secretary. Every person required to make a return or statement shall include therein the information required by such forms or regulations." Section 1.6011-4(a) provides that every taxpayer that has participated in a reportable transaction within the meaning of §1.6011-4(b) and who is required to file a tax return must file a disclosure statement within the time prescribed in §1.6011-4(e). Reportable transactions are identified in §1.6011-4 and include listed transactions, confidential transactions, transactions with contractual protection, loss transactions, and transactions of interest. See §1.6011-4(b)(2) through (6). Section 1.6011-4(b)(2) defines a listed transaction as a transaction that is the same as or substantially similar to one of the types of transactions that the IRS has determined to be a tax avoidance transaction and identified by notice, regulation, or other form of published guidance as a listed transaction. Section 1.6011-4(c)(4) provides that a transaction is "substantially similar" if it is expected to obtain the same or similar types of tax consequences and is either factually similar or based on the same or similar tax strategy. Receipt of an opinion regarding the tax consequences of the transaction is not relevant to the determination of whether the transaction is the same as or substantially similar to another transaction. Further, the term substantially similar must be broadly construed in favor of disclosure. For example, a transaction may be substantially similar to a listed transaction even though it may involve different entities or use different Code provisions. Section 1.6011-4(c)(3)(i)(A) provides that a taxpayer has participated in a listed transaction if the taxpayer's tax return reflects tax consequences or a tax strategy described in the published guidance that lists the transaction under §1.6011-4(b)(2). Published guidance may identify other types or classes of persons that will be treated as participants in a listed transaction. Published guidance may also identify types or classes of persons that will not be treated as participants in a listed transaction. Section 1.6011-4(d) and (e) provide that the disclosure statement Form 8886, Reportable Transaction Disclosure Statement (or successor form) must be attached to the taxpayer's tax return for each taxable year for which a taxpayer participates in a reportable transaction. A copy of the disclosure statement must be sent to the IRS's Office of Tax Shelter Analysis (OTSA) at the same time that any disclosure statement is first filed by the taxpayer pertaining to a particular reportable transaction. Section 1.6011-4(e)(2)(i) provides that if a transaction becomes a listed transaction after the filing of a taxpayer's tax return reflecting the taxpayer's participation in the listed transaction and before the end of the period of limitations for assessment for any taxable year in which the taxpayer participated in the listed transaction, then a disclosure statement must be filed with OTSA within 90 calendar days after the date on which the transaction becomes a listed transaction. This requirement extends to an amended return and exists regardless of whether the taxpayer participated in the transaction in the year the transaction became a listed transaction. The Commissioner of Internal Revenue (Commissioner) may also determine the time for disclosure of listed transactions in the published guidance identifying the transaction. Participants required to disclose these transactions under §1.6011-4 who fail to do so are subject to penalties under section 6707A. Section 6707A(b) provides that the amount of the penalty is 75 percent of the decrease in tax shown on the return as a result of the reportable transaction (or which would have resulted from such transaction if such transaction were respected for Federal tax purposes), subject to minimum and maximum penalty amounts. The minimum penalty amount is $5,000 in the case of a natural person and $10,000 in any other case. For a listed transaction, the maximum penalty amount is $100,000 in the case of a natural person and $200,000 in any other case. Additional penalties may also apply. In general, section 6662A imposes a 20 percent accuracy-related penalty on any understatement (as defined in section 6662A(b)(1)) attributable to an adequately disclosed reportable transaction. If the taxpayer had a requirement to disclose participation in the reportable transaction but did not adequately disclose the transaction in accordance with the regulations under section 6011, the taxpayer is subject to an increased penalty rate equal to 30 percent of the understatement. See section 6662A(c). Section 6662A(b)(2) provides that section 6662A applies to any item which is attributable to any listed transaction and any reportable transaction (other than a listed transaction) if a significant purpose of such transaction is the avoidance or evasion of Federal income tax. Participants required to disclose listed transactions who fail to do so are also subject to an extended period of limitations under section 6501(c)(10). That section provides that the time for assessment of any tax with respect to the transaction shall not expire before the date that is one year after the earlier of the date the participant discloses the transaction or the date a material advisor discloses the participation pursuant to a written request under section 6112(b)(1)(A). II. Disclosure of Reportable Transactions by Material Advisors and Penalties for Failure to Disclose Section 6111(a) provides that each material advisor with respect to any reportable transaction shall make a return setting forth: (1) information identifying and describing the transaction, (2) information describing any potential tax benefits expected to result from the transaction, and (3) such other information as the Secretary may prescribe. Such return shall be filed not later than the date specified by the Secretary. Section 301.6111-3(a) of the Procedure and Administration Regulations provides that each material advisor with respect to any reportable transaction, as defined in §1.6011-4(b), must file a return as described in §301.6111-3(d) by the date described in §301.6111-3(e). Section 301.6111-3(b)(1) provides that a person is a material advisor with respect to a transaction if the person provides any material aid, assistance, or advice with respect to organizing, managing, promoting, selling, implementing, insuring, or carrying out any reportable transaction, and directly or indirectly derives gross income in excess of the threshold amount as defined in §301.6111-3(b)(3) for the material aid, assistance, or advice. Under §301.6111-3(b)(2)(i) and (ii), a person provides material aid, assistance, or advice if the person provides a tax statement, which is any statement (including another person's statement), oral or written, that relates to a tax aspect of a transaction that causes the transaction to be a reportable transaction as defined in §1.6011-4(b)(2) through (7). Material advisors must disclose transactions on Form 8918, Material Advisor Disclosure Statement (or successor form), as provided in §301.6111-3(d) and (e). Section 301.6111-3(e) provides that the material advisor's disclosure statement for a reportable transaction must be filed with the OTSA by the last day of the month that follows the end of the calendar quarter in which the advisor becomes a material advisor with respect to a reportable transaction or in which the circumstances necessitating an amended disclosure statement occur. The disclosure statement must be sent to the OTSA at the address provided in the instructions for Form 8918 (or successor form). Section 301.6111-3(d)(2) provides that the IRS will issue to a material advisor a reportable transaction number with respect to the disclosed reportable transaction. Receipt of a reportable transaction number does not indicate that the disclosure statement is complete, nor does it indicate that the transaction has been reviewed, examined, or approved by the IRS. Material advisors must provide the reportable transaction number to all taxpayers and material advisors for whom the material advisor acts as a material advisor as defined in §301.6111-3(b). The reportable transaction number must be provided at the time the transaction is entered into, or, if the transaction is entered into prior to the material advisor receiving the reportable transaction number, within 60 calendar days from the date the reportable transaction number is mailed to the material advisor. Section 6707(a) provides that a material advisor who fails to file a timely disclosure, or files an incomplete or false disclosure statement, is subject to a penalty. Pursuant to section 6707(b)(2), for listed transactions, the penalty is the greater of (1) $200,000, or (2) 50 percent of the gross income derived by such person with respect to aid, assistance, or advice which is provided with respect to the listed transaction before the date the return is filed under section 6111. Additionally, section 6112(a) provides that each material advisor with respect to any reportable transaction shall (whether or not required to file a return under section 6111 with respect to such transaction) maintain a list (1) identifying each person with respect to whom such advisor acted as a material advisor with respect to such transaction and (2) containing such other information as the Secretary may by regulations require. Material advisors must furnish such lists to the IRS in accordance with §301.6112-1(e). A material advisor may be subject to a penalty under section 6708 for failing to maintain a list under section 6112(a) and failing to make the list available upon written request to the Secretary in accordance with section 6112(b) within 20 business days after the date of such request. Section 6708(a) provides that the penalty is $10,000 per day for each day of the failure after the 20th day. However, no penalty will be imposed with respect to the failure on any day if such failure is due to reasonable cause. III. Installment Sales Section 61(a)(3) provides that a taxpayer's gross income includes gains from dealings in property. Under section 1001(a), a taxpayer's gain on a sale of property is equal to the excess of the amount realized on the sale over the taxpayer's adjusted basis in the property and, generally, a taxpayer must recognize the gain in the taxable year of the sale. The taxpayer's amount realized generally includes cash actually or constructively received, plus the fair market value of any property received or, in the case of a debt instrument issued in exchange for property, the issue price of the debt instrument. See §1.1001-1 of the Income Tax Regulations. Section 453 provides an exception to the general rule that gain from the sale of property must be recognized in the year of sale. Section 453(a) provides, in general, that income from an installment sale is accounted for under the installment method. Under section 453(b), an installment sale is one in which a taxpayer disposes of property and at least one payment is to be received after the close of the taxable year of the disposition. The installment method, as described in section 453(c), requires a taxpayer to recognize income from a disposition as payments are actually or constructively received, in an amount equal to the proportion of the payment received that the gross profit (realized or to be realized when payment is completed) bears to the total contract price. Under section 453(f)(3) and 26 CFR §15a.453-1(b)(3) (Temporary Income Tax Regulations Under the Installment Sales Revision Act), a taxpayer generally does not receive a "payment," as such term is used in section 453(b), to the extent the taxpayer receives evidence of indebtedness "of the person acquiring the property" (installment obligation). As a result, notwithstanding that a taxpayer has received an installment obligation from the buyer evidencing the buyer's obligation to pay an amount equal to the purchase price, the taxpayer is not treated as having received full payment in the year in which the taxpayer received the installment obligation. Instead, the taxpayer is treated as receiving payments when the taxpayer receives (or constructively receives) payments under the installment obligation. However, to the extent that the taxpayer receives a note or other evidence of indebtedness in the year of sale from a person other than "the person acquiring the property," section 453(f)(3) is inapplicable. A note or other evidence of indebtedness received in the year of sale issued by a person other than the person acquiring the property is, under §15a.453-1(b)(3), the receipt of a payment for purposes of section 453. Likewise, under §15a.453-1(b)(3), the taxpayer's receipt of a note or other evidence of indebtedness that is secured directly or indirectly by cash or a cash equivalent is treated as the receipt of payment for purposes of section 453. Section 453A(d) provides rules relating to certain installment obligations arising from a disposition of property, the sales price of which is more than $150,000. Under section 453A(d), if any indebtedness is secured by an installment obligation to which section 453A applies, the net proceeds of the secured indebtedness are treated as a payment received on the installment obligation as of the later of the time the indebtedness becomes secured by the installment obligation or the time the taxpayer receives the proceeds of the indebtedness (the pledging rule). To the extent installment payments are received after the date payment is treated as received under section 453A(d), the tax on such payments is treated as having already been paid. IV. Tax Avoidance Using Monetized Installment Sales The Treasury Department and the IRS are aware that promoters are marketing transactions that purport to convert a cash sale of appreciated property by a taxpayer (seller) to an identified buyer (buyer) into an installment sale to an intermediary (who may be the promoter) followed by a sale from the intermediary to the buyer. In a typical transaction, the intermediary issues a note or other evidence of indebtedness to the seller requiring annual interest payments and a balloon payment of principal at the maturity of the note, and then immediately or shortly thereafter, the intermediary transfers the seller's property to the buyer in a purported sale of the property for cash, completing the prearranged sale of the property by seller to buyer. In connection with the transaction, the promoter refers the seller to a third party that enters into a purported loan agreement with the seller. The intermediary generally transfers the amount it has received from the buyer, less certain fees, to an account held by or for the benefit of this third party (the account). The third party provides a purported non-recourse loan to the seller in an amount equal to the amount the seller would have received from the buyer for the sale of the property, less certain fees. The "loan" is either funded or collateralized by the amount deposited into the account. The seller's obligation to make payments on the purported loan is typically limited to the amount to be received by the seller from the intermediary pursuant to the purported installment obligation. Upon maturity of the purported installment obligation, the purported loan, and the funding note, the offsetting instruments each terminate, giving rise to a deemed payment on the purported installment obligation and triggering taxable gain to the seller purportedly deferred until that time. The promotional materials for these transactions assert that engaging in the transaction will allow the seller to defer the gain on the sale of the property under section 453 until the taxpayer receives the balloon principal payment in the year the note matures, even though the seller receives cash from the purported lender in an amount that approximates the amount paid by the buyer to the intermediary. The IRS intends to use multiple arguments to challenge the reported treatment of these transactions as installment sales to which section 453 purportedly applies, including the arguments described below. First, the intermediary is not a bona fide purchaser of the gain property that is the subject of the purported installment sale. In these transactions, the intermediary is interposed between the seller and the buyer for no purpose other than Federal income tax avoidance, and the intermediary neither enjoys the benefits nor bears the burdens of ownership of the gain property. The interposition of the intermediary typically takes place after the seller has decided to sell the gain property to a specific buyer at a specific negotiated purchase price, and the purported resale by the intermediary to such buyer generally takes place almost simultaneously with the purported sale to the intermediary for approximately the same negotiated purchase price, less certain fees. The seller's only purpose for entering into an agreement with the intermediary is to defer recognition of the gain on the sale of the gain property to the buyer. Other than the Federal income tax deferral benefits provided by the installment method provisions of section 453, the sole economic effect of entering the monetized installment sale transaction from the perspective of the seller is to pay direct and indirect fees to the intermediary and the purported lender in an amount that is substantially less than the Federal tax savings purportedly achieved from using section 453 to defer the realized gain on the sale. When an intermediate transaction with a third party is interposed and lacks independent substantive (non-tax) purpose, such transaction is not respected for Federal income tax purposes and the transaction is appropriately treated as a sale of the property by the seller directly to the buyer in the taxable year in which the gain property is transferred by the seller. See Commissioner v. Court Holding Co., 324 U.S. 331, 334 (1945) ("A sale by one person cannot be transformed for tax purposes into a sale by another by using the latter as a conduit through which to pass title. To permit the true nature of a transaction to be disguised by mere formalisms, which exist solely to alter tax liabilities, would seriously impair the effective administration of the tax policies of Congress" (footnote omitted)); Wrenn v. Commissioner, 67 T.C. 576 (1976), (holding that a taxpayer did not engage in a bona fide installment sale when the taxpayer transferred stock to his spouse under a purported installment sale contract, followed by the spouse immediately selling the stock to a third party for a negligible gain); Blueberry Land Co. v. Commissioner, 361 F.2d 93, 100 (5th Cir. 1966), (holding that a corporation's transaction with an unrelated intermediary entered into solely to avoid Federal income taxes on the sale should be disregarded for Federal income tax purposes and the corporation should be taxed as if it sold the property directly to the ultimate buyer); Enbridge Energy Co. Inc. v. United States, 354 F. App'x 15 (5th Cir. 2009) (holding that an intermediate sale was a sham, the intermediary lacked a "bona fide role in the transaction," as its only purpose for being a party in the transaction, and indeed for existing, was to mitigate the Federal tax bill arising from the transaction, and that the transaction should be treated, for Federal tax purposes, as a sale directly from the seller to the taxpayer). In addition, it is inappropriate to treat the intermediary in the monetized installment sale transaction described in this NPRM as the acquirer of the gain property that is the subject of the purported installment sale because the intermediary neither enjoys the benefits nor bears the burdens of ownership of the gain property that a person must possess to be considered the owner of property for Federal income tax purposes. See Grodt & McKay Realty Inc. v. Commissioner, 77 T.C. 1221 (1981). See also Derr v. Commissioner, 77 T.C. 708 (1981) and Baird v. Commissioner, 68 T.C. 115 (1977). Second, in these transactions the seller is appropriately treated as having already received the full payment at the time of the sale to the buyer because (1) the purported installment obligation received by the seller is treated as the receipt of a payment by the seller under §15a.453-1(b)(3) since it is indirectly secured by the sales proceeds, (2) the proceeds of the purported loan are appropriately treated as a payment to the seller because the purported loan is not a bona fide loan for Federal income tax purposes, or (3) the pledging rule of section 453A(d) deems the seller to receive full payment on the purported installment obligation in the year the seller receives the loan proceeds. Third, the transaction may be disregarded or recharacterized under the economic substance rules codified under section 7701(o) or the substance over form doctrine. The step transaction doctrine and conduit theory may also apply to recharacterize monetized installment sale transactions described in this NPRM. V. Purpose of Proposed Regulations On March 3, 2022, the Sixth Circuit issued an order in Mann Construction v. United States, 27 F.4th 1138, 1147 (6th Cir. 2022), holding that Notice 2007-83, 2007-2 C.B. 960, which identified certain trust arrangements claiming to be welfare benefit funds and involving cash value life insurance policies as listed transactions, violated the Administrative Procedure Act (APA), 5 U.S.C. 551-559, because the notice was issued without following the notice-and-comment procedures required by section 553 of the APA. The Sixth Circuit reversed the decision of the district court, which held that Congress had authorized the IRS to identify listed transactions without notice and comment. See Mann Construction, Inc. v. United States, 539 F.Supp.3d 745, 763 (E.D. Mich. 2021). Relying on the Sixth Circuit's analysis in Mann Construction, three district courts and the Tax Court have concluded that IRS notices identifying listed transactions were improperly issued because they were issued without following the APA's notice and comment procedures. See Green Rock, LLC v. IRS, 2023 WL 1478444 (N.D. AL., February 2, 2023) (Notice 2017-10); GBX Associates, LLC, v. United States, 1:22cv401 (N.D. Ohio, Nov. 14, 2022) (same); Green Valley Investors, LLC, et al. v. Commissioner, 159 T.C. No. 5 (Nov. 9, 2022) (same); see also CIC Services, LLC v. IRS, 2022 WL 985619 (E.D. Tenn. March 21, 2022), as modified by 2022 WL 2078036 (E.D. Tenn. June 2, 2022) (Notice 2016-66, identifying a transaction of interest). The Treasury Department and the IRS disagree with the Sixth Circuit's decision in Mann Construction and the subsequent decisions that have applied that reasoning to find other IRS notices invalid and are continuing to defend the validity of notices identifying transactions as listed transactions in circuits other than the Sixth Circuit. At the same time, however, to avoid any confusion and ensure consistent enforcement of the tax laws throughout the nation, the Treasury Department and the IRS are issuing these proposed regulations to identify monetized installment sale transactions as listed transactions for purposes of all relevant provisions of the Code and Treasury Regulations. Explanation of Provisions These proposed regulations would require taxpayers that participate in monetized installment sale transactions and substantially similar transactions, and persons who act as material advisors with respect to these transactions, to disclose the transactions in accordance with the regulations issued under sections 6011 and 6111. Material advisors would also be required to maintain lists as required by section 6112. I. Definition of Monetized Installment Sale Transaction Proposed §1.6011-13(a) would provide that a transaction that is the same as, or substantially similar to, a monetized installment sale transaction described in proposed §1.6011-13(b) is a listed transaction for purposes of §1.6011-4(b)(2) and sections 6111 and 6112. "Substantially similar" is defined in §1.6011-4(c)(4) to include any transaction that is expected to obtain the same or similar types of tax consequences and that is either factually similar or based on the same or a similar tax strategy. The transaction described in proposed §1.6011-13(b) includes the following elements: (1) A taxpayer (seller), or a person acting on the seller's behalf, identifies a potential buyer for appreciated property (gain property), who is willing to purchase the gain property for cash or other property (buyer cash). (2) The seller enters into an agreement to sell the gain property to a person other than the buyer (intermediary) in exchange for an installment obligation. (3) The seller purportedly transfers the gain property to the intermediary, although the intermediary either never takes title to the gain property or takes title only briefly before transferring it to the buyer. (4) The intermediary purportedly transfers the gain property to the buyer in a sale of the gain property in exchange for the buyer cash. (5) The seller obtains a loan, the terms of which are such that the amount of the intermediary's purported interest payments on the installment obligation correspond to the amount of the seller's purported interest payments on the loan during the period. On each of the installment obligation and loan, only interest is due over identical periods, with balloon payments of all or a substantial portion of principal due at or near the end of the instruments' terms. (6) The sales proceeds from the buyer received by the intermediary, reduced by certain fees (including an amount set aside to fund purported interest payments on the purported installment obligation), are provided to the purported lender to fund the purported loan to the seller or transferred to an escrow or investment account of which the purported lender is a beneficiary. The lender agrees to repay these amounts to the intermediary over the course of the term of the installment obligation. (7) On the seller's Federal income tax return for the taxable year of the purported installment sale, the seller treats the purported installment sale as an installment sale under section 453. A transaction may be "substantially similar" to the transaction described above even if such transaction does not include all of the elements described above. For example, a transaction would be substantially similar to a monetized installment sale if a seller transfers property to an intermediary for an installment obligation, the intermediary simultaneously or after a brief period transfers the property to a previously identified buyer for cash or other property, and in connection with the transaction, the seller receives a loan for which the cash or property from the buyer serves indirectly as collateral. II. Participation Whether a taxpayer has participated in the listed transaction described in proposed §1.6011-13(b) would be determined under §1.6011-4(c)(3)(i)(A). Participants would include the seller, the intermediary, the purported lender, and any other person whose Federal income tax return reflects tax consequences or the tax strategy described in proposed §1.6011-13(b), or a substantially similar transaction. Under the proposed regulations, the buyer of the gain property that provides the buyer cash or other consideration would not be treated as a participant in the listed transaction described in proposed §1.6011-13(b) under §1.6011-4(c)(3)(i)(A). The Treasury Department and the IRS request comments on whether the buyer of the gain property should be treated as a participant given the buyer's key role in the transaction. If the final regulations include the buyer as a participant, that change would apply only with respect to transactions entered into after the date on which the final regulations are published in the Federal Register. III. Material Advisors Material advisors who make a tax statement with respect to monetized installment sale transactions described in proposed §1.6011-13(b) would have disclosure and list maintenance obligations under sections 6111 and 6112. See §§301.6111-3 and 301.6112-1. IV. Effect of Transaction Becoming a Listed Transaction Participants required to disclose listed transactions under §1.6011-4 who fail to do so are subject to penalties under section 6707A. Participants required to disclose listed transactions under §1.6011-4 who fail to do so are also subject to an extended period of limitations under section 6501(c)(10). Material advisors required to disclose listed transactions under section 6111 who fail to do so are subject to penalties under section 6707. Material advisors required to maintain lists of investors under section 6112 who fail to do so (or who fail to provide such lists when requested by the IRS) are subject to penalties under section 6708. In addition, the IRS may impose other penalties on persons involved in listed transactions, including accuracy-related penalties under section 6662 or section 6662A, the section 6694 penalty for understatements of a taxpayer's liability by a tax return preparer, the section 6700 penalty for promoting abusive tax shelters, and the section 6701 penalty for aiding and abetting understatement of tax liability. The Treasury Department and IRS recognize that some taxpayers may have filed Federal income tax returns taking the position that they were entitled to the purported tax benefits of the type of transactions described in these proposed regulations. Because the IRS will take the position in litigation that taxpayers are not entitled to the purported tax benefits of transactions described in these proposed regulations, taxpayers who have participated in those transactions should consider the best way to make corrections, whether by filing an amended return, an administrative adjustment request under section 6227, or a Form 3115, Application for Change in Accounting Method (whichever is applicable), or if the taxpayer has been contacted by the IRS for examination for a taxable year in which the taxpayer participated in the transaction, by working with an IRS employee to reverse the purported tax benefits. In addition, the proposed regulations would subject material advisors to disclosure requirements with regard to transactions occurring in prior years. However, notwithstanding §301.6111-3(b)(4)(i) and (iii), material advisors would be required to disclose only if they have made a tax statement on or after [the date that is 6 years before the date that Final Regulations are published in the Federal Register]. V. Applicability Date Proposed §1.6011-13(a) would identify monetized installment sale transactions, and transactions that are the same as, or substantially similar to, the monetized installment sale transactions described in proposed §1.6011-13(b) as listed transactions effective as of the date of publication in the Federal Register of a Treasury decision adopting these regulations as final regulations. Special Analyses I. Paperwork Reduction Act The collection of information contained in these proposed regulations is reflected in the collection of information for Forms 8886 and 8918 that have been reviewed and approved by the Office of Management and Budget (OMB) in accordance with the Paperwork Reduction Act (44 U.S.C. 3507(c)) under control numbers 1545-1800 and 1545-0865. To the extent there is a change in burden as a result of these regulations, the change in burden will be reflected in the updated burden estimates for the Forms 8886 and 8918. The requirement to maintain records to substantiate information on Forms 8886 and 8918 is already contained in the burden associated with the control number for the forms and remains unchanged. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number. II. Regulatory Flexibility Act The Secretary of the Treasury hereby certifies that the proposed regulations will not have a significant economic impact on a substantial number of small entities pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6). This certification is based on the fact that these proposed regulations implement sections 6111 and 6112 and §1.6011-4 by specifying the manner in which and time at which an identified Monetized Installment Sale Transaction must be reported. Further, the Treasury Department and the IRS expect that the reporting burden is low; the information sought is necessary for regular annual return preparation and ordinary recordkeeping. The estimated burden for any taxpayer required to file Form 8886 is approximately 10 hours, 16 minutes for recordkeeping, 4 hours, 50 minutes for learning about the law or the form, and 6 hours, 25 minutes for preparing, copying, assembling, and sending the form to the IRS. According to the American Institute of CPAs 2016 National MAP Survey, the median billing cost for a CPA is approximately $100 per hour. See 2016 AICPA PCPS/CPA.com National MAP Survey 8-9 (2016), https://www.riscpa.org/writable/news-items/documents/2016_pcps_national_map_survey_commentary.pdf (last accessed July 3, 2023). For 2018, the median billing cost for a CPA is approximately $210.50 per hour. See National MAP Survey 2018 Executive Summary, 13 (2018), https://us.aicpa.org/content/dam/aicpa/interestareas/privatecompaniespracticesection/financ-national-map-survey-executive-summary.pdf (last accessed July 3, 2023). Thus, for the initial reporting period, it is estimated that taxpayers may incur costs ranging from $2,150 to $4,700 per respondent, although this amount is anticipated to be significantly less for all subsequent reporting periods. For the reasons stated, a regulatory flexibility analysis under the Regulatory Flexibility Act is not required. The Treasury Department and the IRS invite comments on the impact of the proposed regulations on small entities. Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking has been submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on its impact on small business. III. Unfunded Mandates Reform Act Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or Tribal government, in the aggregate, or by the private sector, of $100 million (updated annually for inflation). This proposed rule does not include any Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector in excess of that threshold. IV. Executive Order 13132: Federalism Executive Order 13132 (Federalism) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on State and local governments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. This proposed rule does not have federalism implications and does not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order. V. Regulatory Planning and Review Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6(b) of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required. Comments and Public Hearing Before these proposed amendments to the regulations are adopted as final regulations, consideration will be given to any comments that are submitted timely to the IRS as prescribed in the preamble under the ADDRESSES section. The Treasury Department and the IRS request comments on all aspects of the proposed regulations. Any comments submitted will be made available at https://www.regulations.gov or upon request. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. A public hearing is being held on October 12, 2023, beginning at 10:00 a.m. ET, in the Auditorium at the Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. Participants may alternatively attend the public hearing by telephone. The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit an outline of the topics to be discussed as well as the time to be devoted to each topic by October 3, 2023. A period of ten minutes will be allocated to each person for making comments. After the deadline for receiving outlines has passed, the IRS will prepare an agenda containing the schedule of speakers. Copies of the agenda will be made available free of charge at the hearing. If no outlines of the topics to be discussed at the hearing are received by October 3, 2023, the public hearing will be cancelled. If the public hearing is cancelled, a notice of cancellation of the public hearing will be published in the Federal Register. Individuals who want to testify in person at the public hearing must send an email to publichearings@irs.gov to have your name added to the building access list The subject line of the email must contain the regulation number REG-109348-22 and the language TESTIFY In Person.. For example, the subject line may say: Request to TESTIFY In Person at Hearing for REG-109348-22. Individuals who want to testify by telephone at the public hearing must send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number REG-109348-22 and the language TESTIFY Telephonically. For example, the subject line may say: Request to TESTIFY Telephonically at Hearing for REG-109348-22. Individuals who want to attend the public hearing in person without testifying must also send an email to publichearings@irs.gov to have your name added to the building access list. The subject line of the email must contain the regulation number (REG-109348-22) and the language ATTEND In Person. For example, the subject line may say: Request to ATTEND Hearing In Person for REG-109348-22. Requests to attend the public hearing must be received by 5:00 p.m. ET on October 10, 2023. Individuals who want to attend the public hearing telephonically without testifying must also send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number (REG-109348-22) and the language ATTEND Hearing Telephonically. For example, the subject line may say: Request to ATTEND Hearing Telephonically for REG-109348-22. Requests to attend the public hearing must be received by 5:00 p.m. ET on October 10, 2023. Hearings will be made accessible to people with disabilities. To request special assistance during the hearing, contact the Publications and Regulations Branch of the Office of Associate Chief Counsel (Procedure and Administration) by sending an email to publichearings@irs.gov (preferred) or by telephone at (202) 317-6901 (not a toll-free number) by at least October 6, 2023. Statement of Availability of IRS Documents Guidance cited in this preamble is published in the Internal Revenue Bulletin and is available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov. Drafting Information The principal author of these proposed regulations is Jonathan A. Dunlap, Office of Associate Chief Counsel (Income Tax & Accounting). However, other personnel from the Treasury Department and the IRS participated in their development. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Proposed Amendments to the Regulations Accordingly, the Treasury Department and the IRS propose to amend 26 CFR part 1 as follows: PART 1--INCOME TAXES Paragraph 1. The authority citation for part 1 is amended by adding an entry for §1.6011-13 in numerical order to read in part as follows: Authority: 26 U.S.C. 7805 * * * * * * * * Section 1.6011-13 also issued under 26 U.S.C. 6001 and 26 U.S.C. 6011. * * * * * Par. 2. Section 1.6011-13 is added to read as follows: §1.6011-13 Monetized installment sale listed transaction. (a) Identification as a listed transaction. Transactions that are the same as, or substantially similar to, a transaction described in paragraph (b) of this section are identified as listed transactions for purposes of §1.6011-4(b)(2). (b) Monetized installment sale transaction. A transaction is a monetized installment sale transaction if, in connection with the transaction, and regardless of the order of the steps, or the presence of additional steps or parties-- (1) A taxpayer (seller), or a person acting on the seller's behalf, identifies a potential buyer for appreciated property (gain property), who is willing to purchase the gain property for cash or other property (buyer cash); (2) The seller enters into an agreement to sell the gain property to a person other than the buyer (intermediary), in exchange for an installment obligation; (3) The seller purportedly transfers the gain property to the intermediary, although the intermediary either never takes title to the gain property or takes title only briefly before transferring it to the buyer; (4) The intermediary purportedly transfers the gain property to the buyer in a sale of the gain property in exchange for the buyer cash; (5) The seller obtains a loan, the terms of which are such that the amount of the intermediary's purported interest payments on the installment obligation correspond to the amount of the seller's purported interest payments on the loan during the period. On each of the installment obligation and loan, only interest is due over identical periods, with balloon payments of all or a substantial portion of principal due at or near the end of the instruments' terms; (6) The sales proceeds from the buyer received by the intermediary, reduced by certain fees (including an amount set aside to fund purported interest payments on the purported installment obligation), are provided to the purported lender to fund the purported loan to the seller or transferred to an escrow or investment account of which the purported lender is a beneficiary. The lender agrees to repay these amounts to the intermediary over the course of the term of the installment obligation; and (7) On the seller's Federal income tax return for the taxable year of the purported installment sale, the seller treats the purported installment sale as an installment sale under section 453. (c) Substantially similar transactions. A transaction may be substantially similar to a transaction described in paragraph (b) of this section if the transaction does not include all of the elements described in that paragraph. For example, a transaction would be substantially similar to a monetized installment sale described in paragraph (b) of this section if a seller transfers property to an intermediary for an installment obligation, the intermediary simultaneously or after a brief period transfers the property to a previously identified buyer for cash or other property, and in connection with the transaction, the seller receives a loan for which the cash or property from the buyer serves indirectly as collateral. (d) Participation in a monetized installment sale transaction. Participants in a monetized installment sale transaction described in paragraph (b) of this section include sellers, intermediaries and purported lenders described in paragraph (b) of this section and any other taxpayer whose Federal income tax return reflects tax consequences or the tax strategy described in paragraph (b) of this section or a substantially similar transaction. Buyers of gain property described in paragraph (b) of this section are not treated as participants. (e) Applicability date. This section's identification of transactions that are the same as, or substantially similar to, the transaction described in paragraph (b) of this section as listed transactions for purposes of §1.6011-4(b)(2) and sections 6111 and 6112 of the Code is effective on the date that these regulations are published as final regulations in the Federal Register. Notwithstanding section 301.6111-3(b)(4)(i) and (iii) of this chapter, material advisors are required to disclose only if they have made a tax statement on or after the date that is 6 years before the date that these regulations are published as final regulations in the Federal Register. Douglas W. O'Donnell, Deputy Commissioner for Services and Enforcement (Filed by the Office of the Federal Register August 3, 2023, 8:45 a.m., and published in the issue of the Federal Register for August 4, 2023, 88 FR 51756)

Internal Revenue Service - Information Release IR-2023-122 IRS last call for taxpayers to claim $1.5 billion in tax refunds from unfiled 2019 tax returns: July 17 deadline rapidly approaching June 30, 2023 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 IRS last call for taxpayers to claim $1.5 billion in tax refunds from unfiled 2019 tax returns: July 17 deadline rapidly approaching IR-2023-122, June 30, 2023 WASHINGTON The Internal Revenue Service issued a final reminder today to nearly 1.5 million taxpayers across the country to claim their refunds for tax year 2019 by filing before the July 17, 2023, deadline. For these unclaimed refunds, the IRS estimates average median refund for tax year 2019 amounts to $893. "Time is running out for people owed a tax refund in 2019," said IRS Commissioner Danny Werfel. "The final window closes on July 17 for taxpayers who didn't file a tax return for 2019 to claim their refund. The IRS continues to urge people who may have overlooked filing during the pandemic to act quickly before they lose their final chance to claim a potentially substantial refund." Many low- and moderate-income workers may be eligible for as much as $6,557 if their 2019 income qualifies them for the Earned Income Tax Credit (EITC). Those who are potentially eligible for EITC in 2019 had incomes below the following thresholds: - $50,162 ($55,952 if married filing jointly) for those with three or more qualifying children. - $46,703 ($52,493 if married filing jointly) for people with two qualifying children. - $41,094 ($46,884 if married filing jointly) for those with one qualifying child. - $15,570 ($21,370 if married filing jointly) for people without qualifying children. By law, taxpayers normally have three years to file and claim their tax refunds. If they don't file within three years, the money becomes the property of the U.S. Treasury. The law requires taxpayers to properly address, mail and ensure the tax return is postmarked by July 17, 2023. The IRS reminds taxpayers seeking a 2019 tax refund that their checks may be held if they have not filed tax returns for 2020 and 2021. Current and prior-year tax forms (such as the tax year 2019 Forms 1040 and 1040-SR) and instructions are available online on the IRS Forms, Instructions and Publications page or by calling toll-free 800-TAX-FORM (800-829-3676). In addition, the refund will be applied to any amounts still owed to the IRS or a state tax agency and may be used to offset unpaid child support or past due federal debts, such as student loans. IRS Notice 2023-21 provides legal guidance on claims made by the postponed deadline. Need to file a 2019 tax return? Several options to get key documents Although it's been several years since 2019, the IRS reminds taxpayers there are ways they can still gather the information they need to file this tax return. People should begin now to make sure they have enough time to file before the July deadline for 2019 refunds. Here are some options: - Request copies of key documents: Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for the years 2019, 2020 or 2021 can request copies from their employer, bank or other payers. - Use Get Transcript Online at IRS.gov. Taxpayers who are unable to get those missing forms from their employer or other payers can order a free wage and income transcript at IRS.gov using the Get Transcript Online tool. For many taxpayers, this is by far the quickest and easiest option. - Request a transcript. Another option is for people to file Form 4506-T, Request for Transcript of Tax Return, with the IRS to request a "wage and income transcript." A wage and income transcript shows data from information returns received by the IRS, such as Forms W-2, 1099, 1098, Form 5498 and IRA contribution information. Taxpayers can use the information from the transcript to file their tax return. But plan ahead - these written requests can take several weeks; people are strongly urged to try the other options first. State-by-state estimates of individuals who may be due 2019 income tax refunds People have more time than usual to file tax returns to claim their refunds for tax year 2019. The three-year window for 2019 unfiled returns was postponed to July 17, 2023, due to the COVID-19 pandemic emergency. The IRS estimates almost $1.5 billion in refunds remain unclaimed. Based on tax information currently available, a special state-by-state estimate shows each state's median potential refund and how many people are potentially eligible for these refunds. The actual refund amount will vary based on a household's tax situation. State or District Estimated Number of Individuals Median Potential Refund Total Potential Refunds* Alabama 23,900 $880 $23,694,700 Alaska 6,000 $917 $6,542,300 Arizona 35,400 $824 $33,911,500 Arkansas 12,800 $864 $12,586,100 California 144,700 $856 $141,780,000 Colorado 30,100 $859 $29,514,000 Connecticut 15,400 $934 $16,198,400 Delaware 5,700 $880 $5,754,900 District of Columbia 4,400 $887 $4,550,100 Florida 89,300 $893 $89,530,400 Georgia 48,000 $826 $46,269,000 Hawaii 8,800 $932 $9,197,700 Idaho 7,600 $758 $6,996,000 Illinois 55,800 $916 $57,591,300 Indiana 31,700 $916 $32,115,100 Iowa 15,300 $926 $15,492,600 Kansas 14,600 $913 $14,753,700 Kentucky 18,600 $906 $18,574,200 Louisiana 22,000 $877 $22,274,800 Maine 6,400 $876 $6,197,300 Maryland 31,400 $897 $32,344,500 Massachusetts 35,700 $966 $38,400,900 Michigan 48,500 $888 $48,582,600 Minnesota 23,200 $848 $22,387,800 Mississippi 12,300 $820 $11,836,700 Missouri 31,800 $880 $31,345,700 Montana 5,200 $854 $5,144,900 Nebraska 7,800 $893 $7,745,600 Nevada 15,800 $869 $15,550,300 New Hampshire 6,900 $974 $7,451,800 New Jersey 40,500 $924 $42,035,900 New Mexico 9,600 $867 $9,522,400 New York 81,600 $945 $86,826,200 North Carolina 45,800 $862 $44,426,600 North Dakota 3,700 $958 $3,997,100 Ohio 51,800 $868 $50,234,900 Oklahoma 21,400 $897 $21,770,000 Oregon 23,700 $801 $22,348,900 Pennsylvania 56,000 $924 $57,572,600 Rhode Island 4,300 $924 $4,468,700 South Carolina 18,200 $809 $17,264,100 South Dakota 3,700 $918 $3,746,700 Tennessee 28,100 $873 $27,623,700 Texas 135,300 $924 $142,235,200 Utah 11,700 $845 $11,198,400 Vermont 3,100 $901 $3,036,600 Virginia 42,200 $869 $42,110,500 Washington 42,400 $934 $44,823,200 West Virginia 6,500 $959 $6,818,900 Wisconsin 21,000 $834 $20,003,100 Wyoming 3,300 $949 $3,534,800 Totals 1,469,000 $893 $1,479,913,400 * Excluding credits.

Private Letter Ruling Number: 202240022 Internal Revenue Service July 19, 2021 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entitles Number: 202240022 Release Date: 10/7/2022 Date: July 19, 2021 Taxpayer ID number: Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: UIL: 501.03-00 CERTIFIED MAIL - RETURN RECEIPT REQUESTED if Dear ******: Why we are sending you this letter This is a final determination that you don't qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3), effective ******. Your determination letter dated ******, is revoked. Our adverse determination as to your exempt status was made for the following reasons: You did not produce documents to establish that you are organized and operated exclusively for exempt purposes within the meaning of IRC Section 501(c)(3), and that no part of your net earnings inure to the benefit of private shareholders or individuals. You failed to respond to repeated reasonable requests to allow the Internal Revenue Service to examine your records regarding your receipts, expenditures, or activities, as required by IRC Sections 6001 and 6033(a)(1) and Rev. Rul. 59-95, 1959-1 C.B. 627. As such, you failed to meet the requirements of IRC Section 501(c)(3) and Treasury Regulations Section 1.501(c)(3)-1(a), in that you have not established that you were organized and operated exclusively for exempt purposes and that no part of your earnings inured to the benefit of private shareholders or individuals. Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns and pay tax, where applicable. For further instructions, forms and information please visit www.irs.gov. Contributions to your organization are no longer deductible under.IRC Section 170. What you must do if you disagree with this determination If you want to contest our final determination, you have 90 days from the date this determination letter was mailed to you to file a petition or complaint in one of the three federal courts listed below. How to file your action for declaratory judgment If you decide to contest this determination, you may file an action for declaratory judgment under the provisions of IRC Section 7428 in one of the following three venues: 1) United States Tax Court, 2) the United States Court of Federal Claims or 3) the United States District Court for the District of Columbia. Please contact the clerk of the appropriate court for rules and the appropriate forms for filing an action for declaratory judgment by referring to the enclosed Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. You may write to the courts at the following addresses: United States Tax Court 400 Second Street, NW Washington, DC 20217 U.S. Court of Federal Claims 717 Madison Place, NW Washington, DC 20439 U.S. District Court for the District of Columbia 333 Constitution Ave., N.W. Washington, DC 20001 Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory judgment under IRC Section 7428. We'll notify the appropriate state officials (as permitted by law) of our determination that you aren't an organization described in IRC Section 501(c)(3). Information about the IRS Taxpayer Advocate Service The IRS office whose phone number appears at the top of the notice can best address and access your tax information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Contact your local Taxpayer Advocate Office at: Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights, go to taxpayeradvocate.irs.gov. Do not send your federal court pleading to the TAS address listed above. Use the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time to file an action for declaratory judgment. Where you can find more information Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for more comprehensive information. Find tax forms or publications by visiting www.irs.gov/forms or calling 800-TAX-FORM (800-829-3676). If you have questions, you can call the person shown at the top of this letter. If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best time to call, and a copy of this letter. Keep the original letter for your records. Sincerely, Sean E. O'Reilly Director, Exempt Organizations Examinations Enclosures: Publication 1 Publication 594 Publication 892 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Date: 05/01/2020 Taxpayer ID number: Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: Address: Manager's contact information: Name: ID number: Telephone: Response due date: CERTIFIED MAIL Return Receipt Requested Dear ******: Why you're receiving this letter We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to revoke your tax-exempt status as an organization described in Internal Revenue Code (IRC) Section 501(c)(3). If you agree If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. We'll issue a final adverse letter determining that you aren't an organization described in IRC Section 501(c)(3) for the periods above. After we issue the final adverse determination letter, we'll announce that your organization is no longer eligible to receive tax deductible contributions under IRC Section 170. If you disagree 1. Request a meeting or telephone conference with the manager shown at the top of this letter. 2. Send any information you want us to consider. 3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information. The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For your protest to be valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't apply now that we've issued this letter. 4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the IRS. If you're considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals. If we don't hear from you If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final adverse determination letter. Contacting the Taxpayer Advocate Office is a taxpayer right The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778. Additional information You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person shown at the top of this letter. Sincerely, Director, Exempt Organizations Examinations Enclosures: Form 886-A Form 6018 Form 4621-A Publication 892 Publication 3498-A Date of Notice: Issues: Whether ****** (the Organization), which qualified for exemption from Federal income tax under Section 501(c)(3) of the Internal Revenue Code, should be revoked due to its failure to produce records? Facts: The Organization applied for tax-exempt status by filing the Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, on ******, and was granted tax-exempt status as a 501(c)(3) on ******, with an effective date of ******. An Organization exempt under 501(c)(3) needs to be organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary or educational purposes and to foster national and amatuer sports competition. The Organization was selected for audit to ensure that the activities and operations align with their approved exempt status. The Organization failed to provide requested documentation to the Internal Revenue Service to perform an audit of Form ****** for the tax year ******. The Form 1023-EZ application list the phone number of ****** for ******, President of ****** - Correspondence for the audit was as follows: o Letter 3606, EO Examination Appointment and Information Document Request Transmittal (Rev. 6-2012) with attachments, was mailed to the organization on ******, with a response date of ******. The letter requested organizational documents, publications, meeting minutes, delinquent returns, and financial records. This letter was returned by the post office as unable to be delivered as addressed. o Letter 3844-A, Correspondence Audit Follow Up (Rev. 12-2015) with attachments, was mailed certified to new addresses found in ****** for the Organization and the President, on ******. The letters had a response date of ******, the letter was signed and received by an unknown party and returned unopened and noted "not deliverable as addressed". o Letter 3844-A, Correspondence Audit Follow Up (Rev. 12-2015) with attachments, was mailed certified to new addresses found in ****** for the President, and ****** Officers who were listed on the Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. The letter had a response date of ******. Per the United States Postal Service (USPS) tracking, the letter was signed and received by the President (******) and ****** of the ****** Officers (******). The remaining letters were return undeliverable or unclaimed. o Form 4564 Information Document Request (IDR), with attachments, was mailed certified to the ******, President, per phone conversation, on ******, with a negotiated response date of ******. o Letter 5077-B, TE/GE IDR Delinquency Notice (1-2017), with attachments, was mailed certified to both confirmed addresses for ******, Officer and ******, President on ******, with a response date of ******. The certified return receipt was signed and returned by officers. o Form 4564 (IDR) with enclosed exchange of documents was mailed to the both confirmed addresses for ******, President and ******, Officer on ******. - Telephone contact for the audit was as follows: o ******, Tax Compliance Officer (TCO) called the phone number listed on the Form 1023-EZ application for the President of ****** and received VMS. Left a message for the president of the organization to return my phone call. o ******, TCO called the phone number listed on the Form tax year ending ****** application for the President which was the same number ****** listed on the application, received VMS and again left a message for the president to return my phone call o ****** TCO received a call from ******, President. Address was verified and letters, attachments Pub 1, and the exam process were discussed. The president agreed to have all requested documents mailed by ******. o ******, TCO attempted phone call to ******, President ****** and received VMS. Left a message for president to return my call. o ******, TCO called president. President state she has not mailed any documents due to the recent holidays and requested additional time. TCO stated she will discuss with manager and return her call for request for additional time. o ******, TCO returned call to president ****** and received VMS. Left message that manager allowed until ****** for all documents to be mailed. o ******, TCO received a call from the president stating she will not be sending any documentation due to the organization is now closed. The TCO discussed termination and revocation and the steps involved with each. The president stated she will not be taking the actions needed for termination and that she prefers the agency revoke the organization's exemption status and she will sign and agree to the revocation. Law: Internal Revenue Code (IRC) §501(c)(3) of the Code provides that an organization organized and operated exclusively for charitable or educational purposes is exempt from Federal income tax, provided no part of its net earnings inures to the benefit of any private shareholder or individual. IRC §511 of the Internal Revenue Code imposes a tax at corporate rates under section 11 on the unrelated business taxable income of certain tax-exempt organizations. IRC §6001 of the Code provides that every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe. Whenever in the judgment of the Secretary it is necessary, he may require any person, by notice served upon such person or by regulations, to make such returns, render such statements, or keep such records, as the Secretary deems sufficient to show whether or not such person is liable for tax under this title. IRC §6033(a)(1) of the Code provides, except as provided in section 6033(a)(2), every organization exempt from tax under section 501(a) shall file an annual return, stating specifically the items of gross income, receipts and disbursements, and such other information for the purposes of carrying out the internal revenue laws as the Secretary may by forms or regulations prescribe, and keep such records, render under oath such statements, make such other returns, and comply with such rules and regulations as the Secretary may from time to time prescribe. Treasury Regulations (Regulation) §1.501(c)(3)-1 In order to be exempt under §501(c)(3) the organization must be both organized and operated exclusively for one or more of the purposes specified in the section. (religious, charitable, scientific, testing for public safety, literary or educational). Regulation §1.501(c)(3)-1(a)(1) of the regulations states that in order to be exempt as an organization described in section 501(c)(3), an organization must be both organized and operated exclusively for one or more of the purposes specified in such section. If an organization fails to meet either the organizational test or the operational test, it is not exempt. Regulation §1.501(c)(3)-1(c)(1) of the regulations provides that an organization will not be regarded as "operated exclusively" for one or more exempt purposes described in section 501(c)(3) of the Code if more than an insubstantial part of its activities is not in furtherance of a 501(c)(3) purpose. Accordingly, the organization does not qualify for exemption under section 501(c)(3) of the Code. Regulation §1.6001-1(c) of the Code provides that such permanent books and records as are required by paragraph (a) of this section with respect to the tax imposed by section 511 on unrelated business income of certain exempt organizations, every organization exempt from tax under section 501(a) shall keep such permanent books of account or records, including inventories, as are sufficient to show specifically the items of gross income, receipts and disbursements. Such organizations shall also keep such books and records as are required to substantiate the information required by section 6033. See section 6033 and §§ 1.6033-1 through 1.6033-3. Regulation §1.6001-1(e) of the Code provides that the books or records required by this section shall be kept at all time available for inspection by authorized internal revenue officers or employees and shall be retained as long as the contents thereof may be material in the administration of any internal revenue law. Regulation §1.6033-1(h)(2) of the regulations provides that every organization which has established its right to exemption from tax, whether or not it is required to file an annual return of information, shall submit such additional information as may be required by the district director for the purpose of enabling him to inquire further into its exempt status and to administer the provisions of subchapter F (section 501 and the following), chapter 1 of the Code and section 6033. Rev. Rul. 59-95, 1959-1 C.B. 627, concerns an exempt organization that was requested to produce a financial statement and statement of its operations for a certain year. However, its records were so incomplete that the organization was unable to furnish such statements. The Service held that the failure or inability to file the required information return or otherwise to comply with the provisions of section 6033 of the Code and the regulations which implement it, may result in the termination of the exempt status of an organization previously held exempt, on the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status. Organization's Position Taxpayer's position is to agree to the revocation. The president stated the organization is closed and not operating, however will not be taking the needed steps to terminate the organization. Government's Position Based on the above facts, the organization did not respond to verify that they are organized and operated exclusively for one or more of the purposes specified in IRC Section 501(c)(3). If an organization fails to meet either the organizational test or the operational test, it is not exempt. In accordance with the above-cited provisions of the Code and regulations under sections 6001 and 6033, organizations recognized as exempt from federal income tax must meet certain reporting requirements. These requirements relate to the filing of a complete and accurate annual information (and other required federal tax forms) and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated business income tax. Section 1.6033-1(h)(2) of the regulations specifically state that exempt organizations shall submit additional information for the purpose on enabling the Internal Revenue Service to inquire further into its exempt status. Using the rationale that was developed in Revenue Ruling 59-95, the Organization's failure to provide requested information should result in the termination of exempt status. Conclusion: Based on the foregoing reasons, the organization does not qualify for exemption under section 501(c)(3) and its tax-exempt status should be revoked. It is the IRS's position that the organization failed to establish that it meets the reporting requirements under IRC §§ 6001 and 6033 to be recognized as exempt from federal income tax under IRC § 501(c)(3). Furthermore, the organization has not established that it is observing the conditions required for the continuation of its exempt status or that it is organized and operated exclusively for an exempt purpose. Accordingly, the organization's exempt status is revoked effective ******. Form 1120, U.S. Corporation Income Tax Return, should be filed for the tax periods after ******.

Internal Revenue Service - Information Release IR-2024-1 Get Ready: IRS website has helpful resources for taxpayers January 4, 2024 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 Get Ready: IRS website has helpful resources for taxpayers IR-2024-01, Jan. 4, 2024 WASHINGTON -- The Internal Revenue Service encourages taxpayers to check out IRS.gov for tips, tools and resources to help them get ready to file their 2023 federal income tax return. This is the third in a series of reminders to help taxpayers get ready for the upcoming filing season. The Get Ready page on IRS.gov outlines steps taxpayers can take now to make filing easier in 2024. Later this month, the IRS anticipates announcing a start date for the 2024 filing season when the agency will begin accepting tax returns. Interactive Tax Assistant The Interactive Tax Assistant is a tool on IRS.gov that can help taxpayers with various tax law questions, including: - Who needs to file a tax return. - What is the best filing status to use. - Who can claim a dependent. - Who is eligible to claim a credit or deduct certain expenses. Earned Income Tax Credit Assistant The Earned Income Tax Credit (EITC) helps low- to moderate-income workers and families get a tax break. EITC can reduce taxes owed and may give taxpayers a larger refund. Taxpayers can use the EITC Assistant to determine: - If they are eligible to claim EITC. - If they have any qualifying children or relatives. - The estimated amount of their credit. - The filing status they should use. Where's My Refund? Most refunds are issued in less than 21 calendar days. Taxpayers can use Where's My Refund? to check the status of their 2023 income tax refund within 24 hours of e-filing. Refund information is normally available after four weeks for taxpayers that filed a paper return. Information on Where's My Refund? will update overnight so there is no need to check the tool more than once a day. IRS Individual Online Account Taxpayers with a Social Security number or an Individual Taxpayer Identification Number can create or access their IRS Individual Online Account to get information they need to file their return. With an IRS Individual Online Account, people can: - View balance owed, payment history and schedule payments. - Cancel scheduled payments - new feature for 2024. - Get transcripts. - View or create payment plans. - See digital copies of some IRS notices. - View key data from their most recently filed tax return, including adjusted gross income. - Validate bank accounts and save multiple accounts, eliminating the need to re-enter bank account information every time they make a payment. - View, approve and electronically sign power of attorney and tax information authorizations from their tax professional. Identity Protection PIN An Identity Protection (IP) PIN is a six-digit number that prevents someone else from filing a tax return using a taxpayer's Social Security number or Individual Taxpayer Identification Number. The IP PIN is known only to the taxpayer and the IRS. It helps the IRS verify the taxpayer's identity when they file an electronic or paper tax return. The fastest way to receive an IP PIN is to use the online Get an IP PIN tool which will be available Jan. 8 through mid-November. Taxpayers that want an IP PIN and do not already have an Individual Online Account on IRS.gov, must register to confirm their identity. Filing options on IRS.gov Taxpayers should make IRS.gov their first stop when looking for options to file their 2023 federal income tax return. - IRS Free File. Almost everyone can file electronically for free by using IRS Free File. Those who are comfortable preparing their own taxes can use IRS Free File Fillable Forms, regardless of their income, to file their tax return either online or by mail. - Volunteer Income Tax Assistance/Tax Counseling for the Elderly. Taxpayers can find organizations in their community with IRS certified volunteers that provide free tax help for eligible taxpayers including working families, the elderly, the disabled and people who speak limited English. - MilTax. A Department of Defense program, MilTax generally offers free return preparation and electronic filing software for federal income tax returns and up to three state income tax returns for all military members, and some veterans, with no income limit. - Direct File pilot. The IRS is piloting a new tax filing service during the upcoming filing season called Direct File that gives eligible taxpayers a new choice to file their 2023 federal tax returns online, for free, directly with the IRS. Find more information on Direct File about pilot eligibility, scope and the participating states. Find an authorized e-file provider Tax pros accepted by the IRS electronic filing program are authorized IRS e-file providers. They are qualified to prepare, transmit and process e-filed returns. Most tax return preparers provide outstanding and professional tax service. However, choosing the wrong tax return preparer hurts taxpayers financially every year. Be sure to check tips for choosing a tax preparer and how to avoid unethical "ghost" return preparers. Taxpayers can use the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

Private Letter Ruling Number: 202322005 Internal Revenue Service March 2, 2023 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202322005 Release Date: 6/2/2023 Index Number: 61.00-00, 661.00-00, 662.00-00, 1001.00-00, 1015.02-00, 1223.00-00, 2001.01-00, 2033.00-00, 2035.01-00, 2036.01-00, 2037.01-00, 2038.00-00, 2601.00-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:B04 PLR-116802-22 Date: March 02, 2023 Dear ******: This letter responds to your authorized representative's letter dated August 31, 2022, and subsequent correspondence, requesting income, estate, gift, and generationskipping transfer (GST) tax rulings with respect to the proposed division of Trust. The facts and representations submitted are summarized as follows: On Date, Trust was established by Settlor for the primary benefit of Settlor's child, Child, under an Agreement and Declaration of Trust (Trust Agreement). Settlor had three children in addition to Child. Child and Child's four children, Grandchild 1, Grandchild 2, Grandchild 3, and Grandchild 4 are living. Trustee is currently serving as trustee of Trust, which is administered under the laws of State. Trust was irrevocable before September 25, 1985, and no actual or constructive additions to Trust were made after that date. Under the terms of Trust Agreement, Trustee must distribute all income to Child and may distribute principal to Child to provide for Child's maintenance, support, and education. Trustee may distribute principal to Settlor's issue (including issue who are not the issue of Child) to provide for their maintenance, support, and education. After Child's death, Trustee must distribute all income to Child's issue, per stirpes. Trustee may continue to distribute principal to any of Settlor's issue to provide for maintenance, support, and education. Trust terminates 21 years after the death of Settlor's last surviving child, and the remainder is distributed to Child's issue, per stirpes. Under the terms of the Trust Agreement, Trust holds all property in one share. Because Child's children have different investment goals and distribution priorities, Trustee proposes to divide Trust into four equal, separate trust shares for the benefit of Child and each of Child's children and their respective issue (Resulting Trusts). Each Resulting Trust will be funded with one quarter of the assets of Trust. The terms of each Resulting Trust will be identical and unchanged from the terms of Trust Agreement, except that each Resulting Trust will be held for the benefit of Child and the respective child for whom the Resulting Trust was created and such child's issue. Each Resulting Trust also provides Settlor's issue who are not the issue of Child with the same beneficial interest they each had under Trust. The division of Trust into Resulting Trusts will be created by a pro rata distribution from Trust. State Statute provides, in relevant part, that after notice to qualified beneficiaries, a trustee may divide a trust into two or more separate trusts if the result does not substantially impair the rights of any beneficiary or have a materially adverse effect on the achievement of the purposes of the trust. You have requested the following rulings regarding the proposed division and equal allocation of Trust assets to four separate trusts: 1. The proposed division will not cause Trust or the Resulting Trusts to lose their grandfathered status for purposes of GST tax or otherwise become subject to GST tax. 2. The proposed division will not result in the recognition of income, gain, or loss from a sale or other disposition of Trust property under § 61, § 661, § 662, or § 1001 of the Internal Revenue Code (Code). 3. The proposed division will not constitute a transfer subject to gift tax under § 2501. 4. The adjusted basis and holding periods of the Resulting Trusts will be the same as the adjusted basis and the holding periods of Trust. 5. The proposed division will not cause Trust assets to be includible in the gross estate of any Trust beneficiaries under §§ 2035, 2036, 2037, and 2038. LAW AND ANALYSIS Ruling 1 Section 2601 imposes a tax on every generation-skipping transfer. The term "generation-skipping transfer" is defined in § 2611 as a taxable distribution, a taxable termination, and a direct skip. Under § 1433(a) of the Tax Reform Act of 1986 (Act) and § 26.2601-1(a) of the Generation-Skipping Transfer Tax Regulations, the GST tax is generally applicable to generation-skipping transfers made after October 22, 1986. However, under § 1433(b)(2)(A) of the Act and § 26.2601-1(b)(1)(i), the GST tax does not apply to a transfer under a trust that was irrevocable on September 25, 1985, but only to the extent that such transfer is not made out of corpus added to the trust after September 25, 1985 (or out of income attributable to corpus so added). Section 26.2601-1(b)(4)(i) provides rules for determining when a modification, judicial construction, settlement agreement, or trustee action with respect to a trust that is exempt from the GST tax will not cause the trust to lose its exempt status. In general, unless specifically provided otherwise, the rules contained in this paragraph are applicable only for purposes of determining whether an exempt trust retains its exempt status for GST tax purposes. Thus (unless specifically noted), the rules do not apply in determining, for example, whether the transaction results in a gift subject to gift tax, or may cause the trust to be included in the gross estate of a beneficiary, or may result in the realization of gain for purposes of § 1001. Section 26.2601-1(b)(4)(i)(D) provides that a modification of the governing instrument of an exempt trust, by judicial reformation or nonjudicial reformation that is valid under applicable state law, will not cause an exempt trust to be subject to the GST tax if the modification does not shift a beneficial interest in the trust to any beneficiary who occupies a lower generation (as defined in § 2651) than the person or persons who held the beneficial interest prior to the modification, and the modification does not extend the time for vesting of any beneficial interest in the trust beyond the period provided for in the original trust. A modification of an exempt trust will result in a shift in beneficial interest to a lower generation beneficiary if the modification can result in either an increase in the amount of a GST transfer or the creation of a new GST transfer. A modification that is administrative in nature that only indirectly increases the amount transferred will not be considered to shift a beneficial interest in the trust. Section 26.2601-1(b)(4)(i)(E), Example 5, provides as follows: In 1980, Trustor established an irrevocable trust for the benefit of his two children, A and B, and their issue. Under the terms of the trust, the trustee has the discretion to distribute income and principal to A, B, and their issue in such amounts as the trustee deems appropriate. On the death of the last to die of A and B, the trust principal is to be distributed to the living issue of A and B, per stirpes. In 2002, the appropriate local court approved the division of the trust into two equal trusts, one for the benefit of A and A's issue and one for the benefit of B and B's issue. The trust for A and A's issue provides that the trustee has the discretion to distribute trust income and principal to A and A's issue in such amounts as the trustee deems appropriate. On A's death, the trust principal is to be distributed equally to A's issue, per stirpes. If A dies with no living descendants, the principal will be added to the trust for B and B's issue. The trust for B and B's issue is identical (except for the beneficiaries), and terminates at B's death at which time the trust principal is to be distributed equally to B's issue, per stirpes. If B dies with no living descendants, principal will be added to the trust for A and A's issue. The division of the trust into two trusts does not shift any beneficial interest in the trust to a beneficiary who occupies a lower generation (as defined in § 2651) than the person or persons who held the beneficial interest prior to the division. In addition, the division does not extend the time for vesting of any beneficial interest in the trust beyond the period provided for in the original trust. Therefore, the two partitioned trusts resulting from the division will not be subject to the provisions of chapter 13. In this case, Trust will be divided into four separate trusts each benefitting Child, one Grandchild, and his or her descendants (Resulting Trusts). Each Resulting Trust also provides Settlor's issue who are not the issue of Child with the same beneficial interest they each had under Trust. The proposed division will not result in a shift of any beneficial interest in Trust to any beneficiary who occupies a generation lower than the persons holding the beneficial interests. Further, the proposed division will not extend the time for vesting of any beneficial interest in the Resulting Trusts beyond the period provided for in Trust. Accordingly, based on the facts submitted and the representations made, if the division of Trust satisfies all of the State law requirements and is valid under State law, we conclude that the division of Trust will not cause Trust or any of the Resulting Trusts to lose their exempt status from GST tax or otherwise become subject to GST tax. Ruling 2 Section 61(a)(3) provides that gross income includes gains derived from dealings in property. Section 661(a) provides that in any taxable year a deduction is allowed in computing the taxable income of a trust (other than a trust to which subpart B applies), for the sum of (1) the amount of income for such taxable year required to be distributed currently; and (2) any other amounts properly paid or credited or required to be distributed for such taxable year. Section 1.661(a)-2(f) of the Income Tax Regulations provides that gain or loss is realized by the trust or estate (or the other beneficiaries) by reason of a distribution of property in kind if the distribution is in satisfaction of a right to receive a distribution of a specific dollar amount, of specific property other than that distributed, or of income as defined under § 643(b) and the applicable regulations, if income is required to be distributed currently. Section 662 provides that there shall be included in the gross income of a beneficiary to whom an amount specified in § 661(a) is paid, credited, or required to be distributed (by an estate or trust described in § 661), the sum of the following amounts: (1) the amount of income for the taxable year required to be distributed currently to such beneficiary, whether distributed or not; and (2) all other amounts properly paid, credited, or required to be distributed to such beneficiary for the taxable year. Rev.Rul. 56-437, 1956-2 C.B. 507, holds that the conversion of a joint tenancy in stock to a tenancy in common in order to eliminate the survivorship feature and the partition of a joint tenancy in stock are not sales or exchanges. Similarly, divisions of trusts are also not sales or exchanges of trust interests where each asset is divided pro rata among the new trusts. See Rev.Rul. 69-486, 1969-2 C.B. 159 (pro rata distribution of trust assets not a sale or exchange). Section 1001(a) provides that the gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis provided in § 1011 for determining gain, and the loss shall be the excess of the adjusted basis provided in § 1011 for determining loss over the amount realized. Section 1001(b) states that the amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property (other than money) received. Under § 1001(c), except as otherwise provided in subtitle A, the entire amount of gain or loss, determined under § 1001, on the sale or exchange of property shall be recognized. Section 1.1001-1(a) provides that the gain or loss realized from the conversion of property into cash, or from the exchange of property for other property differing materially either in kind or in extent, is treated as income or loss sustained. In this case, the Trust Agreement provides the terms governing distribution of Trust for Child and Child's descendants. It is represented that the proposed division of Trust into four equal, separate trusts (Resulting Trusts) will be funded pro rata with assets of equal value. In addition, Trustee is authorized by State Statute to divide Trust into two or more separate trusts. The Resulting Trusts will be funded with Trust property of equal value; Trust will receive nothing in exchange for the allocation of Trust assets among the Resulting Trusts; and the proposed division does not shift beneficial interests in Trust because the beneficiaries will have substantially equal interests before and after the proposed division. Accordingly, based on the facts submitted and the representations made, we conclude that the proposed division of Trust will not cause Trust, the Resulting Trusts, or any beneficiary of any of the foregoing trusts, to recognize any gain or loss from a sale or other disposition of Trust assets under § 61 and § 1001. We further conclude that the proposed division is not a distribution under § 661 or § 1.661(a)-2(f) and will not cause Trust, the Resulting Trusts, or any beneficiary of the foregoing trusts to recognize any income, gain, or loss under § 662. Ruling 3 Section 2501(a)(1) imposes a tax for each calendar year on the transfer of property by gift by any individual. Section 2511(a) provides that the gift tax applies whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. Section 2512(a) provides that if the gift is made in property, the value thereof at the date of the gift is considered the amount of the gift. Section 2512(b) provides that where property is transferred for less than adequate and full consideration in money or money's worth, then the amount by which the value of the property exceeded the value of the consideration is deemed to be a gift, and is included in computing the amount of gifts made during the calendar year. In this case, the value of the beneficial interests of the beneficiaries are the same, both before and after the proposed division. Thus, we conclude that no transfer of property will be deemed to occur as a result of the division of Trust. Accordingly, based on the facts submitted and the representations made, we conclude that the proposed division will not cause any beneficiary of Trust, or the Resulting Trusts to have made a gift subject to federal gift tax. Ruling 4 Section 1015(b) provides that if property is acquired after December 31, 1920, by a transfer in trust (other than a transfer in trust by a gift, bequest, or devise), the basis shall be the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on such transfer. Section 1.1015-2(a)(1) provides that in the case of property acquired after December 31, 1920, by transfer in trust (other than by transfer in trust by gift, bequest, or devise), the basis of property so acquired is the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on the transfer under the law applicable to the year in which the transfer was made. If the taxpayer acquired the property by transfer in trust, this basis applies whether the property is in the hands of the trustee or the beneficiary, and whether acquired prior to termination of the trust and distribution of the property, or thereafter. In this case, as stated above, § 1001 does not apply to the proposed transaction. Thus, after the division of Trust and transfer of the assets into the Resulting Trusts, the basis in each asset will be the same in the Resulting Trusts as it was in Trust under § 1015. Further, we conclude that the holding period of the assets received by the Resulting Trusts will be the same as the holding period of the assets in Trust. See § 1223(2). Ruling 5 Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. Section 2033 provides that the value of the gross estate includes the value of all property to the extent of the interest therein of the decedent at the time of death. Section 2035(a) provides that if (1) the decedent transferred an interest in property or relinquished a power with respect to any property, during the 3-year period ending on the date of the decedent's death, and (2) the value of the property (or interest therein) would have been included in the gross estate under § 2036, 2037, 2038, or 2042 if the interest or power had been retained by the decedent on the date of death, then the value of the gross estate shall include the value of any property (or interest therein) that would have been so included. Under § 2035(b), the gross estate shall be increased by the amount of any gift tax paid by the decedent or his estate on any gift made by the decedent or his spouse during the 3-year period ending on the date of the decedent's death. Section 2036(a) provides that the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death (1) the possession or enjoyment of, or the right to the income from, the property, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom. Section 2037(a) provides that the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, if (1) possession or enjoyment of the property can, through ownership of such interest, be obtained only by surviving the decedent, and (2) the decedent has retained a reversionary interest in the property, and the value of such reversionary interest immediately before the death of the decedent exceeds 5 percent of the value of such property. Section 2038(a)(1) provides that the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, revoke, or terminate, or where the decedent relinquished any such power during the 3-year period ending on the date of the decedent's death. In order for §§ 2036 through 2038 to apply, the decedent must have made a transfer of property or any interest therein (except in the case of a bona fide sale for an adequate and full consideration in money or money's worth) under which the decedent retained an interest in, or power over, the income or corpus of the transferred property. In the present case, the proposed division of Trust does not constitute a transfer within the meaning of §§ 2036 through 2038. The beneficiaries of the four Resulting Trusts will have the same interests after the division that they had as beneficiaries under Trust. Accordingly, based on the facts submitted and the representations made, we conclude that the proposed division of Trust will not cause the assets of Trust, or the Resulting Trusts to be includible in the gross estate of any beneficiary of such trusts for federal estate tax purposes under § 2035, 2036, 2037, or 2038. In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representatives. Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. Sincerely, Leslie H. Finlow _______________________________ Leslie H. Finlow Senior Technician Reviewer, Branch 4 Office of the Associate Chief Counsel (Passthroughs & Special Industries) Enclosure (1) Copy for § 6110 purposes cc:

Private Letter Ruling Number: 202001010 Internal Revenue Service October 1, 2019 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202001010 Release Date: 1/3/2020 Index Number: 9100.04-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:ITA:4 PLR-109646-19 Date: October 01, 2019 Dear ********: This letter responds to a request, dated April 13, 2019, for a private letter ruling granting an extension of time to make an election under § 168(h)(6)(F)(ii) of the Internal Revenue Code (Code) to Taxpayer, a tax-exempt controlled entity under § 168(h)(6)(F)(iii). FACTS Taxpayer, a C corporation, uses the calendar year as its taxable year and the accrual method of accounting. Taxpayer is wholly owned by Exempt Organization, a tax-exempt entity. Taxpayer is a limited partner of the Partnership, which was formed to acquire, renovate, own, and operate a multi-family property for elderly persons so that the owners would qualify for the low-income housing credit under § 42 of the Code. Taxpayer owns a percent of the Partnership. Investment Limited Partner owns b percent of the Partnership, Special Limited Partner has no ownership interest, and General Partner owns c percent of the Partnership. Upon the final sale and settlement of liabilities of the Partnership, the Partnership will distribute the cash proceeds to the Investment Limited Partner, the Taxpayer, and the General Partner, according to an allocation that varies from the ownership interests of the parties. Under § 3.9.8 of the Limited Partnership Agreement, Taxpayer agreed to make the election under § 168(h)(6)(F)(ii) of the Code to not be treated as a tax-exempt entity. Taxpayer should have made its election under § 168(h)(6)(F)(ii) on a timely-filed return for Year 1, but due to a lack of communication, Taxpayer failed to make a timely election. However, from the materials submitted, it is clear that Taxpayer at all times intended to make the election under § 168(h)(6)(F)(ii). Upon discovering its failure, Taxpayer promptly sought an extension of time in which to file the election. APPLICABLE LAW AND ANALYSIS Section 168(h)(6)(A) provides that, for purposes of § 168(h), if any property that is not tax-exempt use property is owned by a partnership having both a tax-exempt entity and a nontax-exempt entity as partners and any allocation to the tax-exempt entity is not a qualified allocation, then an amount equal to such tax-exempt entity's proportionate share of such property shall be treated as tax-exempt use property. Section 168(h)(6)(F)(i) provides generally that any tax-exempt controlled entity shall be treated as a tax-exempt entity for purposes of § 168(h)(5) and (6). Section 168(h)(6)(F)(iii)(I) provides generally that a tax-exempt controlled entity is any corporation if 50 percent or more (in value) of the stock is held by 1 or more tax-exempt entities. Because Exempt Organization owns more than 50 percent in value of Taxpayer's stock, Taxpayer is a tax-exempt controlled entity under that section. Under § 168(h)(6)(F)(ii), a tax-exempt controlled entity may elect to not be treated as a tax-exempt entity. Such an election is irrevocable and will bind all tax-exempt entities holding an interest in the tax-exempt controlled entity. Under § 301.9100-7T(a)(2)(i) of the Procedure and Administration Regulations (Regulations), an election under § 168(h)(6)(F)(ii) must be made by the due date of the tax return for the first taxable year for which the election is to be effective. Section 301.9100-1(a) of the Regulations provides that the Commissioner of Internal Revenue has discretion to grant a reasonable extension of time to make a regulatory election. Section 301.9100-1(b) defines the term "regulatory election" as including any election the due date for which is prescribed by a regulation. The election allowed by § 168(h)(6)(F)(ii) election is a regulatory election. Sections 301.9100-1 through 301.9100-3 of the Regulations provide the standards that the Service will use to determine whether to grant an extension of time to make a regulatory election. Section 301.9100-3(a) provides that requests for extensions of time for regulatory elections (other than automatic changes covered in § 301.9100-2) will be granted when the taxpayer provides evidence (including affidavits) to establish that the taxpayer acted reasonably and in good faith, and granting relief will not prejudice the interests of the Government. Section 301.9100-3(b)(1) of the Regulations provides that a taxpayer will be deemed to have acted reasonably and in good faith if the taxpayer -- (i) requests relief before the failure to make the regulatory election is discovered by the Service; (ii) failed to make the election because of intervening events beyond the taxpayer's control; (iii) failed to make the election because, after exercising due diligence, the taxpayer was unaware of the necessity for the election; (iv) reasonably relied on the written advice of the Service; or (v) reasonably relied on a qualified tax professional, and the tax professional failed to make, or advise the taxpayer to make the election. Under § 301.9100-3(b)(3) of the Regulations, a taxpayer will not be considered to have acted reasonably and in good faith if the taxpayer -- (i) seeks to alter a return position for which an accuracy-related penalty could be imposed under § 6662 at the time the taxpayer requests relief and the new position requires a regulatory election for which relief is requested; (ii) was fully informed of the required election and related tax consequences, but chose not to file the election; or (iii) uses hindsight in requesting relief. If specific facts have changed since the original deadline that make the election advantageous to a taxpayer, the Service will not ordinarily grant relief. Section 301.9100-3(c) of the Regulations provides that the Service will grant a reasonable extension of time only when the interests of the Government will not be prejudiced by the granting of relief. The interests of the Government are prejudiced if granting relief would result in a taxpayer having a lower tax liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made. CONCLUSION Based on the material submitted, we conclude that Taxpayer's failure to make the election on its original return for Year 1 was inadvertent, and that Taxpayer is not using hindsight in requesting relief. Moreover, Taxpayer requested relief before the failure to make the election was discovered by the Service. Finally, Taxpayer acted reasonably and in good faith, and the interests of the Government will not be prejudiced by the granting of relief under § 301.9100-3. Accordingly, Taxpayer is treated as if it made a timely election under § 168(h)(6)(F)(ii), provided it attaches a copy of this letter to the next return it files. A copy of this letter must be attached to any income tax return to which it is relevant. Alternatively, taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter ruling. This ruling is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement signed by an appropriate party. Although this office has not verified any of the material submitted in support of the request for ruling, it is subject to verification on examination. Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. Enclosed is a copy of the letter showing the deletions proposed to be made when it is disclosed under § 6110. If you have any questions concerning this matter, please contact the individual whose name and telephone number appear at the beginning of the letter. In accordance with the provisions of a power of attorney on file with this office, a copy of this letter is being sent to two of Taxpayer's authorized representatives. Sincerely, Stephen J. Toomey Senior Counsel Office of Chief Counsel (Income Tax & Accounting) Enclosure cc:

Internal Revenue Service - Information Release IR-2023-115 Atlanta Tax Forum quickly approaching; IRS Commissioner headlines speakers at three-day event that helps tax professionals learn the latest on tax law, transformation work June 13, 2023 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 Atlanta Tax Forum quickly approaching; IRS Commissioner headlines speakers at three-day event that helps tax professionals learn the latest on tax law, transformation work IR-2023-115, June 13, 2023 WASHINGTON -- IRS Commissioner Danny Werfel will highlight the Atlanta session of the Nationwide Tax Forum on July 25-27, providing tax professionals with multiple opportunities to learn more about changes to tax law and IRS transformation efforts. Werfel will be making his first appearance at the Tax Forums during the Atlanta event, delivering the keynote speech. Tax professionals interested in attending the Atlanta event also have a narrow window to capture the lower, early bird price if they register by 5 p.m. ET this Thursday, June 15. The IRS encourages tax professionals to sign up soon. During three-day sessions in Atlanta and four other cities, the tax forums will cover an ambitious program during a historic time for the tax community. "The IRS encourages tax professionals, especially smaller practices, to attend this summer's Nationwide Tax Forums," said IRS Commissioner Danny Werfel. "This is a historic period for the IRS and taxpayers, and these sessions will provide tax professionals with the latest information that can help their practice and their clients. The Tax Forums are unique sessions where the IRS and association partners in the tax community provide a timely look at some of the most important issues facing tax professionals during a dramatic period of change. " The 2023 forums, which will be held in person for the first time since 2019, offer attendees more than 40 seminars for which tax pros can earn up to 18 continuing education (CE) credits. The wide-ranging agenda includes a special focus on the Inflation Reduction Act's changes at the IRS. A special plenary session will explore changes outlined in the Strategic Operating Plan that will change how the IRS operates and interacts with taxpayers and the tax community for the next decade. Other sessions will focus on changes to retirement plan distributions under the Secure Act and how to handle virtual currency and digital assets. Other timely topics will touch on warnings related to the Employee Retention Credit and reporting changes to Form 1099-K, Payment Card and Third Party Network Transactions. The agenda also includes seminars that will help tax pros protect their businesses and clients from fraud, including a special cybersecurity course. Attendees can also benefit from refreshers on tax return preparer responsibilities, due diligence and ethics. In addition, four of the most popular sessions will be offered in both Spanish and English. For the full list of seminars offered this year, visit the 2023 IRS Nationwide Tax Forum Seminar Topics page. Enrolled agents, certified public accountants, certified financial planners Annual Filing Season Program (AFSP) participants and other tax professionals are all eligible to earn CE credits. 2023 registration details The 2023 IRS Nationwide Tax Forums will be held in five cities across the country. Attendees will have the opportunity to earn up to 18 continuing education credits. Register by 5 p.m. ET on June 15 to take advantage of the early bird rate of $245 per person. That is a savings of $54 off the standard rate and $135 off the on-site registration price. Standard pricing begins on June 15 after 5 p.m. ET and ends two weeks before the start of each forum. Location Forum Dates Deadline for $299 Standard Rate New Orleans July 11 - 13 June 27 Atlanta July 25 - 27 July 11 National Harbor (Washington, D.C. area) Aug. 8 - 10 July 25 San Diego Aug. 22 - 24 Aug. 8 Orlando Aug. 29 - 31 Aug. 15 Participating association members save an additional $10 Members of the following participating associations can save an additional $10 off the early bird rate if they register by June 15. Those interested should contact their association directly for more information: - American Bar Association (ABA) - American Institute of Certified Public Accountants (AICPA) - National Association of Enrolled Agents (NAEA) - National Association of Tax Professionals (NATP) - National Society of Accountants (NSA) - National Society of Tax Professionals (NSTP) The IRS Nationwide Tax Forums are the largest and longest-running events dedicated exclusively to the needs of tax professionals. They offer an opportunity to learn from both the IRS and industry experts, network with IRS officials and colleagues, and gain valuable insights into the tax industry. For more information or to register online, visit irstaxforum.com.

Private Letter Ruling Number: 202408009 Internal Revenue Service November 30, 2023 Department of the Treasury Internal Revenue Service Independent Office of Appeals Release Number: 202408009 Release Date: 2/23/2024 Date: NOV 30 2023 Person to contact: Employer ID number: 86-0806620 Uniform issue list (UIL): 501.00-00 501.03-00 501.03-30 Certified Mail Dear ******: This is a final adverse determination that you do not qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3). We made the adverse determination for the following reasons: You do not meet the organizational test and operational tests under Treasury Regulations 1.501(c)(3)-1(b) & 1.501(c)(3)-1(c)(1), respectively. You are not organized or operated exclusively for charitable, educational, or similar purposes because your primary activity is operating a homeowner's association and maintaining the common areas in the community. You're required to file federal income tax returns on Forms 1120, U.S. Corporation Income Tax Return. Mail your form to the appropriate Internal Revenue Service Center per the form's instructions. You can get forms and instructions by visiting our website at IRS.gov/forms or by calling 800-TAX-FORM (800-829-3676). We'll make this letter and the proposed adverse determination letter available for public inspection under IRC Section 6110 after deleting certain identifying information. We provided to you, in a separate mailing, Notice 437, Notice of Intention to Disclose. Please review the Notice 437 and the documents attached that show our proposed deletions. If you disagree with our proposed deletions, follow the instructions in Notice 437. If you decide to contest this determination, you can file an action for declaratory judgment under the provisions of IRC Section 7428 in either: - The United States Tax Court, - The United States Court of Federal Claims, or - The United States District Court for the District of Columbia You must file a petition or complaint in one of these three courts within 90 days from the date we mailed this determination letter to you. You can download a fillable petition or complaint form and get information about filing at each respective court's website listed below or by contacting the Office of the Clerk of the Court at one of the addresses below. Be sure to include a copy of this letter and any attachments and the applicable filing fee with the petition or complaint. You can eFile your completed U.S. Tax Court petition by following the instructions and user guides available on the Tax Court website at ustaxcourt.gov/dawson.html. You will need to register for a DAWSON account to do so. You may also file your petition at the address below: United States Tax Court 400 Second Street, NW Washington, DC 20217 ustaxcourt.gov The websites of the U.S. Court of Federal Claims and the U.S. District Court for the District of Columbia contain instructions about how to file your completed complaint electronically. You may also file your complaint at one of the addresses below: U.S. Court of Federal Claims 717 Madison Place, NW Washington, DC 20439 uscfc.uscourts.gov U.S. District Court for the District of Columbia 333 Constitution Avenue, NW Washington, DC 20001 dcd.uscourts.gov Note: We will not delay processing income tax returns and assessing any taxes due even if you file a petition for declaratory judgment under IRC Section 7428. Taxpayer rights and sources for assistance The Internal Revenue Code (IRC) gives taxpayers specific rights. The Taxpayer Bill of Rights groups these into 10 fundamental rights. See IRC Section 7803(a)(3). IRS employees are responsible for being familiar with and following these rights. For additional information about your taxpayer rights, please see the enclosed Publication 1, Your Rights as a Taxpayer, or visit IRS.gov/taxpayer-bill-of-rights. The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that helps taxpayers and protects taxpayers' rights. TAS can offer you help if your tax problem is causing a financial difficulty, you've tried but been unable to resolve your issue with the IRS, or you believe an IRS system, process, or procedure isn't working as it should. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. To learn more, visit taxpayeradvocate.IRS.gov or call 877-777-4778. Tax professionals who are independent from the IRS may be able to help you. Low Income Taxpayer Clinics (LITCs) can represent low-income persons before the IRS or in court. LITCs can also help persons who speak English as a second language. Any services provided by an LITC must be for free or a small fee. To find an LITC near you: - Go to taxpayeradvocate.IRS.gov/litcmap; - Download IRS Publication 4134, Low Income Taxpayer Clinic List, available at IRS.gov/forms; or - Call the IRS toll-free at 800-829-3676 and ask for a copy of Publication 4134. State bar associations, state or local societies of accountants or enrolled agents, or other nonprofit tax professional organizations may also be able to provide referrals. TAS assistance is not a substitute for established IRS procedures, such as the formal appeals process. TAS cannot reverse a legally correct tax determination, or extend the time fixed by law that you have to file a petition in a United States Court. If you have questions, contact the person at the top of this letter. Sincerely, Appeals Team Manager Enclosures: Publication 1 IRS Appeals Survey cc: Department of the Treasury Internal Revenue Service PO Box 2508 Cincinnati, OH 45201 Date: August 29, 2022 Employer ID number: Person to contact: Name: ID number: Telephone: Fax: UIL: 501.00-00 501.03-00 501.03-30 Legend: b = number c dollars = amount W = city/state X = date 1 Y = date 2 Z = state Dear ******: We considered your application for recognition of exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a). We determined that you don't qualify for exemption under IRC Section 501(c)(3). This letter explains the reasons for our conclusion. Please keep it for your records. Issues Do you qualify for exemption under IRC Section 501(c)(3)? No, for the reasons stated below. Facts You submitted Form 1023-EZ, Streamline Application for Recognition of Exemption Under IRC Section 501(c)(3). On Form 1023-EZ you attest that you have the necessary organizing document that limits your purposes to one or more exempt purposes within the meaning of the IRC Section 501(c)(3), that your organizing document does not expressly empower you to engage in activities, other than an insubstantial part, that are not in furtherance of one or more exempt purposes, and that your organizing document contains the dissolution provision required under Section 501(c)(3). As requested, you submitted a copy of your Articles of Incorporation from Y filed in Z. You also submitted amended/restated Articles of Incorporation from X. Article 5 of these restated Articles of Incorporation provides that your purpose is to provide for the management, maintenance and care of the Common Area and to perform such other duties imposed on the Association under your Declaration and Bylaws. You indicated you may be dissolved with consent given in writing by members but did not indicate where assets would be distributed. You attest that you are organized and operated exclusively to further charitable purposes. You attest that you have not and will not conduct prohibited activities under IRC Section 501(c)(3). Specifically, you attest you will: - Refrain from supporting or opposing candidates in political campaigns in any way - Ensure that your net earnings do not inure in whole or in part to the benefit of private shareholders or individuals - Not further non-exempt purposes (such as purposes that benefit private interests) more than insubstantially - Not be organized or operated for the primary purpose of conducting a trade or business that is not related to your exempt purpose(s) - Not devote more than an insubstantial part of your activities attempting to influence legislation or, if you made a Section 501(h) election, not normally make expenditures in excess of expenditure limitations outlined in Section 501(h) - Not provide commercial-type insurance as a substantial part of your activities You stated on Form 1023-EZ that you promote a sense of community, enhance the livability, safety, welfare and interest of your homeowners. You will preserve property values and use your resources to benefit the HOA, as well as maintain your arroyos and common areas to prevent flash floods. When completing Form 1023-EZ you selected an identification code describing organizations that serve the interest of the community as a whole and provide services which meet the needs of people who own or rent apartments, condominiums, townhomes, or other housing complexes who are their members. You later echoed these statements in a mission statement provided with a response to our information request. Detailed information was subsequently requested. Article 5 of your Articles of Incorporation provides that your purpose is "to promote the health, safety and welfare of your members and to provide for maintenance, preservation and architectural control of certain residence lots and ownership, maintenance, preservation and architectural control of certain common areas located in W". Your activities are Homeowners association board meetings and meetings of the architectural committee to enforce covenants and ensure members are properly maintaining their properties. Homeowners association dues/fees of c dollars are assessed annually. You currently have around b houses within the boundaries you serve. You submitted amended and restated Bylaws and a copy of your Declaration of Covenants. The Declaration of Covenants included, in part, a description of your common areas, association voting rights and purpose, landscaping procedures and restrictions, and property use and restrictions. The Bylaws contained, in part, information on your members; that being an owner of a lot in good standing. You maintain common areas; some of these areas are unrestricted for public use but arroyos are restricted due to flooding concerns increasing potential for property damage. The majority of your revenues are derived from homeowner's assessments/dues. You include minimal other income. Your expenses are mainly for the maintenance of common areas, insurance, HOA management and other miscellaneous. Law IRC Section 501(c)(3) provides for the recognition of exemption of organizations that are organized and operated exclusively for religious, charitable, or other purposes as specified in the statute. No part of the net earnings may inure to the benefit of any private shareholder or individual. Treasury Regulation Section 1.501(c)(3)-1(a)(1) states that, in order to be exempt as an organization described in IRC Section 501(c)(3), an organization must be both organized and operated exclusively for one or more of the purposes specified in such section. If an organization fails to meet either the organizational test or the operational test, it is not exempt. Treas.Reg. Section 1.501(c)(3)-1(b)(1)(i) provides that an organization is organized exclusively for one or more exempt purposes only if its articles of organization: (a) Limit the purposes of such organization to one or more exempt purposes; and (b) Do not expressly empower the organization to engage, otherwise than as an insubstantial part of its activities, in activities that in themselves are not in furtherance of one or more exempt purposes. Treas.Reg. Section 1.501(c)(3)-1(c)(1) provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such exempt purposes specified in IRC Section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose. Treas.Reg. Section 1.501(c)(3)-1(d)(1)(ii) provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest. In Better Business Bureau of Washington, D.C., Inc v. United States, 326 U.S. 279 (1945), the Supreme Court of the United States interpreted the requirement in IRC Section 501(c)(3) that an organization be "operated exclusively" by indicating that an organization must be devoted to exempt purposes exclusively. The presence of a. single non-exempt purpose, if more than insubstantial in nature, will destroy the exemption regardless of the number and importance of truly exempt purposes. Columbia Park and Recreation v Commissioner, 88 TC 1 (1987) held an organization incorporated to develop and operate utilities, systems, services and facilities for the good of the people of Columbia, a private development, was not exempt under IRC Section 501(c)(3). The Tax Court held the organization 'lacked a sufficient public element' because it was essentially an aggregation of homeowners and tenants bound together as part of a real estate plan. The organization relied on liens and assessments on property owned by members and people financing the operation had rights based on property ownership to receive benefits offered. Application of law IRC Section 501(c)(3) sets forth two main tests for qualification of exempt status. As stated in Treas.Reg. Section 1.501(c)(3)-1(a)(1), an organization must be both organized and operated exclusively for purposes described in Section 501(c)(3). Your organizing document states that your purpose is to promote the health, safety and welfare of your members and to provide for maintenance, preservation and architectural control of certain residence lots and ownership, maintenance, preservation and architectural control of certain common areas. Operating a homeowner's association is not an exempt purpose described in IRC Section 501(c)(3). Further, you do not have an adequate dissolution clause indicating the disposition of funds should you terminate. As a result, you have not satisfied the organizational test described in Treas.Reg. Section 1.501(c)(3)-1(b)(1)(i). You are not operated in accordance with Treas.Reg. Section 1.501(c)(3)-1(c)(1) because you are operated for a substantial nonexempt private purpose. You operate as a homeowner's association to maintain the common areas in your community. Your primary purposes are to assess the dues to owners, hold board meetings and maintain the common areas in your defined community. These activities do not further an exclusively charitable purpose as described in Treas.Reg. Section 1.501(c)(3)-1(d)(2). These facts also illustrate you are operated to serve the private interests of your members in contravention to Treas.Reg. Section 1.501(c)(3)-1(d)(ii). You are similar to the organization in Columbia Park as you aggregate funds privately from assessed homeowner members to facilitate the payment of maintenance expenses and upkeep within the boundaries of your defined community. While certain areas of what you define as homes within your HOA are public, the majority of your collected funds are used for the private residences of your members. In Better Business Bureau of Washington D.C., Inc., it was established that a single non-exempt purpose, if substantial in nature, will destroy the exemption regardless of the number or importance of truly exempt purposes. As you are operating a homeowner's association for your members you are serving primarily private versus public purposes. Conclusion Based on the facts presented, you are not organizing and operating exclusively for exempt purpose within the meaning of IRC Section 501(c)(3). Your primary activity is operating a homeowner's association and maintaining the common areas in the community. Therefore, you do not qualify for exemption under Section 501(c)(3). If you agree If you agree with our proposed adverse determination, you don't need to do anything. If we don't hear from you within 30 days, we'll issue a final adverse determination letter. That letter will provide information on your income tax filing requirements. If you don't agree You have a right to protest if you don't agree with our proposed adverse determination. To do so, send us a protest within 30 days of the date of this letter. You must include: - Your name, address, employer identification number (EIN), and a daytime phone number - A statement of the facts, law, and arguments supporting your position - A statement indicating whether you are requesting an Appeals Office conference - The signature of an officer, director, trustee, or other official who is authorized to sign for the organization or your authorized representative - The following declaration: For an officer, director, trustee, or other official who is authorized to sign for the organization: Under penalties of perjury, I declare that I have examined this request, or this modification to the request, including accompanying documents, and to the best of my knowledge and belief, the request or the modification contains all relevant facts relating to the request, and such facts are true, correct, and complete. Your representative (attorney, certified public accountant, or other individual enrolled to practice before the IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven't already done so. You can find more information about representation in Publication 947, Practice Before the IRS and Power of Attorney. We'll review your protest statement and decide if you gave us a basis to reconsider our determination. If so, we'll continue to process your case considering the information you provided. If you haven't given us a basis for reconsideration, we'll send your case to the Appeals Office and notify you. You can find more information in Publication 892, How to Appeal an IRS Determination on Tax Exempt Status. If you don't file a protest within 30 days, you can't seek a declaratory judgment in court later because the law requires that you use the IRC administrative process first (IRC Section 7428(b)(2)). Where to send your protest Send your protest, Form 2848, if applicable, and any supporting documents to the applicable address: U.S. mail: Internal Revenue Service EO Determinations Quality Assurance Mail Stop 6403 PO Box 2508 Cincinnati, OH 45201 Street address for delivery service: Internal Revenue Service EO Determinations Quality Assurance 550 Main Street, Mail Stop 6403 Cincinnati, OH 45202 You can also fax your protest and supporting documents to the fax number listed at the top of this letter. If you fax your statement, please contact the person listed at the top of this letter to confirm that they received it. You can get the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person listed at the top of this letter. Contacting the Taxpayer Advocate Service The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or if you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778. Sincerely, Stephen A. Martin Director, Exempt Organizations Rulings and Agreements

Private Letter Ruling Number: 202338007 Internal Revenue Service April 4, 2023 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Number: 202338007 Release Date: 9/22/2023 Date: 04/04/2023 Taxpayer ID number (last 4 digits): Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: Last day to file petition with United States Tax Court: UIL: 501.03-00 CERTIFIED MAIL - Return Receipt Requested Dear ******: Why we are sending you this letter This is a final determination that you don't qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3), effective ******, ******. Your determination letter dated ******, ******, is revoked. Our adverse determination as to your exempt status was made for the following reasons: Organizations described in IRC Section 501(c)(3) and exempt under IRC Section 501(a) must be both organized and operated exclusively for charitable, educational, or other exempt purposes within the meaning of IRC Section 501(c)(3) You have not demonstrated that you are operated exclusively for charitable, educational, or other exempt purposes within the meaning of IRC Section 501(c)(3) and that no part of your net earnings inure to the benefit of private shareholders or individuals. You failed to respond to repeated reasonable requests to allow the Internal Revenue Service to examine your records regarding your receipts, expenditures, or activities as required by IRC sections 6001, 6033(a)(1) and Rev.Rul. 59-95, 1959-1 C.B. 627. Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns and pay tax, where applicable. For further instructions, forms and information please visit IRS.gov. Contributions to your organization are no longer deductible under IRC Section 170. What you must do if you disagree with this determination If you want to contest our final determination, you have 90 days from the date this determination letter was mailed to you to file a petition or complaint in one of the three federal courts listed below. How to file your action for declaratory judgment If you decide to contest this determination, you can file an action for declaratory judgment under the provisions of Section 7428 of the Code in either: - The United States Tax Court, - The United States Court of Federal Claims, or - The United States District Court for the District of Columbia You must file a petition or complaint in one of these three courts within 90 days from the date we mailed this determination letter to you. You can download a fillable petition or complaint form and get information about filing at each respective court's website listed below or by contacting the Office of the Clerk of the Court at one of the addresses below. Be sure to include a copy of this letter and any attachments and the applicable filing fee with the petition or complaint. You can eFile your completed U.S. Tax Court petition by following the instructions and user guides available on the Tax Court website at ustaxcourt.gov/dawson.html. You will need to register for a DAWSON account to do so. You may also file your petition at the address below: United States Tax Court 400 Second Street, NW Washington, DC 20217 ustaxcourt.gov The websites of the U.S. Court of Federal Claims and the U.S. District Court for the District of Columbia contain instructions about how to file your completed complaint electronically. You may also file your complaint at one of the addresses below: US Court of Federal Claims 717 Madison Place, NW Washington, DC 20439 uscfc.uscourts.gov US District Court for the District of Columbia 333 Constitution Avenue, NW Washington, DC 20001 dcd.uscourts.gov Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory judgment under IRC Section 7428. We'll notify the appropriate state officials (as permitted by law) of our determination that you aren't an organization described in IRC Section 501(c)(3). Information about the IRS Taxpayer Advocate Service The IRS office whose phone number appears at the top of the notice can best address and access your tax information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Context your local Taxpayer Advocate Office at: Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights, go to taxpayeradvocate.IRS.gov. Do not send your federal court pleading to the TAS address listed above. Use the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time to file an action for declaratory judgment. Where you can find more information Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for more comprehensive information. Find tax forms or publications by visiting IRS.gov/forms or calling 800-TAX-FORM (800-829-3676). If you have questions, you can call the person shown at the top of this letter. If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best time to call, and a copy of this letter. You may fax your documents to the fax number shown above, using either a fax machine or online fax service. Protect yourself when sending digital data by understanding the fax service's privacy and security policies. Keep the original letter for your records. Sincerely, ****** for Lynn A. Brinkley Director, Exempt Organizations Examinations Enclosures: Publication 1 Publication 594 Publication 892 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Date: November 17, 2022 Taxpayer ID number: Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: Address: Manager's contact information: Name: ID number: Telephone: Response due date: CERTIFIED MAIL -- Return Receipt Requested Dear ******: Why you're receiving this letter We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to revoke your tax-exempt status as an organization described in Internal Revenue Code (IRC) Section 501(c)(3). If you agree If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. We'll issue a final adverse letter determining that you aren't an organization described in IRC Section 501(c)(3) for the periods above. After we issue the final adverse determination letter, we'll announce that your organization is no longer eligible to receive tax deductible contributions under IRC Section 170. If you disagree 1. Request a meeting or telephone conference with the manager shown at the top of this letter. 2. Send any information you want us to consider. 3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information. The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For your protest to be valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't apply now that we've issued this letter. 4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the IRS. If you're considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals. If we don't hear from you If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final adverse determination letter. Contacting the Taxpayer Advocate Office is a taxpayer right The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778. For additional information You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person shown at the top of this letter. Sincerely, ****** for Lynn A. Brinkley Acting Director Exempt Organizations Examinations Enclosures: Form 886-A and Attachments Form 6018 Issue: Whether ****** (******) continues to qualify for exemption from Federal income tax under section 501(a) of the Internal Revenue Code (Code) as a charitable organization described in Code section 501(c)(3). Facts: ****** was incorporated in the State of ****** on ******, ******, under the state's nonprofit corporation law. In ******, ****** filed Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, with the Internal Revenue Service (IRS). The Form 1023-EZ application is signed by ****** as the Executive Director according to the declaration on page 3. Part I of the Form 1023-EZ requires applicant organizations to list the names, titles and mailing addresses of all officers, directors, and trustees. ****** is listed in Part I with an address in ******, ******. Two other individuals are also listed in Part I - ****** and ******. ****** is identified as a director of the organization with a mailing address in ******, ******. ****** is also listed as a director. ****** has the same mailing address as the Taxpayer which is ******, ******, ******. The mailing address furnished by ****** on its Form 1023-EZ application for both the organization and ****** corresponds to a United Parcel Service (UPS) retail store which offers mailbox services. A copy of the pertinent website content posted by or on behalf of the UPS store located in ****** in ****** is appended as Exhibit A. As described in Exhibit A, the following mailbox services are offered by UPS at its retail store located at ****** in ******, ******: - A real street address in lieu of a P.O. Box. - Package and mail receipt notifications - Mail holding and forwarding - Call-in mail check In its Form 1023-EZ application, ****** attested that it is both organized and operated exclusively for charitable purposes. ****** did not furnish a copy of its Certificate of Incorporation since the organizing document is not required to be filed with the streamlined Form 1023-EZ application. Based on the representations and attestations made by ****** in its Form 1023-EZ, the IRS issued a favorable determination letter dated ******, ******, granting recognition of exemption under section 501(c)(3) of the Code effective ******, ******. ****** was classified as a public charity under sections 509(a)(1) and 170(b)(1)(A)(vi) of the Code based on its attestation regarding public support in Part IV of the Form 1023-EZ. IRS records show that ****** filed Form 990-N, Electronic Notice (e-Postcard), for the ******, ******, and ****** calendar tax years. ****** filed Form 990-N in lieu of a Form 990 or Form 990-EZ return. The organization indicated on Form 990-N that its gross receipts are normally $ ******, or less. The address reported by ****** on its Forms 990-N is the same address reported on the Form 1023 application - ******, ******, ******. In ******, the Tax Exempt and Governmental Entities (TE/GE) division of the IRS selected ****** for examination of its books and records covering the ****** calendar year. The notice of examination package, which is dated ******, ******, consists of IRS letter #6031, Form 4564, Information Document Request (IDR), Publication 1, Your Rights as a Taxpayer, Notice 609, Privacy Act Notice, and Publication 3498-A, The Examination Process (Audits by Mail). The notice of examination package was mailed to ****** at the last known address on file for the organization, which is as follows: As noted on page 1 of the 2-page IDR issued with the examination notice, the examination of ****** books and records is intended to verify that the organization: 1. Operates in accordance with section 501(c)(3) of the Code 2. Is eligible to file Form 990-N based on gross receipts, and 3. Filed all required returns including information returns. As part of standard audit procedures, the IRS examiner requested that ****** furnish certain records and information needed to determine whether the organization is operating in furtherance of charitable and other exempt purposes described in section 501(c)(3) of the Code. IDR #1 issued to ****** on ******, ******, requests copies of the following records and information covering the ****** calendar year under examination: - Chart of accounts - General ledger - Adjusted trial balance - Cash disbursements journal. - Monthly bank statements for ****** primary operating (checking) account together with canceled checks or check images furnished by the bank. - Monthly statements for all credit cards that may have been issued to ******. - Minutes of meetings held by ****** Board of Directors and committees of the Board. - Internal policies and procedures regarding the handling and recording of cash donations. - Lease agreements and other information relating to any office or other facility used by ****** to conduct activities. - Contracts and other arrangements with individuals and/or organizations which solicit and raise funds for ****** including, but not limited to, professional fundraising organizations. - The organization's website address, if any, and the identity of the party that hosts the website. If no website is maintained, ****** was requested to provide copies of records which describe the activities conducted in ******. In the absence of formal marketing and fundraising materials, ****** was asked to provide a statement describing the activities, services, programs, and events conducted by the organization in ******. - Information regarding the accounting software used by ****** for preparation of its books and records. The response due date for IDR #1 was ******, ******. ****** did not respond to the IDR or otherwise contact the IRS examiner or the group manager by the due date. In accordance with established IRS procedures, a follow-up "Delinquency Notice" letter was issued to ****** with a copy of IDR #1 on ******, ******, with a response due date of ******, ******. The delinquency notice states, in part, that if the organization does not fully respond to the IDR by the response due date, the IRS will propose revocation of ****** exempt status. The delinquency notice was not returned by the post office as undeliverable. ****** did not respond to the delinquency notice or otherwise contact the IRS examiner. Neither the IRS examiner nor the group manager subsequently received any of the requested records and information from ****** or any other officer or director of ******. There is no evidence that ****** is an affiliate or chapter of any other exempt organization or network of charities that operate within the United States. ****** did not identify a website on Form 990-N filed for 2021. A search of ****** State's corporate database, which provides information on the status of entities incorporated under state law, shows that ****** is in active status as of ******, ******. See Exhibit B. Applicable Law: Section 501(c)(3) of the Code provides that an organization organized and operated exclusively for charitable or educational purposes is exempt from Federal income tax, provided no part of its net earnings inures to the benefit of any private shareholder or individual. Section 1.501(c)(3)-1(a)(1) of the Treasury Regulations states that to be exempt as an organization described in section 501(c)(3), an organization must be both organized and operated exclusively for one or more of the purposes specified in such section - charitable, religious, educational, scientific, literary, testing for public safety, or for the prevention of cruelty to children or animals. If an organization fails to meet either the organizational test or the operational test, it is not exempt. Section 1.501(c)((3)-1(c) of the regulations describes the operational test requirements for 501(c)(3) exemption. The operational test focuses on how the organization is actually operated, regardless of whether it is properly organized for tax-exempt purposes. Section 1.501(c)(3)-1(c)(1) of the regulations provides that an organization will be regarded as "operated exclusively" for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose. This is referred to as the "primary activities" test. Section 1.501(c)(3)-1(c)(2) of the regulations provides that an organization is not operated exclusively for one or more exempt purposes if its net earnings inure in whole or in part to the benefit of private shareholders or individuals. Section 511 of the Code imposes a tax at corporate rates under section 11 on the unrelated business taxable income of certain tax-exempt organizations. Section 6001 of the Code provides, in part, that every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe. Whenever in the judgment of the Secretary it is necessary, he may require any person, by notice served upon such person or by regulations, to make such returns, render such statements, or keep such records, as the Secretary deems sufficient to show whether or not such person is liable for tax under this title. Section 1.6001-1(c) of the regulations provides that in addition to such permanent books and records as are required by paragraph (a) of this section with respect to the tax imposed by section 511 on unrelated business income of certain exempt organizations, every organization exempt from tax under section 501(a) shall keep such permanent books of account or records, including inventories, as are sufficient to show specifically the items of gross income, receipts and disbursements. Such organizations shall also keep such books and records as are required to substantiate the information required by section 6033. See section 6033 and regulations sections 1.6033-1 through 1.6033-3. Section1.6001-1(e) of the regulations provides that the books or records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees and, shall be retained as long as the contents thereof may be material in the administration of any internal revenue law. Section 6033 of the Code provides, in general, that every organization exempt under IRC 501(a) shall file an annual return, stating specifically the items of gross income, receipts, and disbursements, and such other information for the purpose of carrying out the Internal Revenue laws as the Secretary may by forms of regulations prescribe, and shall keep such records, render under oath such statements, make such other returns, and comply with such rules and regulations as the Secretary may from time to time prescribe. Section 6033 of the Code provides an exception to the annual filing requirement in the case of an organization described in section 501(c) (other than a private foundation or a supporting organization described in section 509(a)(3)) the gross receipts of which in each taxable year are normally not more than $50,000. See section 1.6033-2(g)(1)(iii) of the regulations. Section 1.6033-2(g)(5) of the regulations provide that an organization that is not required to file an annual return by virtue of the gross receipts exception must submit an annual electronic notice notification as described in section 6033(i) of the Code. Section 1.6033-2(i)(2) of the regulations provides that every organization which is exempt from tax, whether or not it is required to file an annual information return, shall submit such additional information as may be required by the Internal Revenue Service for the purpose of inquiring into its exempt status and administering the provisions of subchapter F (section 501 and following), chapter 1 of subtitle A of the Code and section 6033. Rev.Rul. 59-95, 1959-1 C.B. 627, concerns an exempt organization that was requested to produce a financial statement and statement of its operations for a certain year. However, its records were so incomplete that the organization was unable to furnish such statements. The Service held that the failure or inability to file the required information return or otherwise to comply with the provisions of section 6033 of the Code and the regulations which implement it, may result in the termination of the exempt status of an organization previously held exempt, on the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status. Organization's Position: ****** position is unknown at this time. Government's Position: Analysis The facts indicate that ****** received recognition of exemption under section 501(c)(3) of the Code in ****** based on information presented in its Form 1023-EZ application. ****** attested that it is both organized and operated exclusively for charitable purposes. The TE/GE division of the IRS maintains an examination program for exempt organizations to determine whether they are complying with statutory requirements regarding their tax-exempt status, the proper filing of returns, and other tax reporting matters. ****** filed Form 990-N, an electronic notice, for the ****** calendar year. ****** was selected for audit to ensure that the organization's activities and operations align with their approved exempt status and to verify that the filing of Form 990-N was proper based on the organization's gross receipts. Section 6001 of the Code and the regulations thereunder impose requirements on exempt organizations to keep books and records to substantiate information required under section 6033 of the Code. Although ****** filed an electronic notice in lieu of a return, the organization is nevertheless required to produce records and other information requested by the IRS to verify that it operates in furtherance of its exempt purpose. See regulations section 1.6033-2(i)(2). As part of standard audit procedures, the IRS examiner requested basic financial records including books of account, minutes of Board meetings and records and information pertaining to ****** activities. Such records and information are needed to verify whether ****** continues to be operated exclusively for one or more of the exempt purposes specified in section 501(c)(3) of the Code. ****** failed to respond to repeated reasonable requests to allow the IRS to examine its books and records including its receipts, disbursements, and other items required to be kept and maintained pursuant to sections 6001 and 6033(a)(1) of the Code. Accordingly, ****** has failed to meet the requirements of section 501(c)(3) of the Code and sections 1.501(c)(3)-1(a) and 1.501(c)(3)-1(c) of the regulations, in that the organization has not established that it is operated exclusively for exempt purposes and that no part of its net earnings inures to the benefit of private shareholders or individuals. See also Rev.Rul. 59-95. Conclusion: For the reasons stated above, the IRS has determined that ****** is no longer exempt from Federal income tax under section 501(a) of the Code as an organization described in Code section 501(c)(3). The IRS is proposing to revoke ****** 501(c)(3) tax-exempt status effective ******, ******, the first day of the ****** calendar year under examination. Please note that this Form 886-A, Explanation of Items, which is also known as the revenue agent report (RAR), constitutes an integral part of the attached 30-day letter #3618. Please refer to the attached letter #3618 for additional information including appeals rights and other options available to the organization and, the instructions for how to respond.

Private Letter Ruling Number: 202242016 Internal Revenue Service July 28, 2022 Department of the Treasury Internal Revenue Service Independent Office of Appeals Number: 202242016 Release Date: 10/21/2022 Date: JUL 28 2022 Person to contact: Name: Employee ID number: Telephone: Fax: Hours: Employer ID number: Uniform issue list (UIL): 501.00-00 501.03-05 501.33-00 501.35-00 Certified Mail Dear ******: This is a final adverse determination that you do not qualify for exemption from federal income tax under Internal Revenue Code (the "Code") Section 501(a) as an organization described in Section 501(c)[Subsection] of the Code. We made the adverse determination for the following reasons: You have not established that you are operated exclusively for exempt purposes as required by section 501(c)(3) of the Code. Your activity of owning and maintaining land in a manufactured home community and collecting rent from member owned homes located there does not serve an exempt purpose and is substantial in nature. In addition, you have failed to establish that your operations do not more than insubstantially serve the private interests of your members or other designated individuals. You're required to file federal income tax returns on Forms 1120, U.S. Corporation Income Tax Return. Mail your form to the appropriate Internal Revenue Service Center per the form's instructions. You can get forms and instructions by visiting our website at www.irs.gov/forms or by calling 800-TAX-FORM (800-829-3676). We'll make this letter and the proposed adverse determination letter available for public inspection under Section 6110 of the Code after deleting certain identifying information. We provided to you, in a separate mailing, Notice 437, Notice of Intention to Disclose. Please review the Notice 437 and the documents attached that show our proposed deletions. If you disagree with our proposed deletions, follow the instructions in Notice 437. If you decide to contest this determination, you can file an action for declaratory judgment under the provisions of Section 7428 of the Code in either: - The United States Tax Court, - The United States Court of Federal Claims, or - The United States District Court for the District of Columbia You must file a petition or complaint in one of these three courts within 90 days from the date we mailed this determination letter to you. Contact the clerk of the appropriate court for rules and the appropriate forms for filing petitions for declaratory judgment. You can write to the courts at the following addresses: United States Tax Court 400 Second Street, NW Washington, DC 20217 US Court of Federal Claims 717 Madison Place, NW Washington, DC 20005 US District Court for the District of Columbia 333 Constitution Avenue, NW Washington, DC 20001 Note: We will not delay processing income tax returns and assessing any taxes due even if you file a petition for declaratory judgment under Section 7428 of the Code. You also have the right to contact the Taxpayer Advocate Service (TAS). TAS is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778. TAS assistance is not a substitute for established IRS procedures, such as the formal appeals process. TAS cannot reverse a legally correct tax determination, or extend the time fixed by law that you have to file a petition in a United States Court. If you have questions, contact the person at the top of this letter. Sincerely, Charles P Rettig Commissioner Enclosures: cc: Department of the Treasury Internal Revenue Service P.O. Box 2508 Cincinnati, OH 45201 Date: January 28, 2020 Employer ID number: Contact person/ID number Contact telephone number: Contact fax number: UIL: 501.00-00 501.03-05 501.33-00 501.35-00 Legend: W = State X = Date Y = Organization Z = Organization q dollars = Amount r dollars = Amount Dear ******: We considered your application for recognition of exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a). We determined that you don't qualify for exemption under IRC Section 501(c)(3). This letter explains the reasons for our conclusion. Please keep it for your records. Issues Do you qualify for exemption under IRC Section 501(c)(3)? No, for the reasons stated below. Facts You were incorporated in W on X to own and operate a manufactured housing community. Your Articles state that you are formed for the purpose of acquiring, producing, building, operating, furnishing, exchanging or distributing manufactured housing in a manufactured housing park and services primarily associated therewith for the benefit, recognized as both public and private, of the current and future homeowners of the community. It further states you are organized exclusively for charitable purposes and states that notwithstanding any other provision, you shall not carry on any other activities not permitted to be carried on by an organization exempt under IRC Section 501(c)(3). Your Articles state that you will have members. Membership is limited to households which are owners of homes in the manufactured housing community you own. Membership is appurtenant to, and may not be separated from, tenancy of any lot you own. The number of members shall not exceed the number of manufactured housing lots in the community you own. Your Bylaws state that your broad purpose is to gain control of the rental costs, preserve the community for the current residents, and to preserve the affordability of the sites within the community for low to moderate-income homeowners. You are governed by a Board of Directors and elected officers, who must be members in good standing. You describe yourself as a resident-owned community. Resident-owned communities are not-for-profit resident corporations that have been formed by homeowners to own the community in order to: - Preserve and improve affordable communities - Build assets for low and moderate-income families and individuals - Support mutually-supportive communities and leaders - To have control over rents so they are not continually rising, and - To provide sufficient maintenance and repair to basic infrastructure. You own land with *** lots and a shop. Individuals who own mobile homes can rent a lot from you to place their mobile home on it. Owners of mobile homes seeking to lease a lot in your community, or buyers of homes already located in your community, must become your members. However, membership is open to anyone who owns (or co-owns) and resides in a manufactured housing unit in your community. A one-time membership fee of q dollars is required but it can be paid over time. All tenants are responsible for lot rent and must follow the community rules. Failure to comply with the community rules or to pay the appropriate lot rent is cause for eviction. The lot rental fee you charge is a pro rata share based on the budget for operating costs and debt services. The lease agreement states that the lot rent can be increased with a 30-day written advance notice given. The rent is due the first of the month and you charge a late fee of r dollars if the rent is received after the tenth of the month. Any member whose activity is contrary to the basic cooperation principles, or who endangers your effective operation, may be expelled. Expulsion or termination carries with it the loss of all membership rights, including the right to occupy the lot. You have entered into an agreement with Y, a non-profit organization, to provide you with technical assistance. Y is part of Z, a social enterprise which you say is organized and operated exclusively for charitable and tax-exempt purposes as set forth in IRC Section 501(c)(3). Z's purpose, per the agreement, is to aid people living in manufactured home communities so that as a group they can purchase their communities and operate them as a resident-owned and/or controlled corporation. Y provided you with a loan for the purchase of the property and will provide post-purchase technical assistance. As a condition of the loan you are required to keep a technical assistance agreement with a Z-related provider, in this case Y, or pay fees to Z if an outside provider is used. You are funded by the membership fees and rents paid by member/owners/tenants. Your largest expenses are for maintenance and repair, interest, and management fees. Law IRC Section 501(c)(3) of the Code provides for the exemption from federal income tax to organizations organized and operated exclusively for charitable or educational purposes, provided no part of the net earnings inures to the benefit of any private shareholder or individual. Treasury Regulation Section 1.501(c)(3)-1(a)(1) provides that in order to be exempt as an organization described in IRC Section 501(c)(3), an organization must be both organized and operated exclusively for one or more purposes specified in such section. If an organization fails to meet either the organizational test or the operational test, it is not exempt. Treas.Reg. Section 1.501(c)(3)-1(c)(1) provides that an organization will be regarded as operating exclusively for exempt purposes if it engages primarily in activities that accomplish exempt purposes specified in IRC Section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose. Treas.Reg. Section 1.501(c)(3)-1(d)(1)(ii) provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest. Thus, the organization must establish that it is not organized or operated for the benefit of private interests such individuals. Revenue Procedure 96-32, 1996-1 C.B. 717, sets forth a safe harbor under which organizations that provide low-income housing are considered charitable as relieving the poor and distressed, and a facts and circumstances test that applies in determining whether organizations that fall outside the safe harbor relieve the poor and distressed. The safe harbor requires that certain percentages of the units he occupied by residents that meet certain low-income standards, and that the housing be affordable to the charitable beneficiaries. In the case of rental housing, this requirement will ordinarily be satisfied by the adoption of a rental policy that complies with government-imposed rental restrictions or otherwise provides for the limitation of the tenant's portion of the rent charged to ensure that the housing is affordable to low-income and very low-income residents. Revenue Ruling 73-306, 1973-2 C.B. 179, held not exempt under IRC Section 501(c)(4) a nonprofit organization formed to promote the common interest of tenants who resided in an apartment complex. Any person regularly living in the complex was eligible for membership. The organization represented its member-tenants in negotiations with the management of the complex in order to secure better maintenance and services, and to secure reasonable rentals. The Service reasoned that the organization operated essentially for the private benefit of its members rather than for the common good and general welfare of the people of the community. In Better Business Bureau v. United States, 326 U.S. 279 (1945), the Court held that the existence of a single non-exempt purpose, if substantial in nature, will destroy a charitable exemption. In Commissioner v. Lake Forest, Inc., 305 F.2d 814 (4th Cir. 1962), a corporation was organized by World War II veterans for the purpose of purchasing a government housing project and converting it to cooperative, nonprofit housing for its members. Individuals became members in the corporation by purchasing an apartment unit and, as such, the number of members was limited to the number of units available. The court held that the organization was not described in IRC Section 501(c)(4) because it was "a public-spirited but privately-devoted endeavor" that provided only incidental benefit to the community. The organization did not promote social welfare because it furnished housing only to a certain group of individuals, rather than on a community basis, and did not offer a service or program for the direct betterment or improvement of the community as a whole. In Old Dominion Box Co. v. United States, 477 F2d. 340 (1973), the court held that operating for the benefit of private parties constitutes a substantial non-exempt purpose. In Syrang Aero Club Inc. v. Commissioner, 73 T.C. 717 (1980), the United States Tax Court held that an organization organized and operated for the benefit and recreation of its members did not qualify for exemption under IRC Section 501(c)(3). Application of law You are not described under IRC Section 501(c)(3) or Treas.Reg. Section 1.501(c)(3)-1(a)(1) because you do not meet the operational test. If an organization fails either the organizational or operational test, it cannot qualify as an exempt organization under Section 501(c)(3). Operating and maintaining a mobile home park and related services for your members is not an exempt purpose and is substantial in nature. Because more than an insubstantial portion of your activities accomplish non-exempt purposes, you are not exempt per Treas.Reg. Section 1.501(c)(3)-1(c)(1). You purchased the mobile home park so that you can keep lot rents low. You do not offer other subsidies. Your activities serve the private benefit of your members, and not the general public, which precludes you from exemption as described in Treas.Reg. Section 1.501(c)(3)-1(d)(1)(ii). You own and operate a mobile home park, but you do not own any actual housing. Individuals will have to have their own mobile home to place on one of your lots. Ensuring a portion of the residents' housing cost remains low is not sufficient to qualify as a charitable low income housing activity under Rev.Proc. 96-32. Additionally, Rev.Proc. 96-32 describes units occupied by residents. You are not providing housing units; rather, you are providing the plot of land where a person can place their mobile housing unit. Therefore, Rev.Proc. 96-32 does not apply. You are formed by current residents in order to maintain control over lot rental amounts and collectively maintain the mobile home park. Similar to the organizations described in Rev.Rul. 73-306 and Lake Forests Inc., you were formed to promote the common interest of tenants who reside in your mobile home park. While the organizations in these rulings were seeking exemption under IRC Section 501(c)(4) and did not qualify, logically, they also would not have qualified under Section 501(c)(3). You are operated to benefit your members and not the general public. As discussed in Old Dominion Box Co. and Syrang Aero Club Inc., operating for the benefit of private parties constitutes a substantial non-exempt purpose and prevents you from qualifying from exemption under IRC Section 501(c)(3). A single, substantial non-exempt purpose will preclude an organization from exemption as described in Better Business Bureau. Conclusion You fail the operational test because you are formed for the private benefit of your members by operating a mobile home park, which is a substantial non-exempt purpose. Therefore, you do not qualify for exemption under IRC Section 501(c)(3). If you agree If you agree with our proposed adverse determination, you don't need to do anything. If we don't hear from you within 30 days, we'll issue a final adverse determination letter. That letter will provide information on your income tax filing requirements. If you don't agree You have a right to protest if you don't agree with our proposed adverse determination. To do so, send us a protest within 30 days of the date of this letter. You must include: - Your name, address, employer identification number (EIN), and A daytime phone number - A statement of the facts, law, and arguments supporting your position - A statement indicating whether you are requesting an Appeals Office conference - The signature of an officer, director, trustee, or other official who is authorized to sign for the organization or your authorized representative - The following declaration: For an officer, director, trustee, or other official who is authorized to sign for the organization: Under penalties of perjury, I declare that I have examined this request, or this modification to the request, including accompanying documents, and to the best of my knowledge and belief, the request or the modification contains all relevant facts relating to the request, and such facts are true, correct, and complete. Your representative (attorney, certified public accountant, or other individual enrolled to practice before the IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven't already done so. You can find more information about representation in Publication 947, Practice Before the IRS and Power of Attorney. We'll review your protest statement and decide if you gave us a basis to reconsider our determination. If so, we'll continue to process your case considering the information you provided. If you haven't given us a basis for reconsideration, we'll send your case to the Appeals Office and notify you. You can find more information in Publication 892, How to Appeal an IRS Decision on Tax-Exempt Status. If you don't file a protest within 30 days, you can't seek a declaratory judgment in court later because the law requires that you use the IRC administrative process first (IRC Section 7428(b)(2)). Where to send your protest Send your protest, Form 2848, if applicable, and any supporting documents to the applicable address: U.S. mail: Internal Revenue Service EO Determinations Quality Assurance Mail Stop 6403 P.O. Box 2508 Cincinnati, OH 45201 Street address for delivery service: Internal Revenue Service EO Determinations Quality Assurance 550 Main Street, Mail Stop 6403 Cincinnati, OH 45202 You can also fax your protest and supporting documents to the fax number listed at the top of this letter. If you fax your statement, please contact the person listed at the top of this letter to confirm that they received it. You can get the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person listed at the top of this letter. Contacting the Taxpayer Advocate Service The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or if you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778. Sincerely, Stephen A. Martin Director, Exempt Organizations Rulings and Agreements

Proposed Regulation REG-120080-22 Internal Revenue Service 2023-16 I.R.B. 746 Notice of Proposed Rulemaking Section 30D New Clean Vehicle Credit REG-120080-22 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking. SUMMARY: This document contains proposed regulations regarding the Federal income tax credit under the Inflation Reduction Act of 2022 for the purchase of qualifying new clean vehicles, including new plug-in electric vehicles powered by an electric battery meeting certain requirements and new qualified fuel cell vehicles. These proposed regulations would affect eligible taxpayers who purchase new vehicles that qualify for the credit. DATES: Comments and Requests for a Public Hearing: Written or electronic comments and requests for a public hearing must be received by June 16, 2023. Requests for a public hearing must be submitted as prescribed in the "Comments and Requests for a Public Hearing" section. Applicability Date of New Critical Mineral and Battery Component Requirements: See section III.D of the "Background" section for a discussion of the applicability date of the new critical mineral and battery component requirements. ADDRESSES: Commenters are strongly encouraged to submit public comments electronically. Submit electronic submissions via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-120080-22) by following the online instructions for submitting comments. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The Department of the Treasury (Treasury Department) and the IRS will publish for public availability any comments submitted, whether electronically or on paper, to the IRS's public docket. Send paper submissions to: CC:PA:LPD:PR (REG-120080-22), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, the Office of Associate Chief Counsel (Passthroughs & Special Industries) at (202) 317-6853 (not a toll-free number); concerning submissions of comments and requests for a public hearing, Vivian Hayes at (202) 317-5306 (not a toll-free number) or by email to publichearings@irs.gov (preferred). SUPPLEMENTARY INFORMATION: Background I. Overview Section 30D(a) of the Internal Revenue Code (Code) provides a credit (section 30D credit) against the tax imposed by chapter 1 of the Code (chapter 1) with respect to each new clean vehicle that a taxpayer purchases and places in service. The credit is determined and allowable with respect to the taxable year in which the taxpayer places the new clean vehicle in service. This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) under section 30D of the Code (proposed regulations). To date, no regulations have been proposed pursuant to section 30D. Section 30D was originally enacted by section 205(a) of the Energy Improvement and Extension Act of 2008, Division B of Public Law 110-343, 122 Stat. 3765, 3835 (October 3, 2008), to provide a credit for the purchase and placing in service of new qualified plug-in electric drive motor vehicles. Section 30D has been amended several times since its enactment, most recently by section 13401 of Public Law 117-169, 136 Stat. 1818 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA). The amount of the section 30D credit is treated as a personal credit or a general business credit depending on the character of the vehicle. In general, the section 30D credit is treated as a personal credit allowable under subpart A of the Code. Section 30D(c)(2). However, the amount of the section 30D credit that is attributable to property that is of a character subject to an allowance for depreciation is treated as a current year business credit under section 38(b) instead of being allowed under section 30D(a). Section 30D(c)(1). Section 38(b)(30) lists as a current year business credit the portion of the section 30D credit to which section 30D(c)(1) applies. The IRA did not amend section 30D(c)(1) or (2). II. IRA Amendments to Section 30D The IRA made a number of amendments to section 30D. In general, the purpose of these amendments is to promote the purchase and use of new clean vehicles by lower and middle-income Americans, to promote resilient supply chains and domestic manufacturing, to strengthen supply chains with trusted trading partners, to protect against improper credit claims, and to achieve significant carbon emissions reductions. These amendments are specifically described in the following subsections. A. Credit amount and critical mineral and battery component requirements The IRA amends the rules for determining the amount of the section 30D credit. Prior to the amendments to section 30D made by section 13401(a) and (e) of the IRA becoming applicable, the amount of the section 30D credit is calculated based on the vehicle's battery capacity. The base amount is $2,500, plus $417 for a battery with a capacity of at least 5 kilowatt hours, and an additional $417 for each kilowatt hour of capacity in excess of 5 kilowatt hours, up to a maximum credit of $7,500 per vehicle. Section 13401(a) of the IRA amends section 30D(b) of the Code to provide a maximum credit of $7,500 per vehicle, consisting of $3,750 in the case of a vehicle that meets certain requirements relating to critical minerals and $3,750 in the case of a vehicle that meets certain requirements relating to battery components. The amendments made by section 13401(a) of the IRA apply to vehicles placed in service after the date on which the Secretary of the Treasury or her delegate (Secretary) issues proposed guidance described in new section 30D(e)(3)(B) of the Code relating to the new critical minerals requirements described in new section 30D(e)(1)(A) (Critical Minerals Requirement) and the new battery components requirements described in new section 30D(e)(2)(A) (Battery Components Requirement). See section 13401(k)(3) of the IRA. New section 30D(e)(1)(A) provides that the Critical Minerals Requirement with respect to the battery from which the electric motor of a vehicle draws electricity is satisfied if the percentage of the value of the applicable critical minerals (as defined in section 45X(c)(6)) contained in such battery that were (i) extracted or processed in the United States, or in any country with which the United States has a free trade agreement in effect, or (ii) recycled in North America, is equal to or greater than the applicable percentage (as certified by the qualified manufacturer, in such form or manner as prescribed by the Secretary). The applicable percentage for the Critical Minerals Requirement is set forth in section 30D(e)(1)(B)(i) through (v) of the Code and varies based on when the vehicle is placed in service. In the case of a vehicle placed in service after the date of issuance of the proposed guidance described in new section 30D(e)(3)(B) of the Code and before January 1, 2024, the applicable percentage is 40 percent. In the case of a vehicle placed in service during calendar year 2024, 2025, and 2026, the applicable percentage is 50 percent, 60 percent, and 70 percent, respectively. In the case of a vehicle placed in service after December 31, 2026, the applicable percentage is 80 percent. New section 30D(e)(2)(A) provides that the Battery Components Requirement with respect to the battery from which the electric motor of a vehicle draws electricity is satisfied if the percentage of the value of the components contained in such battery that were manufactured or assembled in North America is equal to or greater than the applicable percentage (as certified by the qualified manufacturer, in such form or manner as prescribed by the Secretary). The applicable percentage for the Battery Components Requirement is set forth in section 30D(e)(2)(B)(i) through (vi) of the Code and varies based on when the vehicle is placed in service. In the case of a vehicle placed in service after the date of issuance of the proposed guidance described in new section 30D(e)(3)(B) of the Code and before January 1, 2024, the applicable percentage is 50 percent. In the case of a vehicle placed in service during calendar year 2024 or 2025, the applicable percentage is 60 percent. In the case of a vehicle placed in service during calendar year 2026, 2027, and 2028, the applicable percentage is 70 percent, 80 percent, and 90 percent, respectively. In the case of a vehicle placed in service after December 31, 2028, the applicable percentage is 100 percent. B. New clean vehicle definition The IRA amends the definition of the vehicles that may qualify for the section 30D credit. Section 13401(c) of the IRA amends section 30D(d) of the Code by making the credit applicable to "new clean vehicles," instead of "new qualified plug-in electric drive motor vehicles," applicable to vehicles placed in service after December 31, 2022. As amended by section 13401(c) and (g)(2) of the IRA, section 30D(d)(1) of the Code defines a "new clean vehicle" as a motor vehicle that satisfies the eight requirements set forth in section 30D(d)(1)(A) through (H) of the Code: the original use of the motor vehicle must commence with the taxpayer; the motor vehicle must be acquired for use or lease by the taxpayer and not for resale; the motor vehicle must be made by a qualified manufacturer; the motor vehicle must be treated as a motor vehicle for purposes of title II of the Clean Air Act; the motor vehicle must have a gross vehicle weight rating of less than 14,000 pounds; the motor vehicle must be propelled to a significant extent by an electric motor which draws electricity from a battery that has a capacity of not less than 7 kilowatt hours, and is capable of being recharged from an external source of electricity; the final assembly of the motor vehicle must occur within North America; and the person who sells any vehicle to the taxpayer must furnish a report to the taxpayer and to the Secretary, at such time and in such manner as the Secretary provides, containing specifically enumerated items. With respect to the requirement that the motor vehicle must be made by a qualified manufacturer, the IRA creates new requirements for manufacturers of vehicles eligible for the section 30D credit applicable to vehicles placed in service after December 31, 2022. As amended by section 13401(c) the IRA, section 30D(d)(3) of the Code defines a "qualified manufacturer" as any manufacturer (within the meaning of the regulations prescribed by the Administrator of the Environmental Protection Agency for purposes of the administration of title II of the Clean Air Act (42 U.S.C. 7521 et seq.)) that enters into a written agreement with the Secretary under which such manufacturer agrees to make periodic written reports to the Secretary (at such times and in such manner as the Secretary may provide) providing vehicle identification numbers and such other information related to each vehicle manufactured by such manufacturer as the Secretary may require. The IRA provides that certain fuel cell vehicles may qualify for the section 30D credit. Section 13401(c) of the IRA adds new section 30D(d)(6) to the Code, which includes in the definition of the term "new clean vehicle" applicable to vehicles placed in service after December 31, 2022, any "new qualified fuel cell motor vehicle" (as defined in section 30B(b)(3)) that meets the requirements under section 30D(d)(1)(G) and (H) (North American final assembly and seller reporting requirements). The IRA disqualifies certain vehicles from the section 30D credit if the battery of the vehicle contains critical minerals or battery components from a foreign entity of concern. As amended by section 13401(e) of the IRA, section 30D(d)(7) of the Code excludes, after certain specified dates, vehicles placed in service with batteries containing certain critical minerals or battery components from a foreign entity of concern from the definition of the term "new clean vehicle." In particular, amended section 30D(d)(7) provides that the term "new clean vehicle" does not include (A) any vehicle placed in service after December 31, 2024, with respect to which any of the applicable critical minerals contained in the battery of such vehicle (as described in section 30D(e)(1)(A)) were extracted, processed, or recycled by a foreign entity of concern (as defined in section 40207(a)(5) of the Infrastructure Investment and Jobs Act (42 U.S.C. 18741(a)(5))), or (B) any vehicle placed in service after December 31, 2023, with respect to which any of the components contained in the battery of such vehicle (as described in section 30D(e)(2)(A)) were manufactured or assembled by a foreign entity of concern (as so defined). These rules will be addressed in future guidance. C. Final assembly requirement As described in section II.B of the Background section of this preamble, the IRA requires new clean vehicles to undergo final assembly in North America to be eligible for the section 30D credit. This requirement is applicable to vehicles sold after August 16, 2022. See section 13401(k)(2) of the IRA. New section 30D(d)(5) defines "final assembly" as the process by which a manufacturer produces a new clean vehicle at, or through the use of, a plant, factory, or other place from which the vehicle is delivered to a dealer or importer with all component parts necessary for the mechanical operation of the vehicle included with the vehicle, whether or not the component parts are permanently installed in or on the vehicle. D. Elimination of phaseout The IRA eliminates the phaseout of the section 30D credit for vehicles made by manufacturers that have sold at least 200,000 vehicles eligible for the credit for use in the United States after December 31, 2009. Pursuant to section 13401(d) of the IRA this limitation does not apply to vehicles sold after December 31, 2022. See section 13401(k)(5) of the IRA. E. Special rules The IRA adds four new special rules under section 30D(f) applicable to vehicles placed in service after December 31, 2022. First, section 30D(f)(8) permits only one section 30D credit to be claimed for each vehicle identification number (VIN). Second, section 30D(f)(9) requires taxpayers to include on the taxpayer's return for the taxable year the VIN of the vehicle for which the section 30D credit is claimed. Third, section 30D(f)(10) denies the section 30D credit to certain high-income taxpayers. More specifically, section 30D(f)(10)(A) provides that no credit is allowed for any taxable year if (i) the lesser of (I) the modified adjusted gross income of the taxpayer for such taxable year, or (II) the modified adjusted gross income of the taxpayer for the preceding taxable year, exceeds (ii) the threshold amount (Modified AGI Limitation). New section 30D(f)(10)(B) provides that the threshold amount is (i) in the case of a joint return or a surviving spouse (as defined in section 2(a) of the Code), $300,000, (ii) in the case of a head of household (as defined in section 2(b) of the Code), $225,000, and (iii) in the case of any other taxpayer, $150,000. New section 30D(f)(10)(C) defines "modified adjusted gross income" as adjusted gross income (AGI) increased by any amount excluded from gross income under sections 911, 931, or 933. Fourth, section 30D(f)(11) excludes from the section 30D credit vehicles that exceed certain manufacturer's suggested retail price thresholds. New section 30D(f)(11)(A) provides that no credit is allowed for a vehicle with a manufacturer's suggested retail price in excess of the applicable limitation. New section 30D(f)(11)(B) provides that the applicable limitation for each vehicle classification is as follows: in the case of a van, $80,000; in the case of a sport utility vehicle, $80,000; in the case of a pickup truck, $80,000; and in the case of any other vehicle, $55,000. New section 30D(f)(11)(C) authorizes the Secretary to prescribe such regulations or other guidance as the Secretary determines necessary to determine vehicle classifications using criteria similar to that employed by the Environmental Protection Agency and the Department of the Energy to determine size and class of vehicles. Section 13401(i)(4) of the IRA amended section 6213(g)(2) to provide the IRS with math error authority for the omission of a correct VIN included on the return as required under section 30D(f)(9). Amended section 30D(g) provides rules for transfer of the credit from the taxpayer to certain registered dealers applicable to vehicles placed in service after December 31, 2023. Those rules will be addressed in future guidance. Amended section 30D(h) provides that no credit is allowed with respect to any vehicle placed in service after December 31, 2032. F. IRA applicability dates Section 13401(k) of the IRA specifies various applicability dates for its amendments to section 30D. As noted previously, except as provided in section 13401(k)(2) through (5) of the IRA, the amendments made by section 13401 of the IRA apply to vehicles placed in service after December 31, 2022. Section 13401(k)(2) of the IRA provides that the amendments made by section 13401(b) of the IRA relating to final assembly apply to vehicles sold after the date of enactment of the IRA (August 16, 2022). Section 13401(k)(3) of the IRA provides that the amendments made by section 13401(a) and (e) of the IRA relating to the per vehicle credit amount dollar limitation and Critical Minerals and Battery Components Requirements apply to vehicles placed in service after the date on which the proposed guidance described in new section 30D(e)(3)(B) is issued by the Secretary. Section 13401(k)(4) of the IRA provides that the amendments made by section 13401(g) of the IRA relating to transfers of the section 30D credit apply to vehicles placed in service after December 31, 2023. Section 13401(k)(5) of the IRA provides that the amendment made by section 13401(d) of the IRA eliminating the manufacturer limitation applies to vehicles sold after December 31, 2022. Section 13401(l) of the IRA provides a transition rule for a taxpayer who purchased or entered into a written binding contract to purchase a new qualified plug-in electric drive motor vehicle (as defined in section 30D(d)(1) of the Code, as in effect on the day before the date of enactment of the IRA (August 15, 2022)) after December 31, 2021, and before the date of enactment of the IRA (August 16, 2022), and placed such vehicle in service on or after the date of enactment of the IRA. The transition rule provides that such a taxpayer may elect (at such time, and in such form and manner as the Secretary may prescribe) to treat such vehicle as having been placed in service on the day before the date of enactment of the IRA. III. Prior Guidance, Request for Comments, and Other Documents Relating to the New Clean Vehicle Credit A. Notice 2022-46 On October 5, 2022, the Treasury Department and the IRS published Notice 2022-46, 2022-43 I.R.B. 302. The notice requested general comments on issues arising under section 30D, as well as specific comments concerning: (1) definitions; (2) critical minerals; (3) battery components; (4) applicable values; (5) foreign entities of concern; (6) recordkeeping and reporting; (7) tax-exempt entities; (8) registered dealers and eligible entities; (9) the final assembly requirement; (10) vehicle classifications; (11) elections to transfer and advance payments; and (12) recapture. The Treasury Department and the IRS received 884 comments from industry participants, environmental groups, individual consumers, and other stakeholders. The Treasury Department and the IRS appreciate the commenters' interest and engagement on these issues. These comments have been carefully considered in the preparation of the proposed regulations. B. Revenue Procedure 2022-42 On December 12, 2022, the Treasury Department and the IRS published Revenue Procedure 2022-42, 2022-52 I.R.B. 565, providing guidance for qualified manufacturers to enter into written agreements with the IRS, as required in sections 30D, 25E, and 45W of the Code, and to report certain information regarding vehicles produced by such manufacturers that may be eligible for these credits. Information required to be reported includes certifications regarding the Critical Minerals and Battery Components Requirements, as required in sections 30D(e)(1)(A) and (e)(2)(A), once those requirements are applicable. In addition, Revenue Procedure 2022-42 provides the procedures for sellers of new clean vehicles or previously-owned clean vehicles to report certain information to the IRS and the purchasers of such clean vehicles. C. Notices 2023-1 and 2023-16 and 30D White Paper On December 29, 2022, the Treasury Department and the IRS published Notice 2023-1, 2023-3 I.R.B. 373, which describes definitions for certain terms in section 30D that the Treasury Department and the IRS intended to include in proposed regulations. The Treasury Department also released a white paper on the anticipated direction, as of December 29, 2022, of the proposed guidance on the Critical Minerals and Battery Components Requirements and the process for deter-mining whether vehicles qualify under these requirements (30D White Paper). See "Anticipated Direction of Forthcoming Proposed Guidance on Critical Mineral and Battery Component Value Calculations for the New Clean Vehicle Credit," Dec. 29, 2022, https://home.treasury.gov/system/files/136/30DWhite-Paper.pdf (last accessed March 28, 2023). On February 3, 2023, the Treasury Department and the IRS published Notice 2023-16, 2023-8 I.R.B. 479, which modifies Notice 2023-1 by revising the vehicle classification standard that the Treasury Department and the IRS intend to provide in proposed regulations. D. Proposed guidance described in section 30D(e)(3)(B) The publication of these proposed regulations in the Federal Register is the issuance of the proposed guidance described in section 30D(e)(3)(B) (as added by section 13401(e) of the IRA). Pursuant to section 13401(a), (e), and (k)(3) of the IRA, the critical minerals and battery components requirements of section 13401(a) and (e) of the IRA amend section 30D with respect to vehicles placed in service after the date on which these proposed regulations are published in the Federal Register. Accordingly, the Critical Minerals and Battery Components Requirements apply to vehicles placed in service after April 17, 2023, the date of publication in the Federal Register. Explanation of Provisions I. General Rules Section 30D(a) and proposed§1.30D-1(a) provide that there is allowed as a credit against the tax imposed by chapter 1 for the taxable year an amount equal to the sum of the credit amounts determined under section 30D(b) with respect to each new clean vehicle placed in service by the taxpayer during the taxable year. Section 30D(c) and proposed§1.30D-1(b) provide that the section 30D credit may be allowed as a general business credit or a personal credit depending on whether the property is of a character subject to an allowance for depreciation (depreciable vehicle). Section 30D(c)(1) and proposed§1.30D-1(b)(1) provide that so much of the credit that would be allowed to a taxpayer under section 30D(a) for any taxable year with respect to all new clean vehicles placed in service by the taxpayer during the taxable year (determined with-out regard to section 30D(c) and proposed§1.30D-1(b)(1)) that is attributable to one or more depreciable vehicles will be treated as a current year general business credit under section 38 of the Code that is listed in section 38(b)(30) for such tax-able year (and not allowed under section 30D(a)). Depreciable vehicles may also be eligible for the credit for qualified commercial clean vehicles under section 45W. However, under section 45W(d)(3), no credit is allowed under section 45W for a vehicle for which a section 30D credit was allowed to any taxpayer for any taxable year. In addition, proposed§1.30D-1(b)(2) would require the apportionment of any section 30D credit with respect to a depreciable vehicle the business use of which is less than 50 percent of a taxpayer's total use of the vehicle for the taxable year in which the vehicle is placed in service. The portion of the section 30D credit corresponding to the percentage of the taxpayer's business use of the depreciable vehicle would be treated as a general business credit under section 30D(c)(1) and proposed§1.30D-1(b)(1), and the portion of the section 30D credit corresponding to the percentage of the taxpayer's personal use of such vehicle would be treated as a section 30D credit allowed under section 30D(a) pursuant to section 30D(c)(2) and proposed§1.30D-1(b)(3). Section 30D(c)(2) and proposed§1.30D-1(b)(3) provide that the section 30D credit allowed for any taxable year (determined after application of section 30D(c)(1) and proposed§1.30D-1(b)(1)) is treated as a nonrefundable personal credit allowable under subpart A of part IV of subchapter A of chapter 1 (subpart A) for such taxable year. Section 26 of the Code limits the aggregate amount of credits allowed to a taxpayer by subpart A based on the taxpayer's tax liability. Under section 26(a), the aggregate amount of credits allowed to a taxpayer by subpart A cannot exceed the sum of (i) the taxpayer's regular tax liability (as defined in section 26(b)) for the taxable year reduced by the foreign tax credit allowable under section 27 of the Code, and (ii) the alternative minimum tax imposed by section 55(a) for the taxable year. II. Definitions Proposed§1.30D-2 clarifies the definitions of certain terms related to the statutory requirements of the section 30D credit. The definitions contained in proposed§1.30D-2 were substantially described in Notice 2023-1, as modified by Notice 2023-16. A. Final assembly Under section 30D(d)(1)(G) and section 13401(k)(2) of the IRA, any vehicle sold after August 16, 2022, must undergo its final assembly in North America to be eligible for the section 30D credit. Section 30D(d)(5) defines "final assembly" as the process by which a manufacturer produces a new clean vehicle at, or through the use of, a plant, factory, or other place from which the vehicle is delivered to a dealer or importer with all component parts necessary for the mechanical operation of the vehicle included with the vehicle, whether or not the component parts are permanently installed in or on the vehicle. Proposed§1.30D-2(b) would provide that, for purposes of section 30D(d)(5) of the Code, "final assembly" means the process by which a manufacturer produces a new clean vehicle at, or through the use of, a plant, factory, or other place from which the vehicle is delivered to a dealer or importer with all component parts necessary for the mechanical operation of the vehicle included with the vehicle, whether or not the component parts are permanently installed in or on the vehicle. To establish where final assembly of a new clean vehicle occurred, the taxpayer could rely on the following information: (1) the vehicle's plant of manufacture as reported in the vehicle identification number (VIN) pursuant to 49 CFR 565; or (2) the final assembly point reported on the label affixed to the vehicle as described in 49 CFR 583.5(a)(3). The vehicle's plant of manufacture as reported in the VIN means the plant where the manufacturer affixes the VIN. See 49 CFR 565.12. The plant of manufacture is reported in the VIN pursuant to 49 CFR 565.15(d)(2). The Department of Energy, Alternative Fuels Data Center (AFDC), and the Department of Transportation, National Highway Traffic Safety Administration (NHSTA), each provide a VIN decoder to the public, which can be used to identify a vehicle's plant of manufacture. AFDC, VIN Decoder, https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit (last accessed March 28, 2023); NHTSA, VIN Decoder, https://www.nhtsa.gov/vin-decoder (last accessed March 28, 2023). Labeling requirements in 49 CFR 583.5 require the final assembly point to be reported on the label affixed to a passenger motor vehicle. Final assembly point means the plant, factory, or other place, which is a building or series of buildings in close proximity, where a new passenger motor vehicle is produced or assembled from passenger motor vehicle equipment and from which such vehicle is delivered to a dealer or importer in such a condition that all component parts necessary to the mechanical operation of such automobile are included with such vehicle whether or not such component parts are permanently installed in or on such vehicle. For multi-stage vehicles, the final assembly point is the location where the first stage vehicle is assembled. 49 CFR 583.4(b)(5). B. North America Proposed§1.30D-2(d) would provide that for purposes of section 30D(d)(1)(G), "North America" means the territory of the United States, Canada, and Mexico as defined in 19 CFR part 182, Appendix A,§ 1(1). The territory described in 19 CFR part 182, Appendix A,§1(1), which provides rules of origin regulations for the United States-Mexico-Canada Agreement, is defined as (a) for Canada, the following zones or waters as determined by its domestic law and consistent with international law: (i) The land territory, air space, internal waters, and territorial sea of Canada, (ii) the exclusive economic zone of Canada, and (iii) the continental shelf of Canada; (b) for Mexico, (i) the land territory, including the states of the Federation and Mexico City, (ii) the air space, and (iii) the internal waters, territorial sea, and any areas beyond the territorial seas of Mexico within which Mexico may exercise sovereign rights and jurisdiction, as determined by its domestic law, consistent with the United Nations Convention on the Law of the Sea, done at Montego Bay on December 10, 1982; and (c) for the United States, (i) the customs territory of the United States, which includes the 50 states, the District of Columbia, and Puerto Rico, (ii) the foreign trade zones located in the United States and Puerto Rico, and (iii) the territorial sea and air space of the United States and any area beyond the territorial sea within which, in accordance with customary international law as reflected in the United Nations Convention on the Law of the Sea, the United States may exercise sovereign rights or jurisdiction. C. Manufacturer's suggested retail price (MSRP) Section 30D(f)(11)(A) provides that no section 30D credit is allowed for a vehicle with an MSRP in excess of the applicable limitation. Section 30D(f)(11)(B) provides that the "applicable limitation" for each vehicle classification is as follows: in the case of a van, $80,000; in the case of a sport utility vehicle, $80,000; in the case of a pickup truck, $80,000; and in the case of any other vehicle, $55,000. Proposed§1.30D-2(c) would provide that for purposes of section 30D(f)(11)(A), "manufacturer's suggested retail price" means the sum of: (A) the retail price of the automobile suggested by the manufacturer as described in 15 U.S.C. 1232(f)(1); and (B) the retail delivered price suggested by the manufacturer for each accessory or item of optional equipment, physically attached to such automobile at the time of its delivery to the dealer, which is not included within the price of such automobile as stated pursuant to 15 U.S.C. 1232(f)(1), as described in 15 U.S.C. 1232(f)(2). This price information is reported on the label that is affixed to the windshield or side window of the vehicle, as described in 15 U.S.C. 1232. D. Vehicle classifications For purposes of applying the MSRP limitation under section 30D(f)(11)(A), section 30D(f)(11)(C) authorizes the Secretary to prescribe such regulations or other guidance as the Secretary determines necessary to determine vehicle classifications using criteria similar to that employed by the Environmental Protection Agency (EPA) and the Department of Energy to determine size and class of vehicles. The Treasury Department and the IRS originally announced an intent to propose use of the vehicle classification standards in 40 CFR 600.002 in Notice 2023-1; however, in Notice 2023-16, the Treasury Department and the IRS modified the expected vehicle classification standard set forth in Notice 2023-1 to instead provide that a vehicle's vehicle classification is expected to be determined consistent with the fuel economy labeling regime described in 40 CFR 600.315-08. Although the EPA vehicle classification standards in both regimes are similar, the fuel economy labeling regime provides for EPA discretion to assign so-called "crossover" vehicles to a class on a case-by-case basis, taking into account consumer perspective and the marketing segment targeted by the manufacturer. EPA, "Fuel Economy Labeling of Motor Vehicles: Revisions to Improve Calculation of Fuel Economy Estimates," 71 Fed.Reg. 77872, 77913 (Dec. 27, 2006). In addition, the proposed adoption of the fuel economy labeling regime would align the vehicle classification standards for purposes of the section 30D credit with the classification displayed on the vehicle label and on the consumer-facing website FuelEconomy.gov, making it easier for consumers to know which vehicles qualify under the applicable MSRP limitation. Proposed§1.30D-2(g) would provide that for purposes of section 30D(f)(11)(B), a vehicle's vehicle classification is to be determined consistent with the rules and definitions provided in 40 CFR 600.315-08 for vans, sport utility vehicles, pickup trucks, and other vehicles. Specifically, "van" means a vehicle classified as a van or minivan under 40 CFR 600.315-08(a)(2)(iii) and (iv), or otherwise so classified by the Administrator of the EPA pursuant to 40 CFR 600.315-08(a)(3)(ii); "sport utility vehicle" means a vehicle classified as a small sport utility vehicle or standard sport utility vehicle under 40 CFR 600.315-08(a)(2)(v) and (vi), or otherwise so classified by the Administrator of the EPA pursuant to 40 CFR 600.315-08(a)(3)(ii); "pickup truck" means a vehicle classified as a small pickup truck or standard pickup truck under 40 CFR 600.315-08(a)(2)(i) and (ii), or otherwise so classified by the Administrator of the EPA pursuant to 40 CFR 600.315-08(a)(3)(ii); and "other vehicle" means any vehicle classified in one of the classes of passenger automobiles listed in 40 CFR 600.315-08(a)(1), or otherwise so classified by the Administrator of the EPA pursuant to 40 CFR 600.315-08(a)(3)(ii). E. Placed in service Proposed§1.30D-2(e) would pro-vide that for purposes of the section 30D credit, a new clean vehicle is considered to be placed in service on the date the taxpayer takes possession of the vehicle. This proposed definition is consistent with the meaning of "placed in service" for purposes of other provisions of the Code under which property is considered to be "placed in service" when the property is "placed in a condition or state of readiness and availability for a specifically assigned function" and as "the date on which the owner of the vehicle took actual possession of the vehicle." See§§1.46-3(d)(1)(ii) and (4)(i), 1.179-4(e) and 145.4051-1(c)(2); see also§1.1250-4(b)(2); Consumers Power Co. v. Commissioner, 89 T.C. 710 (1987); Noell v. Commissioner, 66 T.C. 718, 728-729 (1976). III. The Critical Minerals and Battery Components Requirements Section 30D(e) of the Code provides requirements for critical minerals and battery components with respect to the battery from which the electric motor of a new clean vehicle draws electricity. The Critical Mineral and Battery Component Requirements apply to applicable critical minerals and battery components, respectively, contained in a battery as defined in proposed§ 1.30D-3(c)(3). A. Critical Minerals Requirement Proposed§1.30D-3(a) would provide the rules for determining compliance with the Critical Minerals Requirement. In general, proposed§1.30D-3(a) is consistent with the framework for the Critical Minerals Requirement that was described in the 30D White Paper. Proposed§1.30D-3(a) would provide a three-step process for determining the percentage of the value of the applicable critical minerals in a battery that contribute toward meeting the Critical Minerals Requirement. i. Step 1: Determine procurement chains In the first step for determining compliance with the Critical Minerals Requirement, the manufacturer would need to determine the procurement chain or chains for each applicable critical mineral. Proposed§1.30D-3(c)(14) would define a "procurement chain" as a common sequence of extraction, processing, or recycling activities that occur in a common set of locations, concluding in the production of constituent materials. Proposed§1.30D-3(c)(14) would further clarify that sources of a single applicable critical mineral may have multiple procurement chains if, for example, one source of the applicable critical mineral undergoes the same extraction, processing, or recycling process in different locations. Each applicable critical mineral procurement chain would need to be evaluated separately pursuant to proposed§1.30D-3(a)(3)(ii). ii. Step 2: Identify qualifying critical minerals In the second step for determining compliance with the Critical Minerals Requirement, each applicable critical mineral procurement chain in the battery would need to be evaluated to determine whether critical minerals procured from the chain have been (1) extracted or processed in the United States, or in any country with which the United States has a free trade agreement in effect, or (2) recycled in North America. Applicable critical minerals that satisfy this requirement are considered qualifying critical minerals. Proposed§1.30D-3(c)(17) would define "qualifying critical mineral" as an applicable critical mineral that is extracted or processed in the United States, or in any country with which the United States has a free trade agreement in effect, or recycled in North America. Proposed§1.30D-3(c)(17) would use a "50% of value added test" to determine whether this definition is satisfied. Thus, an applicable critical mineral would be treated as extracted or processed in the United States, or in any country with which the United States has a free trade agreement in effect, if: (1) 50 percent or more of the value added to the applicable critical mineral by extraction is derived from extraction that occurred in the United States or in any country with which the United States has a free trade agreement in effect; or (2) 50 percent or more of the value added to the applicable critical mineral by processing is derived from processing that occurred in the United States or in any country with which the United States has a free trade agreement in effect. An applicable critical mineral would be treated as recycled in North America if 50 percent or more of the value added to the applicable critical mineral by recycling is derived from recycling that occurred in North America. The 30D White Paper explained the likely need for transition rules that would provide manufacturers time to develop the necessary capability to certify compliance with the Critical Minerals Requirement throughout their supply chains--especially given the complexity of battery supply chains and the detailed tracking that would be required--while moving towards more secure and resilient critical mineral supply chains. The proposed 50% of value added test would serve that purpose for vehicles placed in service in 2023 and 2024. For later years, however, the Treasury Department and the IRS anticipate moving to a more stringent test for determining if an applicable critical mineral was extracted or processed in the United States or in any country with which the United States has a free trade agreement in effect, or whether an applicable critical mineral was recycled in North America. This more stringent test would reflect the potential for more detailed tracking throughout manufacturers' supply chains, which may be necessary to certify compliance with the foreign entity of concern requirements described in section 30D(d)(7)(A) (applicable for vehicles placed in service after December 31, 2024). The Treasury Department and the IRS specifically request comment on the 50% of value added test, and the best approach for adopting a more stringent test for vehicles placed in service in 2025 and later years. For example, under one approach, the standard of 50 percent or more of the value added to the applicable critical mineral for extraction, processing, or recycling in the definition of qualifying critical mineral, could increase incrementally over time (similar to the incremental increase in the applicable critical minerals percentages in section 30D(e)(1)(B) and proposed§ 1.30D-3(a)(2)). Notably, the 50% of value added test would need to be applied separately for each procurement chain of an applicable critical mineral pursuant to proposed§1.30D-3(a)(3)(ii). For example, lithium that undergoes initial processing activities in a plant in Country A and then is transferred to a plant in Country B to undergo final processing activities, culminating in the lithium being incorporated into a constituent material, would be analyzed under this step together with other lithium moving through the same procurement chain. However, if some of the lithium in the prior example instead undergoes final processing activities in a plant in Country C instead of Country B, then there would be two procurement chains for lithium: (1) Country A to Country B and (2) Country A to Country C. Proposed§1.30D-3(c)(8) would define "extraction" as the activities performed to extract or harvest minerals or natural resources from the ground or a body of water, including, but not limited to, by operating equipment to extract minerals or natural resources from mines and wells, or to extract or harvest minerals or natural resources from the waste or residue of prior extraction. Extraction would conclude when activities are performed to convert raw mined or harvested products or raw well effluent to substances that can be readily transported or stored for direct use in applicable critical mineral processing. Extraction would include the beneficiation or other physical processes that allow the extracted materials, including ores, clays, and brines, to become transportable. Extraction would include the physical processes involved in refining. Extraction would not include the chemical and thermal processes involved in refining. Proposed§1.30D-3(c)(13) would define "processing" as the non-physical processes involved in refining of non-recycled substances or materials, including the treating, baking, and coating processes used to convert such substances and materials into constituent materials. Processing would begin when chemical or thermal processes, or the combination of them, are used on extracted minerals or natural resources or manmade minerals or resources to create a new product that, through subsequent steps in the applicable critical minerals supply chain, will be processed into a final constituent material. Processing would include the chemical or thermal processes involved in refining. Processing would not include the physical processes involved in refining. Proposed§1.30D-3(c)(6) would define "constituent materials" as materials that contain applicable critical minerals and are employed directly in the manufacturing of battery components. Constituent materials could include, but would not be limited to, powders of cathode active materials, powders of anode active materials, foils, metals for solid electrodes, binders, electrolyte salts, and electrolyte additives, as required for a battery cell. The definition of constituent materials describes the materials that distinguish the steps of extraction, processing, and recycling of critical minerals from the subsequent steps of manufacturing and assembly of battery components. Constituent materials would be the final products relevant for calculating the value of the applicable critical minerals in the battery. Constituent materials would mark the end of processing as the point at which no further chemical, physical, or thermal processes are needed to create the final product that is then used in battery component manufacturing. Constituent materials would similarly mark the end of recycling as the point at which no further transformations are needed to create the final product that is then used in battery component manufacturing. All constituent materials contain applicable critical minerals. Once the final constituent material is created, it then is used as an input to a battery component. Some battery components could be made entirely of inputs that do not contain constituent materials. Inputs used to manufacture battery components that do not contain any applicable critical minerals (for example, solvents, conductive additives, etc.) would not be considered to be constituent materials. Proposed§1.30D-3(c)(19) would define "recycling" as the series of activities during which recyclable materials containing applicable critical minerals are transformed into specification-grade commodities and consumed in lieu of virgin materials to create new constituent materials; such activities result in new constituent materials contained in the battery from which the electric motor of a new clean vehicle draws electricity. All physical, chemical, and thermal treatments or modifications that convert recycled feedstocks to specification grade constituent materials would be included in recycling. This definition would align with the current methods of direct, hydrometallurgical, or pyrometallurgical recycling that are utilized commercially for reuse of materials for battery applications. Proposed§1.30D-3(c)(24) would define "value," with respect to property, as the arm's-length price that was paid or would be paid for the property by an unrelated purchaser determined in accordance with the principles of section 482 of the Code and regulations thereunder. Proposed§1.30D-3(c)(25) would define "value added," with respect to recycling, extraction, or processing of an applicable critical mineral as the increase in the value of the applicable critical mineral attributable to the relevant activity. Proposed§1.30D-3(c)(11) would define "North America" as the territory of the United States, Canada, and Mexico as defined in 19 CFR. part 182, Appendix A,§ 1(1). Proposed§1.30D-3(c)(7) would define the term "country with which the United States has a free trade agreement in effect" and list the countries with which the United States has a "free trade agreement in effect." The term free trade agreement is not defined in the IRA or in the Code. The proposed definition takes into account the term's meaning, use and context in the statute. The IRA's amendments to section 30D expand the incentives for taxpayers to purchase new clean vehicles and for vehicle manufacturers to increase their reliance on supply chains in the United States and in countries with which the United States has reliable and trusted economic relationships. The Treasury Department and the IRS recognize that more secure and resilient supply chains are essential for our national security, our economic security, and our technological leadership. The Treasury Department and the IRS propose to identify the countries with which the United States has free trade agreements in effect for purposes of section 30D consistent with the statute's purposes of promoting reliance on such supply chains and of providing eligible consumers with access to tax credits for the purchase of new clean vehicles. Based on these considerations, the Treasury Department and the IRS propose criteria the Secretary would consider in identifying these countries. As set forth in proposed§1.30D-3(c)(7)(i), those criteria would include whether an agreement between the United States and another country, as to the critical minerals contained in electric vehicle batteries or more generally, and in the context of the overall commercial and economic relationship between that country and the United States: (A) reduces or eliminates trade barriers on a preferential basis, (B) commits the parties to refrain from imposing new trade barriers, (C) establishes high-standard disciplines in key areas affecting trade (such as core labor and environmental protections), and/or (D) reduces or eliminates restrictions on exports or commits the parties to refrain from imposing such restrictions on exports. Applying those factors, the proposed regulations include countries with which the United States has comprehensive free trade agreements (that is, agreements covering substantially all trade in goods and services between the parties, including trade in critical minerals). These are Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore. In addition, the Treasury Department and the IRS also propose to include additional countries that the Secretary identifies after considering the factors listed in proposed§1.30D-3(c)(7)(i). One example of such a country is Japan, with which the United States recently concluded a Critical Minerals Agreement (CMA) 1 containing robust obligations to help ensure free trade in critical minerals, including a commitment to refrain from imposing duties on exports of critical minerals that are currently essential to the electric vehicle battery supply chain, a commitment for the United States and Japan to confer on investments in this sector that may affect national security, and detailed undertakings related to the enforcement of labor and environmental laws related to trade in those critical minerals. The CMA was concluded in the context of an earlier trade agreement the United States concluded with Japan in 2019, 2 a related 2019 agreement on digital trade, 3 and the U.S.-Japan Partnership on Trade announced in November 2021. 4 The Treasury Department and the IRS have consulted with the U.S. Trade Representative in applying the proposed factors here. ******** 1 Agreement Between the Government of the United States of America and the Government of Japan on Strengthening Critical Minerals Supply Chains, concluded March 28, 2023, https://ustr.gov/sites/default/files/2023-03/US%20Japan%20Critical%20Minerals%20Agreement%202023%2003%2028.pdf. 2 Trade Agreement Between the United States of America and Japan, concluded October 7, 2019, https://ustr.gov/sites/default/files/files/agreements/japan/Trade_Agreement_between_the.pdf. 3 Agreement Between the United States of America and Japan Concerning Digital Trade, concluded October 7, 2019, https://ustr.gov/sites/default/files/files/agreements/japan/Agreement_between_the_Unite.pdf. 4 Office of United States Trade Representative, United States and Japan Announce the Formation of the U.S.-Japan Partnership on Trade, Nov. 17, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/november/united-states-and-japan-announce-formation-us-japan- partnership-trade-0. ******** Based on an evaluation of the criteria in proposed§1.30D-3(c)(7)(i), the Treasury Department and the IRS would make any necessary amendments to the list in proposed§1.30D-3(c)(7)(ii), including adding any additional countries as any new qualifying international agreements enter into force and the Secretary determines that the factors have been met. The Treasury Department and the IRS would similarly make any necessary amendments based on the modification, termination, or expiration of any previously identified free trade agreements. Proposed§ 1.30D-3(c)(7)(iii) would provide that the list of countries in proposed§ 1.30D-3(c)(7)(ii) may be revised and updated through appropriate publication in the Federal Register or in the Internal Revenue Bulletin. The treatment of any given country under this overall approach is independent from the inclusion or exclusion of any other. 5 ******** 5 This independent treatment is consistent with proposed§1.30D-3(c)(e). ******** The Treasury Department and the IRS seek comment on the proposed criteria for identifying countries with which the United States has free trade agreements in effect, other potential approaches for identifying those countries, and the list of countries set forth in proposed§1.30D-3(c)(7)(ii). iii. Step 3: Calculate qualifying critical mineral content The third step for determining compliance with the Critical Minerals Requirement would involve the calculation of the percentage of the value of qualifying critical minerals contained in a battery. The proposed regulations refer to this percentage as the "qualifying critical mineral content" and define that term under proposed§1.30D-3(c)(18) as the percentage of the value of the applicable critical minerals contained in the battery from which the electric motor of a new clean vehicle draws electricity that were extracted or processed in the United States, or in any country with which the United States has a free trade agreement in effect, or were recycled in North America. Under proposed§1.30D-3(a)(3)(i), qualifying critical mineral content would be calculated as the percentage that results from dividing the total value of qualifying critical minerals by the total value of critical minerals. Proposed§1.30D-3(c)(23) would define "total value of qualifying critical minerals" as the sum of the values of all the qualifying critical minerals contained in a battery described in proposed§1.30D-3(a)(1). Proposed§1.30D-3(c)(22) would define "total value of critical minerals" as the sum of the values of all applicable critical minerals contained in a battery described in proposed§1.30D-3(a)(1). Proposed§1.30D-3(a)(3)(iii) would require qualified manufacturers to select a date for determining the values associated with the total value of qualifying critical minerals (determined separately for each procurement chain) and the total value of critical minerals. Such date would need to be after the final processing or recycling step for the applicable critical minerals relevant to the certification described in section 30D(e)(1)(A) of the Code. This date would need to be uniformly applied for all applicable critical minerals contained in the battery. Proposed§1.30D-3(a)(15) would define a qualified manufacturer as a manufacturer described in section 30D(d)(3) of the Code. Proposed§1.30D-3(a)(3)(iv) would provide that a qualified manufacturer may determine qualifying critical mineral content based on the value of the applicable critical minerals actually contained in the battery of a specific vehicle. Alternatively, for purposes of calculating the qualifying critical mineral content for batteries in a group of vehicles, a qualified manufacturer could average the qualifying critical mineral content calculation over a limited period of time (for example, a year, quarter, or month) with respect to vehicles from the same model line, plant, class, or some combination of thereof, with final assembly (as defined in section 30D(d)(5) of the Code and proposed§1.30D-2(b)) within North America. The Treasury Department and the IRS seek comment on whether to include any more specific conditions or limitations on this ability to average these calculations The percentage of qualifying critical minerals content that is calculated in Step 3 would ultimately be compared with the relevant applicable critical minerals percentage provided in proposed§1.30D-3(a)(2) to determine whether a vehicle satisfies the Critical Minerals Requirement described in section 30D(e)(1)(A) of the Code. B. Battery Components Requirement Proposed§1.30D-3(b) would provide the rules for determining compliance with the Battery Components Requirement. In general, proposed§1.30D-3(b) is consistent with the framework for the Battery Components Requirement that was described in the 30D White Paper. Proposed§1.30D-3(b) would provide a four-step process for determining the percentage of the value of the battery components in a battery that contribute toward meeting the Battery Components Requirement. i. Step 1: Identify components that are manufactured or assembled in North America In the first step for determining compliance with the Battery Components Requirement, qualified manufacturers would need to determine whether each battery component in a battery was manufactured or assembled in North America. Such components are referred to in the proposed regulations as "North American battery components" and are defined in proposed§1.30D-3(c)(12) as a battery component substantially all of the manufacturing or assembly of which occurs in North America, without regard to the location of the manufacturing or assembly activities of the components that make up the particular battery component. Proposed§1.30D-3(c)(3) would define "battery," for purposes of a new clean vehicle, as a collection of one or more battery modules, each of which has two or more electrically configured battery cells in series or parallel, to create voltage or current. The term "battery" would not include items such as thermal management systems or other parts of a battery cell or module that do not directly contribute to the electrochemical storage of energy within the battery, such as battery cell cases, cans, or pouches. This definition of battery is consistent with the statute because battery modules and cells are the sources "from which the electric motor of such vehicle draws electricity." Sections 30D(e)(1)(A) and (2)(A). The battery module is the end point for the purpose of calculating the value of battery components. Proposed§1.30D-3(c)(4) would define "battery cell" as a combination of battery components (other than battery cells) capable of electrochemically storing energy from which the electric motor of a new clean vehicle draws electricity. This definition of battery cell would encompass the smallest combination of battery components necessary for the function of energy storage. Proposed§1.30D-3(c)(5) would define "battery component" as a component that forms part of a battery and which is manufactured or assembled from one or more components or constituent materials that are combined through industrial, chemical, and physical assembly steps. Battery components would include, but not be limited to, a cathode electrode, anode electrode, solid metal electrode, separator, liquid electrolyte, solid state electrolyte, battery cell, and battery module. Constituent materials would not be considered a type of battery component, although constituent materials could be manufactured or assembled into battery components. Some battery components could be made entirely of inputs that do not contain constituent materials. Battery components would include any piece of the assembled battery cell that contribute to electrochemical energy storage. Proposed§1.30D-3(c)(10) would define "manufacturing," with respect to a battery component, as the industrial and chemical steps taken to produce a battery component. Manufacturing would use industrial and chemical steps starting with constituent materials and other battery components that do not contain constituent materials to create a new battery component. Proposed§1.30D-3(c)(2) would define "assembly," with respect to battery components, as the process of combining battery components into battery cells and battery modules. ii. Step 2: Determine the incremental value of each battery component and North American battery components In the second step for determining compliance with the Battery Components Requirement, qualified manufacturers would need to determine the incremental value for each battery component. The resulting incremental value for a battery component would be attributable to North America if the battery component is a "North American battery component" as defined in proposed§1.30D-3(c)(12). Proposed§1.30D-3(c)(9) would define "incremental value," with respect to a battery component, as the value (as defined in proposed§1.30D-3(c)(24)) determined by subtracting from the value of that battery component the value of the manufactured or assembled battery components, if any, that are contained in that battery component. Proposed§1.30D-3(c)(20) would define "total incremental value of North American battery components" as the sum of the incremental values of each North American battery component contained in a battery described in proposed§1.30D-3(b)(1). iii. Step 3: Determine the total incremental value of battery components In the third step for determining compliance with the Battery Components Requirement, qualified manufacturers would need to total the incremental value of battery components. Proposed§1.30D-3(c)(21) would define "total incremental value of battery components" as the sum of the incremental values of each battery component contained in a battery described in proposed§1.30D-3(b)(1). The total incremental value of battery components could also be calculated by totaling the value of each battery module in the battery. iv. Step 4: Calculate the qualifying battery component content In the fourth step for determining compliance with the Battery Components Requirement, qualified manufacturers would need to determine the qualifying battery component content. Proposed§1.30D-3(c)(16) would define "qualifying battery component content" as the percentage of the value of the battery components contained in the battery from which the electric motor of a new clean vehicle draws electricity that were manufactured or assembled in North America. Proposed§1.30D-3(b)(3)(i) would provide that the qualifying battery component content is the percentage that results from dividing the total incremental value of North American battery components (determined in step 2) by the total incremental value of battery components (determined in step 3). Proposed§1.30D-3(b)(3)(ii) would require qualified manufacturers to select a date for determining the values associated with the total incremental value of North American battery components and the total incremental value of battery components. Such date would need to be after the last manufacturing or assembly step for the battery components relevant to the certification described in section 30D(e)(2)(A) of the Code. This date must be uniformly applied for all battery components contained in the battery. Proposed§1.30D-3(b)(3)(iii) would provide that a qualified manufacturer may determine qualifying battery component content based on the incremental values of the battery components actually contained in the battery of a specific vehicle. Alternatively, for purposes of calculating the qualifying battery component content for batteries in a group of vehicles, a qualified manufacturer could average the qualifying battery component content calculation over a limited period of time (for example, a year, quarter, or month) with respect to vehicles from the same model line, plant, class, or some combination of thereof, with final assembly (as defined in section 30D(d)(5) of the Code and proposed§1.30D-2(a)) within North America. The Treasury Department and the IRS seek comment on whether to include any more specific conditions or limitations on this ability to average these calculations. The percentage of qualifying battery component content that would be calculated in Step 4 would ultimately be compared with the relevant applicable battery components percentage provided in proposed§1.30D-3(b)(2) to determine whether a vehicle satisfies the Battery Components Requirement described in section 30D(e)(2)(A) of the Code. The Treasury Department and the IRS request comments on the Critical Mineral and Battery Component Requirements as they would be implemented in proposed§1.30D-3, including the distinction between processing of applicable critical minerals and manufacturing and assembly of battery components, and related definitions. C. Excluded entities Section 30D(d)(7) of the Code excludes from the definition of "new clean vehicle" any vehicle placed in service after December 31, 2024, with respect to which any of the applicable critical minerals contained in the battery of such vehicle (as described in section 30D(e)(1)(A)) were extracted, processed, or recycled by a foreign entity of concern (as defined in section 40207(a)(5) of the Infrastructure Investment and Jobs Act (42 U.S.C. 18741(a)(5))), or any vehicle placed in service after December 31, 2023, with respect to which any of the components contained in the battery of such vehicle (as described in section 30D(e)(2)(A)) were manufactured or assembled by a foreign entity of concern (as so defined). The Treasury Department and the IRS intend to issue guidance with respect to section 30D(d)(7) at a later date. IV. Special Rules Proposed§1.30D-4 would provide special rules with respect to the section 30D credit. A. No Double Benefit Section 30D(f)(2) and proposed§1.30D-4(a)(1) would provide that the amount of any deduction or other credit allowable under chapter 1 for a vehicle for which a section 30D credit is allow-able must be reduced by the amount of the section 30D credit allowed under section 30D(a) for such vehicle determined with-out regard to section 30D(c), which may treat all or a portion of the aggregate credit allowed under section 30D(a) as a current year general business credit under section 38(b). Proposed§1.30D-4(a)(2) would pro-vide that a section 30D credit that has been allowed with respect to a vehicle in a taxable year before the taxable year in which a credit under section 25E is allowable for that vehicle does not reduce the amount of the allowable section 25E credit. Accordingly, a taxpayer who otherwise satisfies the requirements of section 25E would be eligible to claim the section 25E credit for a vehicle for which another taxpayer previously claimed the section 30D credit. Proposed§1.30D-4(a)(3) would provide that no credit is allowed under section 45W with respect to any vehicle for which a credit was allowed under section 30D. This rule, which is based on section 45W(d)(3), precludes both the section 30D credit and the section 45W credit from being allowed for the same vehicle, whether in the same or different taxable years. B. Limitation based on modified adjusted gross income Section 30D(f)(10) and proposed§1.30D-4(b) would provide that no section 30D(a) credit is allowed for any taxable year if (i) the lesser of (I) the modified AGI of the taxpayer for such taxable year or (II) the modified AGI of the taxpayer for the preceding taxable year exceeds (ii) the threshold amount (Modified AGI Limitation). The threshold amount is $300,000 in the case of a joint return or a surviving spouse (as defined in section 2(a) of the Code), $225,000 in the case of a head of household (as defined in section 2(b) of the Code), and $150,000 for all other taxpayers. "Modified adjusted gross income" is defined in section 30D(f)(10)(C) as the taxpayer's AGI increased by any amount excluded from gross income under sections 911, 931, or 933 of the Code. Proposed§1.30D-4(b)(4) provides that if the taxpayer's filing status changes (for example, from single to head of household) in this two-year period, the taxpayer satisfies the Modified AGI Limitation if the taxpayer's modified AGI does not exceed the threshold amount in either taxable year based on the applicable filing status for that taxable year. Proposed§1.30D-4(b)(5)(i) would provide that, except as provided in proposed§1.30D-4(b)(5)(ii), in the case of a new clean vehicle that is placed in service by a corporation or other taxpayer that is not an individual for whom AGI is computed under section 62, the Modified AGI Limitation does not apply. Corporations and such other taxpayers do not have AGI computed under section 62, so the special rule in section 30D(f)(10) establishing a Modified AGI Limitation does not apply to these taxpayers. Proposed§1.30D-4(b)(5)(ii) would provide that in the event that the new clean vehicle is placed in service by a partnership or an S corporation, and the section 30D credit is claimed by individuals who are direct or indirect partners of that partnership or shareholders of that S corporation, the Modified AGI Limitation will apply to those partners or shareholders. The Treasury Department and the IRS request comments on whether a similar rule should be provided for trusts or other types of entities that place in service a new clean vehicle. C. Multiple owners and passthrough entity ownership of a single vehicle In certain instances, multiple taxpayers may purchase, place in service, and be titled as owners of a single vehicle. For example, a married couple that files separate tax returns may jointly purchase and take possession of a new clean vehicle that qualifies for the section 30D credit and both spouses may be titled as owners of the vehicle. However, the structure of section 30D provides for one taxpayer to claim the section 30D credit per vehicle placed in service. See generally section 30D(a), (b), (f)(8), (f)(9) and section 6213(g)(2)(T) of the Code. Section 30D does not contain rules for allocation or proration of the section 30D credit with respect to a single vehicle to multiple taxpayers placing that vehicle in service, and such an allocation or proration would present challenges from a tax administration perspective. Proposed§1.30D-4(c)(1) would provide that, except as provided in proposed§1.30D-4(c)(2), the amount of the section 30D credit attributable to a new clean vehicle may be claimed on only one tax return. In the event multiple owners place in service a new clean vehicle, no allocation or proration of the credit would be available. Proposed§1.30D-4(c)(3)(i) would provide that the name and taxpayer identification number of the owner claiming the credit under section 30D(a) should be listed on the seller's report pursuant to section 30D(d)(1)(H). Accordingly, multiple owners of a new clean vehicle would inform the seller which owner will claim the section 30D credit so that the seller can identify that taxpayer on the seller's report. The credit would be allowed only on the tax return of the owner listed in the seller's report. Proposed§1.30D-4(c)(2) would provide that in the case of a new clean vehicle placed in service by a partnership or S corporation, while the partnership or S corporation is the vehicle owner, the section 30D credit is allocated among the partners of the partnership under§1.704-1(b)(4)(ii) or among the shareholders of the S corporation under sections 1366(a) and 1377(a) of the Code and claimed on the tax returns of the partners or shareholder(s). Proposed§1.30D-4(c)(3)(i) would provide that in the case of a new clean vehicle placed in service by a partnership or S corporation, the name and tax identification number of the partnership or S corporation that placed the new clean vehicle in service should be listed on the seller's report pursuant to section 30D(d)(1)(H). V. Severability If any provision in this proposed rulemaking is held to be invalid or unenforceable facially, or as applied to any person or circumstance, it shall be severable from the remainder of this rulemaking, and shall not affect the remainder thereof, or the application of the provision to other persons not similarly situated or to other dissimilar circumstances. Effect on Other Documents This proposed rulemaking hereby makes IRS Notices 2023-1, 2023-3 I.R.B. 373 and 2023-16, 2023-8 I.R.B. 479 obsolete. Proposed Applicability Dates Proposed§1.30D-1 is proposed to apply to new clean vehicles placed in service after the date of publication of the Treasury Decision adopting these rules as final rules in the Federal Register. Proposed§ 1.30D-2 is proposed to apply to new clean vehicles placed in service on or after January 1, 2023, for taxable years ending after April 17, 2023. The amendments made to section 30D by the IRA generally apply to vehicles placed in service after December 31, 2022, with certain exceptions. The definitions in proposed§ 1.30D-2 were substantially described in Notice 2023-1, which was released on December 29, 2022. 6 The definitions in proposed§ 1.30D-2 generally relate to statutory rules applicable to vehicles placed in service on or after January 1, 2023. These proposed regulations are proposed to apply to vehicles placed in service on or after January 1, 2023, for taxable years ending after the date these proposed regulations are published in the Federal Register to improve certainty for taxpayers and to provide clear rules for tax administration. ******** 6 Notice 2023-16, released February 3, 2023, modified Notice 2023-1, regarding the vehicle classification standard set forth in Notice 2023-1 in a manner that allowed additional new clean vehicles to be eligible for the section 30D credit. Notice 2023-16 provided that taxpayers could rely on these modified expected definitions for new clean vehicles placed in service on or after January 1, 2023. ******** Proposed§1.30D-3 is proposed to apply to new clean vehicles placed in service after April 17, 2023 for taxable years ending after April 17, 2023. Pursuant to section 13401(a), (e), and (k)(3) of the IRA, the critical minerals and battery components requirements of section 13401(a) and (e) of the IRA amend section 30D with respect to vehicles placed in service after the date on which these proposed regulations are published in the Federal Register. Accordingly, the Critical Minerals and Battery Components Requirements in proposed§ 1.30D-3 are proposed to apply to vehicles placed in service after the date of publication of these proposed regulations for taxable years ending after the date of publication of these proposed regulations. Proposed§ 1.30D-4 is proposed to apply to new clean vehicles placed in service after the date of publication of the Treasury Decision adopting these rules as final rules in the Federal Register. Taxpayers may rely on these proposed regulations for vehicles placed in service prior to the date final regulations are published in the Federal Register, provided the taxpayer follows the proposed regulations in their entirety, and in a consistent manner. Statement of Availability for IRS Documents For copies of recently issued Revenue Procedures, Revenue Rulings, Notices, and other guidance published in the Internal Revenue Bulletin, please visit the IRS website at https://www.irs.gov. Special Analyses I. Regulatory Planning and Review - Economic Analysis Executive Orders 13563 and 12866 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. These proposed regulations have been designated by the Office of Management and Budget's Office of Information and Regulatory Affairs (OIRA) as subject to review under Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Treasury Department and the Office of Management and Budget (OMB) regarding review of tax regulations. OIRA has determined that the proposed rulemaking is significant and subject to review under Executive Order 12866 and section 1(b) of the Memorandum of Agreement. Accordingly, the proposed regulations have been reviewed by OMB. II. Paperwork Reduction Act Any collection burden associated with rules described in these proposed regulations is previously accounted for in OMB Control Number 1545-2137. These proposed regulations do not alter previously accounted for information collection requirements and do not create new collection requirements. OMB Control Number 1545-2137 covers Form 8936 and Form 8936-A regarding electric vehicle credits, including the new requirement in section 30D(f)(9) to include on the taxpayer's return for the taxable year the VIN of the vehicle for which the section 30D credit is claimed. Revenue Procedure 2022-42 describes the procedural requirements for qualified manufacturers to make periodic written reports to the Secretary to provide information related to each vehicle manufactured by such manufacturer that is eligible for the section 30D credit as required in section 30D(d)(3), including the critical mineral and battery component certification requirements in sections 30D(e)(1)(A) and (e)(2)(A). In addition, Revenue Procedure 2022-42 also provides the procedures for sellers of new clean vehicles to report information required by section 30D(d)(1)(H) for vehicles to be eligible for the section 30D credit. The collections of information contained in Revenue Procedure 2022-42 are described in that document and were submitted to the Office of Management and Budget in accordance with the Paperwork Reduction Act under control number 1545-2137. The requirement to determine the final assembly location in proposed§1.30D-2(b) by relying on (1) the vehicle's plant of manufacture as reported in the vehicle identification number (VIN) pursuant to 49 CFR 565 or (2) the final assembly point reported on the label affixed to the vehicle as described in 49 CFR 583.5(a)(3) is accounted for by the Department of Transportation in OMB Control Numbers 2127-0510 and 2127-0573. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget. III. Regulatory Flexibility Act Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), the Secretary hereby certifies that these proposed regulations will not have a significant economic impact on a substantial number of small entities within the meaning of section 601(6) of the Regulatory Flexibility Act. Pursuant to section 7805(f), this notice of proposed rulemaking has been submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on their impact on small business. The proposed regulations affect two types of business entities: (1) qualified manufacturers that must trace and report on their critical minerals and battery components in order to certify that their new clean vehicles qualify for the section 30D credit, and (2) businesses that may earn the section 30D credit when purchasing and placing in service a new clean vehicle. While the tracking and reporting of critical minerals and battery components is likely to involve significant administrative costs, according to public filings, all qualified manufacturers had total revenues above $1B in 2022. There are a total of 21 qualified manufacturers that have indicated that they manufacture vehicles currently eligible for the section 30D credit. 7 Pursuant to Revenue Procedure 2022-42 and following the publication of these proposed regulations, qualified manufacturers will also have to certify that their vehicles qualify under the Critical Minerals and Battery Components Requirements. The proposed regulations provide definitions and general rules for the section 30D credit, including rules for qualified manufacturers to comply with the Critical Mineral and Battery Component Requirements. Accordingly, the Treasury Department and the IRS intend that the proposed rules provide clarity for qualified manufacturers for consistent application of critical minerals and battery components calculations and for taxpayers purchasing new clean vehicles that qualify for the section 30D credit. The Treasury Department and the IRS have determined that qualified manufacturers do not meet the applicable definition of small entity. ******** 7 The list of manufacturers is available at the following IRS website: https://www.irs.gov/credits-deductions/manufacturers-and-models-for-new-qualified-clean-vehicles-purchased-in-2023-or- after#:~:text=If%20you%20bought%20and%20placed,Internal%20Revenue%20Code%20Section%2030D. ******** Business purchasers of clean vehicles who take the section 30D credit must satisfy reporting requirements that are largely the same as those faced by individuals accessing the section 30D credit to purchase clean vehicles. Taxpayers will continue to file Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit, to claim the section 30D credit. As was the case for the section 30D credit prior to amendments made by the IRA, taxpayers can rely on qualified manufacturers to determine if the vehicle being purchased qualifies for the section 30D credit and the credit amount. The estimated burden for individual and business taxpayers filing this form is approved under OMB control number 1545-0074 and 1545-0123. To make it easier for a taxpayer to determine the potential section 30D credit available for a specific vehicle, the proposed regulations provide business entities with tools and definitions to ascertain whether any vehicles purchased would be eligible for the credit. The VIN reporting required by section 30D(f)(9) and described in the proposed regulations was included in prior section 30D reporting. Accordingly, the Secretary certifies that these proposed regulations will not have a significant economic impact on a substantial number of small entities. The Treasury Department and the IRS request comments that provide data, other evidence, or models that provide insight on this issue. IV. Unfunded Mandates Reform Act Section 202 of the Unfunded Mandates Reform Act of 1995 requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or Tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. In 2023, that threshold is approximately $198 million. This rule does not include any Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector in excess of that threshold. V. Executive Order 13132: Federalism Executive Order 13132 (Federalism) prohibits an agency (to the extent practicable and permitted by law) from promulgating any regulation that has federalism implications, unless the agency meets the consultation and funding requirements of section 6 of the Executive order, if the rule either imposes substantial, direct compliance costs on State and local governments, and is not required by statute, or preempts State law. This proposed rule does not have federalism implications and does not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order. Comments and Requests for a Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any comments that are submitted timely to the IRS as prescribed in this preamble under the ADDRESSES heading. The Treasury Department and the IRS request comments on all aspects of the proposed regulations, including their economic impact and any alternative approaches that should be considered during the rulemaking process. In addition, the Treasury Department and the IRS request comments on the specific issues noted in the previous sections of this preamble. Any comments submitted, whether electronically or on paper, will be made available at https://www.regulations.gov or upon request. A public hearing will be scheduled if requested in writing by any person who timely submits electronic or written comments as prescribed in this preamble under the "DATES" heading. Requests for a public hearing are also encouraged to be made electronically. If a public hearing is scheduled, notice of the date and time for the public hearing will be published in the Federal Register. Announcement 2020-4, 2020-17 IRB 1, provides that until further notice, public hearings conducted by the IRS will be held telephonically. Any telephonic hearing will be made accessible to people with disabilities. Drafting Information The principal author of the proposed regulations is the Office of Associate Chief Counsel (Passthroughs & Special Industries). However, other personnel from the Treasury Department and the IRS participated in the development of the proposed regulations. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Proposed Amendments to the Regulations Accordingly, 26 CFR part 1 is proposed to be amended as follows: PART 1 INCOME TAXES Paragraph 1. The authority citation for part 1 is amended by adding entries in numerical order to read in part as follows: Authority: 26 U.S.C. 7805 * * * Section 1.30D-1 also issued under 26 U.S.C. 30D. Section 1.30D-2 also issued under 26 U.S.C. 30D. Section 1.30D-3 also issued under 26 U.S.C. 30D. Section 1.30D-4 also issued under 26 U.S.C. 30D and 26 U.S.C. 45W(d)(3). Par 2. Sections 1.30D-0, 1.30D-1, 1.30D-2, 1.30D-3, and 1.30D-4 are added to read as follows: Sec. * * * * * 1.30D-0 Table of contents. 1.30D-1 Credit for new clean vehicles. 1.30D-2 Definitions for purposes of section 30D. 1.30D-3 Critical mineral and battery component requirements. 1.30D-4 Special rules. * * * * *§1.30D-0 Table of contents. This section lists the captions contained in§§1.30D-1 through 1.30D-4.§1.30D-1 Credit for new clean vehicles. (a) In general. (b) Treatment of credit. (1) Business credit treated as part of general business credit. (2) Apportionment of section 30D credit. (3) Personal credit limited based on tax liability. (c) Severability. (d) Applicability date.§1.30D-2 Definitions for purposes of section 30D. (a) In general. (b) Final assembly. (c) Manufacturer's suggested retail price. (d) North America. (e) Placed in service. (f) Section 30D regulations. (g) Vehicle classifications. (i) Van. (ii) Sport utility vehicle. (iii) Pickup truck. (iv) Other vehicle. (h) Severability. (i) Applicability date.§1.30D-3 Critical mineral and battery component requirements. (a) Critical minerals requirement. (1) In general. (2) Applicable critical minerals percentage. (3) Determining qualifying critical mineral content. (i) In general. (ii) Separate determinations required for each procurement chain. (iii) Time for determining value. (iv) Application of qualifying critical mineral content to vehicles. (b) Battery components requirement. (1) In general. (2) Applicable battery components percentage. (3) Determining qualifying battery component content. (i) In general. (ii) Time for determining value. (iii) Application of qualifying battery component content to vehicles. (c) Definitions. (1) Applicable critical mineral. (2) Assembly. (3) Battery. (4) Battery cell. (5) Battery component. (6) Constituent materials. (7) Country with which the United States has a free trade agreement in effect. (8) Extraction. (9) Incremental value. (10) Manufacturing. (11) North America. (12) North American battery component. (13) Processing (14) Procurement chain. (15) Qualified manufacturer. (16) Qualifying battery component content. (17) Qualifying critical mineral. (18) Qualifying critical mineral content. (19) Recycling. (20) Total incremental value of North American battery components. (21) Total incremental value of battery components. (22) Total value of critical minerals. (23) Total value of qualifying critical minerals. (24) Value. (25) Value added. (d) Excluded entities. (e) Severability. (f) Applicability date.§1.30D-4 Special rules (a) No double benefit. (1) In general. (2) Application to credit for previously-owned clean vehicles under section 25E. (3) Application to credit for qualified clean vehicles under section 45W. (b) Limitation based on modified adjusted gross income. (1) In general. (2) Threshold amount. (3) Modified adjusted gross income. (4) Special rule for change in filing status. (5) Application to taxpayers other than individuals. (i) In general. (ii) Application to passthrough entities. (c) Multiple owners and passthrough entity ownership of a single vehicle. (1) In general. (2) Passthrough entities. (3) Seller Reporting. (i) In general. (ii) Passthrough entities. (4) Example. (d) Severability. (e) Applicability date.§1.30D-1 Credit for new clean vehicles. (a) In general. Section 30D(a) of the Internal Revenue Code (Code) allows as a credit against the tax imposed by chapter 1 of the Code (chapter 1) for the taxable year of a taxpayer an amount equal to the sum of the credit amounts determined under section 30D(b) with respect to each new clean vehicle purchased by the taxpayer that the taxpayer places in service during the taxable year. For purposes of the section 30D regulations (as defined in§1.30D-2(f)), the term section 30D credit means the credit allowable to a taxpayer for a taxable year under section 30D(a) and the section 30D regulations with respect to all vehicles placed in service by the taxpayer during the taxable year. Section 1.30D-2 provides definitions that apply for purposes of section 30D and the section 30D regulations. Section 1.30D-3 provides rules regarding the critical mineral and battery component requirements of section 30D(e). Section 1.30D-4 provides guidance regarding the limitations and special rules in section 30D(f). (b) Application with other credits --(1) Business credit treated as part of general business credit --(i) In general. Section30D(c)(1) requires that so much of the section 30D credit that would be allowed under section 30D(a) for any taxable year (determined without regard to section30D(c) and this paragraph (b)) that is attributable to a depreciable vehicle must be treated as a general business credit under section 38 of the Code that is listed in section 38(b)(30) for such taxable year (and not allowed under section 30D(a)). In the case of a depreciable vehicle the use of which is 50 percent or more business use in the taxable year such vehicle is placed in service, the section 30D credit that would be allowed under section 30D(a) for that taxable year (determined without regard to section 30D(c) and this paragraph (b)) that is attributable to such depreciable vehicle must be treated as a general business credit under section 38 of the Code that is listed in section 38(b)(30) for such taxable year (and not allowed under section 30D(a)). See paragraph (b)(2) of this section for rules applicable in the case of a depreciable vehicle the use of which is less than 50 percent business use in the taxable year such vehicle is placed in ser-vice. See paragraph (b)(3) of this section for rules applicable to a section 30D credit allowed under section 30D(a) pursuant to section 30D(c)(2) or paragraphs (b)(2)(ii) or (b)(3) of this section. (ii) Depreciable vehicle. For purposes of this paragraph (b), a depreciable vehicle is a vehicle of a character subject to an allowance for depreciation. (2) Apportionment of section 30D credit. In the case of a depreciable vehicle the business use of which is less than 50 percent of a taxpayer's total use of the vehicle for the taxable year in which the vehicle is placed in service, the taxpayer's section 30D credit for that taxable year with respect to that vehicle must be apportioned as follows: (i) The portion of the section 30D credit corresponding to the percentage of the taxpayer's business use of the vehicle is treated as a general business credit under section 30D(c)(1) and paragraph (b)(1) of this section (and not allowed under section 30D(a) or paragraph (b)(3) of this section). (ii) The portion of the section 30D credit corresponding to the percentage of the taxpayer's personal use of the vehicle is treated as a section 30D credit allowed under section 30D(a) pursuant to section 30D(c)(2) and paragraph (b)(3) of this section. (3) Personal credit limited based on tax liability. Section 26 of the Code limits the aggregate amount of credits allowed to a taxpayer by subpart A of part IV of subchapter A of chapter 1 (subpart A) based on the taxpayer's tax liability. Under section 26(a), the aggregate amount of credits allowed to a taxpayer by subpart A cannot exceed the sum of the taxpayer's regular tax liability (as defined in section 26(b)) for the taxable year reduced by the foreign tax credit allowable under section 27 of the Code, and the alternative minimum tax imposed by section 55(a) for the taxable year. Section 30D(c)(2) provides that the section 30D credit allowed under section 30D(a) for any taxable year (determined after application of section 30D(c)(1) and paragraphs (b)(1) and (2) of this section) is treated as a credit allowable under subpart A for such taxable year, and the section 30D credit allowed under section 30D(a) is therefore subject to the limitation imposed by section 26. (c) Severability. The provisions of this section are separate and severable from one another. If any provision of this section is stayed or determined to be invalid, it is the agencies' intention that the remaining provisions shall continue in effect. (d) Applicability date. This section applies to new clean vehicles placed in service after [DATE OF PUBLICATION OF FINAL RULE].§1.30D-2 Definitions for purposes of section 30D. (a) In general. The definitions in paragraphs (b) through (g) of this section apply for purposes of section 30D of the Internal Revenue Code (Code) and the section 30D regulations. (b) Final assembly means the process by which a manufacturer produces a new clean vehicle at, or through the use of, a plant, factory, or other place from which the vehicle is delivered to a dealer or importer with all component parts necessary for the mechanical operation of the vehicle included with the vehicle, whether or not the component parts are permanently installed in or on the vehicle. To establish where final assembly of a new clean vehicle occurred for purposes of the requirement in section 30D(d)(1)(G) that final assembly of a new clean vehicle occur within North America, the taxpayer may rely on the following information: (1) The vehicle's plant of manufacture as reported in the vehicle identification number pursuant to 49 CFR 565; or (2) The final assembly point reported on the label affixed to the vehicle as described in 49 CFR 583.5(a)(3). (c) Manufacturer's suggested retail price means the sum of the prices described in paragraphs (c)(1) and (2) of this section as reported on the label that is affixed to the windshield or side window of the vehicle, as described in 15 U.S.C. 1232. (1) The retail price of the automobile suggested by the manufacturer as described in 15 U.S.C. 1232(f)(1). (2) The retail delivered price suggested by the manufacturer for each accessory or item of optional equipment, physically attached to such automobile at the time of its delivery to the dealer, which is not included within the price of such automobile as stated pursuant to 15 U.S.C. 1232(f)(1), as described in 15 U.S.C. 1232(f)(2). (d) North America means the territory of the United States, Canada, and Mexico as defined in 19 CFR part 182, appendix A, section 1(1). (e) Placed in service. A new clean vehicle is considered to be placed in service on the date the taxpayer takes possession of the vehicle. (f) Section 30D regulations means§1.30D-1, this section, and§§1.30D-3 and 1.30D-4. (g) Vehicle classifications --(1) In general. The vehicle classification of a new clean vehicle is to be determined consistent with the rules and definitions provided in 40 CFR 600.315-08 and this paragraph (g) for vans, sport utility vehicles, and pickup trucks, and other vehicles. (2) Van means a vehicle classified as a van or minivan under 40 CFR 600.315-08(a)(2)(iii) and (iv), or otherwise so classified by the Administrator of the EPA pursuant to 40 CFR 600.315-08(a)(3)(ii). (3) Sport utility vehicle means a vehicle classified as a small sport utility vehicle or standard sport utility vehicle under 40 CFR 600.315-08(a)(2)(v) and (vi), or otherwise so classified by the Administrator of the EPA pursuant to 40 CFR 600.315-08(a)(3)(ii). (4) Pickup truck means a vehicle classified as a small pickup truck or standard pickup truck under 40 CFR 600.315-08(a)(2)(i) and (ii), or otherwise so classified by the Administrator of the EPA pursuant to 40 CFR 600.315-08(a)(3)(ii). (5) Other vehicle means any vehicle classified in one of the classes of passenger automobiles listed in 40 CFR 600.315-08(a)(1), or otherwise so classified by the Administrator of the EPA pursuant to 40 CFR 600.315-08(a)(3)(ii). (h) Severability. The provisions of this section are separate and severable from one another. If any provision of this section is stayed or determined to be invalid, it is the agencies' intention that the remaining provisions shall continue in effect. (i) Applicability date. This section applies to new clean vehicles placed in service on or after January 1, 2023, for taxable years ending after April 17, 2023.§1.30D-3 Critical mineral and battery component requirements. (a) Critical minerals requirement --(1) In general. The critical minerals requirement described in section 30D(e)(1)(A) of the Internal Revenue Code (Code), with respect to the battery from which the electric motor of a new clean vehicle draws electricity, is met if the qualifying critical mineral content of such battery is equal to or greater than the applicable critical minerals percentage (as defined in paragraph (a)(2) of this section), as certified by the qualified manufacturer, in such form or manner as prescribed by the Secretary of the Treasury or her delegate (Secretary). (2) Applicable critical minerals percentage. For purposes of paragraph (a)(1) of this section, section 30D(e)(1)(B) provides the applicable critical minerals percentage, which is based on the year in which a vehicle is placed in service by the taxpayer and set forth in paragraphs (a)(2)(i) through (v) of this section. (i) In the case of a vehicle placed in service after April 17, 2023, and before January 1, 2024, the applicable critical minerals percentage is 40 percent. (ii) In the case of a vehicle placed in service during calendar year 2024, the applicable critical minerals percentage is 50 percent. (iii) In the case of a vehicle placed in service during calendar year 2025, the applicable critical minerals percentage is 60 percent. (iv) In the case of a vehicle placed in service during calendar year 2026, the applicable critical minerals percentage is 70 percent. (v) In the case of a vehicle placed in service after December 31, 2026, the applicable critical minerals percentage is 80 percent. (3) Determining qualifying critical mineral content --(i) In general. Qualifying critical mineral content with respect to a battery described in paragraph (a)(1) of this section is calculated as the percentage that results from dividing: (A) The total value of qualifying critical minerals, by (B) The total value of critical minerals. (ii) Separate determinations required for each procurement chain. The portion of an applicable critical mineral that is a qualifying critical mineral must be determined separately for each procurement chain. (iii) Time for determining value. A qualified manufacturer must select a date for determining the values described in paragraphs (a)(3)(i)(A) and (B) of this section. Such date must be after the final processing or recycling step for the applicable critical minerals relevant to the certification described in section 30D(e)(1)(A). (iv) Application of qualifying critical mineral content to vehicles. A qualified manufacturer may determine qualifying critical mineral content based on the value of the applicable critical minerals actually contained in the battery of a specific vehicle. Alternatively, for purposes of calculating the qualifying critical mineral content for batteries in a group of vehicles, a qualified manufacturer may average the qualifying critical mineral content calculation over a period of time (for example, a year, quarter, or month) with respect to vehicles from the same model line, plant, class, or some combination of thereof, with final assembly (as defined in section 30D(d)(5) of the Code and§1.30D-2(b)) within North America. (b) Battery components requirement --(1) In general. The battery components requirement described in section 30D(e)(2)(A) of the Code, with respect to the battery from which the electric motor of a new clean vehicle draws electricity, is met if the qualifying battery component content of such battery is equal to or greater than the applicable battery components percentage (as defined in paragraph (b)(2) of this section), as certified by the qualified manufacturer, in such form or manner as prescribed by the Secretary. (2) Applicable battery components percentage. For purposes of paragraph (b)(1) of this section, section 30D(e)(2)(B) provides the applicable battery components percentage, which is based on the year in which a vehicle is placed in service by the taxpayer as set forth in paragraphs (b)(2)(i) through (vi) of this section. (i) In the case of a vehicle placed in service after April 17, 2023, and before January 1, 2024, the applicable battery components percentage is 50 percent. (ii) In the case of a vehicle placed in service during calendar year 2024 or 2025, the applicable battery components percentage is 60 percent. (iii) In the case of a vehicle placed in service during calendar year 2026, the applicable battery components percentage is 70 percent. (iv) In the case of a vehicle placed in service during calendar year 2027, the applicable battery components percentage is 80 percent. (v) In the case of a vehicle placed in service during calendar year 2028, the applicable battery components percentage is 90 percent. (vi) In the case of a vehicle placed in service after December 31, 2028, the applicable battery components percentage is 100 percent. (3) Determining qualifying battery component content --(i) In general. Qualifying battery component content with respect to a battery described in paragraph (b)(1) of this section is calculated as the percentage that results from dividing-- (A) The total incremental value of North American battery components, by (B) The total incremental value of battery components. (ii) Time for determining value. A qualified manufacturer must select a date for determining the incremental values described in paragraphs (b)(3)(i)(A) and (B) of this section. Such date must be after the last manufacturing or assembly step for the battery components relevant to the certification described in section 30D(e)(2)(A) of the Code. (iii) Application of qualifying battery component content to vehicles. A qualified manufacturer may determine qualifying battery component content based on the incremental values of the battery components actually contained in the battery of a specific vehicle. Alternatively, for purposes of calculating the qualifying battery component content for batteries in a group of vehicles, a qualified manufacturer may average the qualifying battery component content calculation over a period of time (for example, a year, quarter, or month) with respect to vehicles from the same model line, plant, class, or some combination of thereof, with final assembly (as defined in section 30D(d)(5) of the Code and§1.30D-2(b)) within North America. (c) Definitions. The following definitions apply for purposes of this section: (1) Applicable critical mineral means an applicable critical mineral as defined in section 45X(c)(6) of the Code. (2) Assembly, with respect to battery components, means the process of combining battery components into battery cells and battery modules. (3) Battery, for purposes of a new clean vehicle, means a collection of one or more battery modules, each of which has two or more electrically configured battery cells in series or parallel, to create voltage or current. The term battery does not include items such as thermal management systems or other parts of a battery cell or module that do not directly contribute to the electrochemical storage of energy within the battery, such as battery cell cases, cans, or pouches. (4) Battery cell means a combination of battery components (other than battery cells) capable of electrochemically storing energy from which the electric motor of a new clean vehicle draws electricity. (5) Battery component means a component that forms part of a battery and which is manufactured or assembled from one or more components or constituent materials that are combined through industrial, chemical, and physical assembly steps. Battery components may include, but are not limited to, a cathode electrode, anode electrode, solid metal electrode, separator, liquid electrolyte, solid state electrolyte, battery cell, and battery module. Constituent materials are not considered a type of battery component, although constituent materials may be manufactured or assembled into battery components. Some battery components may be made entirely of inputs that do not contain constituent materials. (6) Constituent materials means materials that contain applicable critical minerals and are employed directly in the manufacturing of battery components. Constituent materials may include, but are not limited to, powders of cathode active materials, powders of anode active materials, foils, metals for solid electrodes, binders, electrolyte salts, and electrolyte additives, as required for a battery cell. (7) Country with which the United States has a free trade agreement in effect --(i) In general. The term "country with which the United States has a free trade agreement in effect" means any of those countries identified in paragraph (c)(7)(ii) of this section or that the Secretary may identify in the future. The criteria the Secretary will consider in determining whether to identify a country under this paragraph (c)(7) include whether an agreement between the United States and that country, as to the critical minerals contained in electric vehicle batteries or more generally, and in the context of the overall commercial and economic relationship between that country and the United States: (A) Reduces or eliminates trade barriers on a preferential basis; (B) Commits the parties to refrain from imposing new trade barriers; (C) Establishes high-standard disciplines in key areas affecting trade (such as core labor and environmental protections); and/or (D) Reduces or eliminates restrictions on exports or commits the parties to refrain from imposing such restrictions. (ii) Free trade agreements in effect. The countries with which the United States currently has a free trade agreement in effect are: Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Japan, Jordan, South Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore. (iii) Updates. The list of countries in paragraph (c)(7)(ii) may be revised and updated through appropriate guidance published in the Federal Register or in the Internal Revenue Bulletin (see§601.601(d) of this chapter). (8) Extraction means the activities performed to extract or harvest minerals or natural resources from the ground or a body of water, including, but not limited to, by operating equipment to extract or harvest minerals or natural resources from mines and wells, or to extract minerals or natural resources from the waste or residue of prior extraction. Extraction concludes when activities are performed to convert raw mined or harvested products or raw well effluent to substances that can be readily transported or stored for direct use in critical mineral processing. Extraction includes the physical processes involved in refining. Extraction does not include the chemical and thermal processes involved in refining. (9) Incremental value, with respect to a battery component, means the value determined by subtracting from the value of that battery component the value of the manufactured or assembled battery components, if any, that are contained in that battery component. (10) Manufacturing, with respect to a battery component, means the industrial and chemical steps taken to produce a battery component. (11) North America means the territory of the United States, Canada, and Mexico as defined in 19 CFR part 182, appendix A, section 1(1). (12) North American battery component means a battery component substantially all of the manufacturing or assembly of which occurs in North America, without regard to the location of the manufacturing or assembly activities of any components that make up the particular battery component. (13) Processing means the non-physical processes involved in the refining of non-recycled substances or materials, including the treating, baking, and coating processes used to convert such substances and materials into constituent materials. Processing includes the chemical or thermal processes involved in refining. Processing does not include the physical processes involved in refining. (14) Procurement chain means a common sequence of extraction, processing, or recycling activities that occur in a common set of locations with respect to an applicable critical mineral, concluding in the production of constituent materials. Sources of a single applicable critical mineral may have multiple procurement chains if, for example, one source of the applicable critical mineral undergoes the same extraction, processing, or recycling process in different locations. (15) Qualified manufacturer means a manufacturer described in section 30D(d)(3) of the Code. (16) Qualifying battery component content means the percentage of the value of the battery components contained in the battery from which the electric motor of a new clean vehicle draws electricity that were manufactured or assembled in North America. (17) Qualifying critical mineral means an applicable critical mineral that is extracted or processed in the United States, or in any country with which the United States has a free trade agreement in effect, or recycled in North America. (i) An applicable critical mineral is extracted or processed in the United States, or in any country with which the United States has a free trade agreement in effect, if: (A) Fifty (50) percent or more of the value added to the applicable critical mineral by extraction is derived from extraction that occurred in the United States or in any country with which the United States has a free trade agreement in effect; or (B) Fifty (50) percent or more of the value added to the applicable critical mineral by processing is derived from processing that occurred in the United States or in any country with which the United States has a free trade agreement in effect. (ii) An applicable critical mineral is recycled in North America if 50 percent or more of the value added to the applicable critical mineral by recycling is derived from recycling that occurred in North America. (18) Qualifying critical mineral content means the percentage of the value of the applicable critical minerals contained in the battery from which the electric motor of a new clean vehicle draws electricity that were extracted or processed in the United States, or in any country with which the United States has a free trade agreement in effect, or recycled in North America. (19) Recycling means the series of activities during which recyclable materials containing critical minerals are transformed into specification-grade commodities and consumed in lieu of virgin materials to create new constituent materials; such activities result in new constituent materials contained in the battery from which the electric motor of a new clean vehicle draws electricity. (20) Total incremental value of North American battery components means the sum of the incremental values of each North American battery component contained in a battery described in paragraph (b)(1) of this section. (21) Total incremental value of battery components means the sum of the incremental values of each battery component contained in a battery described in paragraph (b)(1) of this section. (22) Total value of critical minerals means the sum of the values of all applicable critical minerals contained in a battery described in paragraph (a)(1) of this section. (23) Total value of qualifying critical minerals means the sum of the values of all the qualifying critical minerals contained in a battery described in paragraph (a)(1) of this section. (24) Value, with respect to property, means the arm's-length price that was paid or would be paid for the property by an unrelated purchaser determined in accordance with the principles of section 482 of the Code and regulations thereunder. (25) Value added, with respect to recycling, extraction, or processing of an applicable critical mineral, means the increase in the value of the applicable critical mineral attributable to the relevant activity. (d) Excluded entities. [IRS will address excluded entities in the final rule.] (e) Severability. The provisions of this section are separate and severable from one another. If any provision of this section is stayed or determined to be invalid, it is the agencies' intention that the remaining provisions shall continue in effect. (f) Applicability date. This section applies to new clean vehicles placed in service after April 17, 2023, for taxable years ending after April 17, 2023.§1.30D-4 Special rules. (a) No double benefit --(1) In general. Under section 30D(f)(2) of the Internal Revenue Code (Code), the amount of any deduction or other credit allowable under chapter 1 of the Code for a vehicle for which a credit is allowable under section 30D(a) must be reduced by the amount of the section 30D credit allowed for such vehicle (determined without regard to section 30D(c)). (2) Application to credit for previously-owned clean vehicles under section 25E. A section 30D credit that has been allowed with respect to a vehicle in a taxable year before the year in which a credit under section 25E of the Code is allowable for that vehicle does not reduce the amount allowable under section 25E. (3) Application to credit for qualified clean vehicles under section 45W. Pursuant to section 45W(d)(3) of the Code, no credit is allowed under section 45W with respect to any vehicle for which a credit was allowed under section 30D. (b) Limitation based on modified adjusted gross income --(1) In general. No credit is allowed under section 30D(a) for any taxable year if-- (i) The lesser of -- (A) The modified adjusted gross income of the taxpayer for such taxable year, or (B) The modified adjusted gross income of the taxpayer for the preceding taxable year, exceeds (ii) The threshold amount. (2) Threshold amount. For purposes of paragraph (b)(1) of this section, the threshold amount applies to individual taxpayers based on the return filing status for the taxable year, as set forth in paragraphs (b)(2)(i) through (iii) of this section. (i) In the case of a joint return or a surviving spouse (as defined in section 2(a) of the Code), the threshold amount is $300,000, (ii) In the case of a head of household (as defined in section 2(b) of the Code), the threshold amount is $225,000. (iii) In the case of a taxpayer not described in paragraph (b)(2)(i) or (ii) of this section, the threshold amount is $150,000. (3) Modified adjusted gross income. For purposes of section 30D(f)(10) and this paragraph (b), the term modified adjusted gross income means adjusted gross income (as defined in section 62 of the Code) increased by any amount excluded from gross income under section 911, 931, or 933 of the Code. (4) Special rule for change in filing status. If the taxpayer's filing status for the taxable year differs from the taxpayer's filing status in the preceding taxable year, the taxpayer satisfies the limitation described in paragraph (b)(1) of this section if the taxpayer's modified AGI does not exceed the threshold amount in either year based on the applicable filing status for that taxable year. (5) Application to taxpayers other than individuals --(i) In general. Except as provided in paragraph (b)(4)(ii) of this section, the modified adjusted gross income limitation of this paragraph (b) does not apply in the case of a new clean vehicle placed in service by a corporation or other taxpayer that is not an individual for whom adjusted gross income is computed under section 62. (ii) Application to passthrough entities. In the case of a new clean vehicle placed in service by a partnership or S corporation, where the section 30D credit is claimed by individuals who are direct or indirect partners of that partnership or shareholders of that S corporation, the modified adjusted gross income limitation of this paragraph (b) will apply to those partners or shareholders. (c) Multiple owners and passthrough entity ownership of a single vehicle --(1) In general. Except as provided in paragraph (c)(2) of this section, the amount of the section 30D credit attributable to a new clean vehicle may be claimed on only one tax return. In the event a new clean vehicle is placed in service by multiple owners, no allocation or proration of the section 30D credit is available. ( 2 ) Passthrough entities. In the case of a new clean vehicle placed in service by a partnership or S corporation, while the partnership or S corporation is the vehicle owner, the section 30D credit is allocated among the partners of the partnership under§1.704-1(b)(4)(ii) or among the shareholders of the S corporation under sections 1366(a) and 1377(a) of the Code and claimed on the tax returns of the ultimate partners' or of the S corporation shareholder(s). (3) Seller reporting --(i) In general. The name and taxpayer identification number of the vehicle owner claiming the section 30D credit must be listed on the seller's report pursuant to section 30D(d)(1)(H). The credit will be allowed only on the tax return of the owner listed in the seller's report. (ii) Passthrough entities. In the case of a new clean vehicle placed in service by a partnership or S corporation, the name and tax identification number of the partnership or S corporation that placed the new clean vehicle in service must be listed on the seller's report pursuant to section 30D(d)(1)(H). (4) Example. A married couple jointly purchases and places in service a new clean vehicle that qualifies for the section 30D credit and puts both of their names on the title. When the couple prepares to file their Federal income tax return, they choose to file using the married filing separately filing status. The section 30D credit may only be claimed by one of the spouses on that spouse's tax return, and the other spouse may not claim any amount of the section 30D credit with respect to that new clean vehicle. The spouse that claims the section 30D credit must be the same spouse listed on the seller report received pursuant to section 30D(d)(1)(H). (d) Severability. The provisions of this section are separate and severable from one another. If any provision of this section is stayed or determined to be invalid, it is the agencies' intention that the remaining provisions shall continue in effect. (e) Applicability date. This section applies to new clean vehicles placed in service after [DATE OF PUBLICATION OF FINAL RULE]. Douglas W. O'Donnell, Deputy Commissioner for Services and Enforcement. (Filed by the Office of the Federal Register March 31, 2023, 8:45 a.m., and published in the issue of the Federal Register for April 17, 2023, TBD FR TBD)

Revenue Procedure 2023-35 Internal Revenue Service 2023-42 I.R.B. 1079 26 CFR 601.105: Examination of returns and claims for refund, credit or abatement; determination of correct tax liability. (Also: Part I,§§ 1091; 1.446-7.) Rev. Proc. 2023-35 SECTION 1. PURPOSE This revenue procedure amplifies and supersedes Rev. Proc. 2014-45, 2014-34 I.R.B. 388, which describes circumstances in which the Internal Revenue Service (IRS) will not treat a redemption of shares in a money market fund (MMF) as part of a wash sale for purposes of section 1091 of the Internal Revenue Code (Code). 1 This revenue procedure expands the scope of Rev. Proc. 2014-45 in response to final rules adopted by the Securities and Exchange Commission (SEC) on July 12, 2023, which amend Rule 2a-7 under the Investment Company Act of 1940 (1940 Act), 17 CFR§ 270.2a-7 (2023 Amendments). See Money Market Fund Reforms; Form PF Reporting Requirements for Large Liquidity Fund Advisers; Technical Amendments to Form N-CSR and Form N-1A, Investment Company Act Release No. 34959 (July 12, 2023), 88 F.R. 51404 (Aug. 3, 2023) (2023 SEC Release). ******** 1 Unless otherwise specified, all "Section" or "§" references are to sections of the Code or the Income Tax Regulations (26 CFR part 1). ******** SECTION 2. BACKGROUND.01 Money Market Funds (1) An investment company that is registered under the 1940 Act and that meets the requirements of Rule 2a-7 under the 1940 Act is permitted to hold itself out as an MMF. MMFs have historically sought to keep stable (typically at $1.00) the prices at which their shares are distributed, redeemed, and repurchased. The securities that Rule 2a-7 permits an MMF to hold generally result in no more than minimal fluctuations in the value of an MMF's portfolio as determined on a per-share basis. (2) Prior to amendments in 2014, Rule 2a-7 generally permitted an MMF to compute its price per share by using either or both of (a) the amortized cost method of valuation, and (b) the penny-rounding method of pricing. Under the amortized cost method of valuation, an MMF's net asset value per share (NAV) was determined by valuing the fund's portfolio securities at their acquisition cost, adjusted for amortization of premium or accretion of discount. Under the penny-rounding method of pricing, an MMF's NAV was rounded to the nearest one percent in computing the MMF's share price. These methods were intended to enable MMFs to maintain stable share prices under most circumstances. (3) Final rules adopted by the SEC in 2014 generally bar the use of the amortized cost method of valuation and the use of the penny-rounding method of pricing, except by government MMFs and retail MMFs 2 (2014 Amendments). See Money Market Fund Reform; Amendments to Form PF, Investment Company Act Release No. 31166 (July 23, 2014), 79 F.R. 47735 (Aug. 14, 2014). An MMF that is neither a government MMF nor a retail MMF must value its portfolio securities using market-based factors and compute its price per share by rounding the fund's NAV to a minimum of the fourth decimal place (or, for an MMF with a share price other than $1.0000, an equivalent or greater level of precision). 17 CFR§ 270.2a-7(c)(1)(ii). An MMF that uses market factors to value its securities and uses basis point rounding to price its shares for purposes of distribution, redemption, and repurchase (floating-NAV MMF) has a share price that is likely to change frequently, but usually within a narrow range because of the limited types of investments that an MMF may hold. A government MMF or retail MMF that continues to use the amortized cost method and penny rounding (stable-NAV MMF) can maintain a constant share price under most market conditions. ******** 2 A government MMF is an MMF that "invests 99.5 percent or more of its total assets in cash, government securities, and/or repurchase agreements that are collateralized fully." 17 CFR§ 270.2a-7(a)(14). A retail MMF is an MMF that "has policies and procedures reasonably designed to limit all beneficial owners of the fund to natural persons." 17 CFR§ 270.2a-7(a)(21). ******** (4) The fact that stable-NAV MMFs maintain a constant share price simplifies the taxation of their shareholders. Because shareholders acquire shares from the fund for $1.00/share, have bases of $1.00/share, and redeem those shares for the same amount, they realize no gain or loss on those redemptions. On the other hand, shareholders in floating-NAV MMFs typically redeem shares for amounts slightly different from the amounts for which those shares were issued to them. Section 2.02(4) and (5) of this revenue procedure describe prior guidance intended to reduce tax compliance burdens associated with gains and losses on shares in floating-NAV MMFs. (5) The 2014 Amendments also permitted an MMF to institute a liquidity fee if certain liquid assets of the MMF fall below a specified percentage of the MMF's total assets. If those liquid assets fall below another (lower) specified percentage, the 2014 Amendments generally required the MMF to institute a liquidity fee, unless the MMF's board of directors (including a majority of the directors who are not interested persons of the fund) determines that imposing such a fee is not in the best interests of the MMF. When an MMF has a liquidity fee in effect, the fee reduces the proceeds received by all redeeming shareholders. Government MMFs were generally exempt from the requirements of the liquidity fee provisions but were permitted to institute liquidity fees on the same terms..02 Wash Sale Rules (1) Section 1091(a) disallows a loss realized by a taxpayer on a sale or other disposition of shares of stock or securities if, within a period beginning 30 days before and ending 30 days after the date of such sale or disposition, the taxpayer acquires (by purchase or by an exchange on which the entire amount of gain or loss is recognized by law), or enters into a contract or option to so acquire, substantially identical stock or securities (unless the taxpayer is a dealer in stock or securities and the loss is sustained in a transaction made in the ordinary course of such business). (2) If a taxpayer acquired property and that acquisition resulted in the disallowance of a loss under section 1091(a), then under section 1091(d), the taxpayer's basis in the property so acquired equals the basis of the stock or securities disposed of at a loss, increased or decreased to take into account any difference between the price at which the replacement property was acquired and the price at which the original stock or securities were disposed of. (3) As mentioned above, a shareholder may realize a loss upon a redemption of shares in an MMF in certain circumstances. For example, the share price of a floating-NAV fund may have declined below the price at which the shareholder acquired shares, or an MMF may impose a liquidity fee on redemptions. Because many MMF shareholders engage in frequent redemptions and purchases of MMF shares (for example, because of sweep arrangements and automatic reinvestments of distributions), a shareholder that realizes a loss on a redemption of MMF shares will often acquire shares in that MMF within 30 days before or after the redemption. (4) When the 2014 Amendments required certain MMFs to become floating-NAV MMFs, the Department of the Treasury (Treasury Department) and the IRS published guidance to mitigate in two ways the administrative burdens associated with gains and losses on those MMF shares, including those associated with wash sales. (a) First,§ 1.446-7 provides a simplified method of accounting for gain or loss on MMF shares (NAV method). Under the NAV method, a taxpayer's gain or loss on shares in an MMF is based on the change in the aggregate value of the taxpayer's shares during a computation period and on the net amount of purchases and redemptions during the computation period. Because no gain or loss is determined for particular redemptions under the NAV method, no redemption implicates the wash sale rules. The NAV method applies to floating-NAV MMFs and stable-NAV MMFs. See§ 1.446-7(a). (b) Second, Rev. Proc. 2014-45 provided that the IRS will not treat a redemption of a share of a floating-NAV MMF as a part of a wash sale. Thus, Rev. Proc. 2014-45 provided relief from the wash sale rules for shareholders in floating-NAV MMFs not using the NAV method, but it did not extend the relief to stable-NAV MMFs..03 2023 Amendments (1) The 2023 Amendments eliminate from Rule 2a-7 any link between an MMF's liquid assets and the MMF's ability (or obligation) to institute liquidity fees. Under Rule 2a-7(c)(2)(i), as amended, any MMF other than a government MMF must institute a liquidity fee (not to exceed two percent of the value of the shares redeemed) if the MMF's board of directors, including a majority of the directors who are not interested persons of the MMF, determines that a liquidity fee is in the best interests of the MMF. 3 A government MMF is permitted to impose liquidity fees on the same terms. The SEC intends to increase the resilience of MMFs by providing a mechanism to allocate liquidity costs to redeeming investors in times of stress while avoiding incentives for preemptive redemptions associated with liquidity fee triggers based on liquidity levels or other criteria investors might predict. See 2023 SEC Release, 88 F.R. at 51411. ******** 3 The 2023 Amendments also require certain MMFs to impose liquidity fees based on levels of net redemptions. The MMFs subject to that rule, institutional prime MMFs and institutional tax-exempt MMFs, are floating-NAV MMFs. Accordingly, Rev. Proc. 2014-45 currently provides wash sale relief for transactions in their shares. ******** (2) The provisions of the 2023 Amendments relating to liquidity fees are effective on October 2, 2023. These amendments provide a six-month compliance date for the discretionary liquidity fee provisions described in section 2.03(1) of this revenue procedure. Affected MMFs, however, including government MMFs, may begin to rely on those provisions after the October 2, 2023, effective date. See 2023 SEC Release, 88 F.R. at 51452. (3) Thus, after October 2, 2023, any MMF may impose a liquidity fee based solely on a determination of its board of directors. Thus, in some situations, the board of a stable-NAV MMF may determine that such a fee is in the best interests of the MMF and so impose it on redemptions of the MMF's shares. For a redeeming shareholder that has not adopted the NAV method (which is the case for almost all shareholders in stable-NAV MMFs), the fee will result in a loss on the redemption. Moreover, because stable-NAV MMFs are outside the scope of Rev. Proc. 2014-45, there is no current impediment to the application of the section 1091 wash sale rules to that loss. (4) The Treasury Department and the IRS intend this revenue procedure to reduce undue tax compliance burdens resulting from the 2023 Amendments. Because of the constant value of shares in stable-NAV MMFs, the frequency with which many taxpayers continuously acquire and redeem shares in these MMFs, and the administrative and compliance burdens that would flow from applying section 1091 to these transactions, it is in the interest of sound tax administration to extend to these shares the relief that Rev. Proc. 2014-45 already provides to shares in floating-NAV MMFs. Accordingly, the IRS will not treat as part of a wash sale a redemption of a share in any MMF. SECTION 3. SCOPE This revenue procedure applies to a redemption of one or more shares in an MMF. SECTION 4. APPLICATION If a redemption is within the scope of section 3 of this revenue procedure and results in a loss, the IRS will not treat the redemption as part of a wash sale. Therefore, section 1091(a) will not disallow the deduction for the resulting loss in the year realized and section 1091(d) will not cause the basis of any property to be determined by reference to the basis of the redeemed shares. SECTION 5. EFFECT ON OTHER DOCUMENTS Rev. Proc. 2014-45 is amplified and superseded for redemptions of shares in MMFs after October 2, 2023. SECTION 6. EFFECTIVE DATE This revenue procedure is effective for redemptions of shares in MMFs after October 2, 2023. SECTION 7. DRAFTING INFORMATION The principal author of this revenue procedure is Vanessa Mekpong of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure contact Vanessa Mekpong on (202) 317-6842 (not a toll-free number).

Private Letter Ruling Number: 202006011 Internal Revenue Service November 5, 2019 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202006011 Release Date: 2/7/2020 Index Number: 9100.00-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:ITA:B03 PLR-114685-19 Date: 11/05/2019 In Re Request for 9100 Relief Dear ********: This letter responds to a letter ruling request dated Date 1, submitted by Tax Return Preparer on behalf of Taxpayer. Taxpayer requests an extension of time under sections 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations to make a late election concerning the treatment of success-based fees in accordance with Rev. Proc 2011-29, 2011-1 C.B. 746, which requires that a statement be attached to Taxpayer's original federal income tax return for Taxpayer's Taxable Year. FACTS Taxpayer is the parent corporation of an affiliated group of companies that files Form 1120, U.S. Corporation Income Tax Return. Taxpayer is engaged in the business of Business 1. Taxpayer uses an overall accrual method of accounting and has a calendar year end. On Date 2, Taxpayer entered into a merger agreement with a consortium of investors comprised of Acquirers. The transaction closed on Date 3, on which Taxpayer became the surviving corporation in a merger with Merger Co. Taxpayer represents that the transaction qualifies as a covered transaction under section 1.263(a)-5(e)(3)(ii) of the Income Tax Regulations (Regulations). Taxpayer engaged Financial Adviser to provide financial advisory services in conjunction with the potential sale. The amount of the success-based fee payable to Financial Adviser, which was contingent upon the successful closing of the transaction, was $a. Taxpayer also engaged Legal Advisor to provide legal advice in conjunction with the sale. The engagement letter with Legal Advisor contained terms similar to those of the engagement letter with Financial Adviser. Pursuant to the engagement letter, the amount of the success-based fee payable to Legal Adviser that was contingent upon the successful closing of the transaction was $b. Both success-based fees were incurred during the taxable year. Tax Return Preparer prepared the Taxpayer's Form 1120 for the Taxable Year. Additionally, Taxpayer engaged Tax Return Preparer to provide advisory services including preparation of the transaction cost analysis (TCA). On its timely-filed consolidated U.S. federal income tax return for Taxable Year, Taxpayer deducted 70 percent of the total success-based fees and capitalized the remaining 30 percent consistent with the safe harbor election in Rev. Proc. 2011-29. However, due to an administrative oversight the election statement was not included in the Taxpayer's consolidated U.S. federal income tax return for Taxable Year, as required by Rev. Proc. 2011-29. On Date 4, during an Internal Revenue Service (IRS) examination of the Taxpayer's Taxable Year, the Taxpayer discovered the election statement had been omitted. Upon discovery, Tax Return Preparer, on behalf of Taxpayer, brought the matter to the attention of the lead Revenue Agent assigned to the examination. The Taxpayer subsequently commenced the preparation of this request. LAW Section 263(a) of the Internal Revenue Code provides generally that no deduction is allowed for any amount paid for new buildings or for permanent improvements or betterments made to increase the value of any property or estate or any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made. Section 1.263(a)-1(d)(3) of the Regulations provides that no deduction is allowed for an amount paid to acquire or create an intangible, which under sections 1.263(a)-4(c)(1)(i) and 1.263(a)-4(d)(2)(i)(A) includes an ownership interest in a corporation or other entity. See also section 1.263(a)-4(a). In the case of an acquisition or reorganization of a business entity, costs that are incurred in the process of acquisition and that produce significant long-term benefits must be capitalized. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 89-90 (1992); Woodward v. Commissioner, 397 U.S. 572, 575-576 (1970). Under section 1.263(a)-5, a taxpayer must capitalize an amount paid to facilitate a business acquisition or reorganization transaction described in section 1.263(a)-5(a). In general, an amount is paid to facilitate a transaction described in section 1.263(a)-5(a) if the amount is paid in the process of investigating or otherwise pursuing the transaction. Whether an amount is paid in the process of investigating or otherwise pursuing the transaction is determined based on all the facts and circumstances. Section 1.263(a)-5(b)(1). Section 1.263(a)-5(f) provides that an amount that is contingent on the successful closing of a transaction described in section 1.263(a)-5(a), or success-based fee, is presumed to facilitate the transaction. A taxpayer may rebut the presumption by maintaining sufficient documentation to establish that a portion of the fee is allocable to activities that do not facilitate the transaction. This documentation must be completed on or before the due date of the taxpayer's timely filed original federal income tax return (including extensions) for the taxable year during which the transaction closes. To reduce controversy between the IRS and taxpayers over the documentation required to allocate success-based fees between the activities that facilitate the transaction and activities that do not facilitate the transaction, the IRS issued Rev. Proc. 2011-29. Section 4.01 of the revenue procedure states that the IRS would not challenge a taxpayer's allocation of a success-based fee between activities that facilitate a transaction described in section 1.263(a)-5(e)(3) and activities that do not facilitate the transaction if the taxpayer -- (1) treats 70 percent of the amount of the success-based fee as an amount that does not facilitate the transaction; (2) capitalizes the remaining 30 percent as an amount that does facilitate the transaction; and (3) attaches a statement to its original federal income tax return for the taxable year the success-based fee is paid or incurred, stating that the taxpayer is electing the safe harbor, identifying the transaction, and stating the success-based fee amounts that are deducted and capitalized. It is this last requirement that Taxpayer requests permission to accomplish with this ruling request. Taxpayer requests permission with this ruling request to attach the statement required by section 4.01(3) of Rev. Proc. 2011-29 to its return, by amending its original filed return and superseding it with a return with the proper election statement completed and attached. Section 3 of Rev. Proc. 2011-29 provides that the revenue procedure applies to covered transactions described in section 1.263(a)-5(e)(3), which include -- (i) A taxable acquisition by the taxpayer of assets that constitute a trade or business; (ii) A taxable acquisition of an ownership interest in a business entity (whether the taxpayer is the acquirer in the acquisition or the target of the acquisition) if, immediately after the acquisition, the acquirer and the target are related within the meaning of section 267(b) or section 707(b); or (iii) A reorganization described in section 368(a)(1)(A), (B), or (C) or a reorganization described in section 368(a)(1)(D) in which stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 354 or 356 (whether the taxpayer is the acquirer or the target in the reorganization). Sections 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations provide the standards the Commissioner uses to determine whether to grant an extension of time to make a regulatory election. Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions of time for making elections that do not meet the requirements of section 301.9100-2. Section 301.9100-1(b) defines the term "regulatory election" as an election whose due date is prescribed by a regulation published in the Federal Register, or a revenue ruling, procedure, notice or announcement published in the Internal Revenue Bulletin. Section 301.9100-1(c) provides that the Commissioner may grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad) under all subtitles of the Internal Revenue Code except subtitles E, G, H and I. Section 301.9100-3(a) provides extensions of time to make a regulatory election under Code sections other than those for which section 301.9100-2 expressly permits automatic extensions. Requests for extensions of time for regulatory elections will be granted when the taxpayer provides evidence (including affidavits described in the regulations) to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and granting relief will not prejudice the interests of the Government. Section 301.9100-3(b)(1) states that a taxpayer will be deemed to have acted reasonably and in good faith if the taxpayer -- (i) requests relief before the failure to make the regulatory election is discovered by the Service; (ii) failed to make the election because of intervening events beyond the taxpayer's control; (iii) failed to make the election because, after exercising due diligence, the taxpayer was unaware of the necessity for the election; (iv) reasonably relied on the written advice of the Service; or (v) reasonably relied on a qualified tax professional, including a tax professional employed by the taxpayer, and the tax professional failed to make, or advise the taxpayer to make the election. Under section 301.9100-3(b)(3), a taxpayer will not be considered to have acted reasonably and in good faith if the taxpayer -- (i) seeks to alter a return position for which an accuracy related penalty has been or could be imposed under section 6662 at the time the taxpayer requests relief (taking into account section 1.6664-2(c)(3)) and the new position requires or permits a regulatory election for which relief is requested; (ii) was informed in all material respects of the required election and related tax consequences, but chose not to file the election; or (iii) uses hindsight in requesting relief. If specific facts have changed since the original deadline that make the election advantageous to a taxpayer, the Service will not ordinarily grant relief. Section 301.9100-3(c)(1) provides that the Commissioner will grant a reasonable extension of time only when the interests of the Government will not be prejudiced by the granting of relief. Section 301.9100-3(c)(1)(i) provides, in part, that the interests of the Government are prejudiced if granting relief would result in the taxpayer having a lower tax liability in the aggregate for all taxable years affected by the election than the taxpayer would have had if the election had been timely made (taking into account the time value of money). Section 301.9100-3(c)(1)(ii) provides, in part, that the interests of the Government are ordinarily prejudiced if the taxable year in which the regulatory election should have been made, or any taxable years that would have been affected by the election had it been timely made, are closed by the period of limitations on assessment under section 6501(a) before the taxpayer's receipt of a ruling granting relief under this section. Section 301.9100-3(f), Ex. 2, illustrates that where a failure to file an election is discovered by the IRS during an examination, the taxpayer may be granted relief under section 301.9100-3 if the taxpayer relied on a qualified tax professional to render advice and the tax professional failed to notify the taxpayer of the requirement to file the election. The information and representations submitted by Taxpayer establish that Taxpayer has acted reasonably and in good faith under sections 301.9100-3(b)(1) and (2). Pursuant to section 301.9100-3(b)(v), Taxpayer reasonably relied on Tax Return Preparer, a qualified public accounting firm, to properly prepare its federal income tax return for Taxable Year, and Tax Return Preparer inadvertently failed to attach the election statement to the tax return. Given the Taxpayer's reliance on the Tax Return Preparer the fact that the Taxpayer's Taxable Year was under review by the IRS does not result in the Taxpayer not being able to obtain relief under section 301.9100-3. Moreover, the information and representations submitted by Taxpayer demonstrate that none of the circumstances listed in section 301.9100-3(b)(3) apply, and thus, Taxpayer will not be deemed to have not acted reasonably and in good faith. Taxpayer is not seeking to alter a return position for which an accuracy-related penalty has been or could be imposed under section 6662 at the time of this request for relief. It is not the case that Taxpayer was informed in all material aspects of the election and related tax consequences but chose not to file the election. Taxpayer's decision to seek relief did not involve hindsight, and no specific facts have changed since the due date for filing the election that make the election advantageous to Taxpayer had the election been timely made. Based on the facts of the case Taxpayer provided, granting an extension of time to file the election will not prejudice the interests of the government under section 301.9100-3(c)(1). Taxpayer has represented that granting relief would not result in a lower tax liability in the aggregate for all taxable years affected by the election than Taxpayer would have had if the election had been timely made (taking into account the time value of money). Furthermore, Taxpayer has represented that the period of limitations on assessment under section 6501(a) has not closed for the taxable year in which the election should have been made or any taxable years that would be affected by the election had it been timely made. CONCLUSION Based solely on the facts submitted and the representations made, we conclude that Taxpayer acted reasonably and in good faith, and that granting the request will not prejudice the interests of the government. Accordingly, the requirements of sections 301.9100-1 and 301.9100-3(b)(1) of the regulations have been satisfied. Taxpayer is granted an extension of time until 60 days following the date of this ruling to file an amended tax return for Taxable Year electing safe harbor treatment of its success-based fees under section 4.01(3) of Rev. Proc. 2011-29. The amended return must include an election statement stating that Taxpayer is electing the safe harbor for success-based fees, identifying the transaction, and stating the success-based fee amounts that are deducted and capitalized. The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by appropriate parties. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. Except as expressly provided herein, no opinion is expressed or implied concerning the federal income tax consequences of any aspect of any transaction or item discussed or referenced in this ruling under any other provision of the Code. In particular, no opinion is expressed or implied as to whether Taxpayer properly included the correct costs as its success-based fees subject to the election, or whether Taxpayer's transaction was within the scope of Rev. Proc. 2011-29. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. A copy of this ruling must be attached to Taxpayer's federal income tax returns for the tax years affected. Alternatively, taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter ruling. In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representatives. We are also sending a copy of this letter to the appropriate operating division director. Enclosed is a copy of the letter ruling showing the deletions proposed to be made in the letter when it is disclosed under section 6110 of the Code. Sincerely, Brinton Warren Branch Chief, Branch 3 (Income Tax & Accounting) Office of Chief Counsel

Private Letter Ruling Number: 202115003 Internal Revenue Service January 21, 2020 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202115003 Release Date: 4/16/2021 Index Number: 9100.00-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:ITA:B06 PLR-125219-20 Date: January 21, 2021 Dear *******: This letter is in reply to a request for a private letter ruling made by Taxpayer. Taxpayer requested an extension of time under sections 301.9100-1(c) and 301.9100-3 of the Procedure and Administration Regulations to file Form 3115, Application For Change in Accounting Method, for Tax Year. This letter ruling is being issued electronically in accordance with Rev. Proc. 2020-29, 2020-21 I.R.B. 859. A paper copy will not be mailed to Taxpayer. FACTS Taxpayer is a C Corporation that is 100 percent owned by X. Taxpayer states that it files a consolidated Federal income tax return with its wholly owned subsidiaries, Subsidiaries. Through its Subsidiaries, Taxpayer distributes and markets Y. Taxpayer files its consolidated return on the basis of a calendar year and uses an overall accrual method of accounting for Federal income tax purposes. Taxpayer retained the services of Accounting Firm to assist in preparing its consolidated Federal income tax return for Tax Year. Based upon the recommendation of Accounting Firm, Taxpayer decided to file Form 3115 to change two of the methods of accounting for Subsidiaries. The accounting methods would be changed beginning with Tax Year. The two changes in method of accounting both involved section 263A of the Internal Revenue Code. These changes were to the Simplified Service Cost Method and the Simplified Production Method without the historic absorption ratio election. Both of these changes Taxpayer believed could be made using the automatic consent procedures of Rev. Proc. 2015-13, 2015-5 I.R.B. 419. Additionally, Taxpayer believed that by making these changes, Subsidiaries would be in full compliance with the rules under section 263A. Taxpayer has represented that its consolidated Federal income tax return for Tax Year and any subsequent tax year(s) was(were) prepared as if the two accounting method changes had been properly procedurally implemented. However, Taxpayer admits that it failed to procedurally implement the changes properly for Tax Year. Regarding the filing of the consolidated Federal income tax return for Tax Year, Taxpayer represents that it timely mailed the required copy of Form 3115 to the appropriate office of the Internal Revenue Service (IRS) as required by Rev. Proc. 2015-13. Taxpayer also represents that this return was timely filed. However, Form 3115 was not attached to this tax return. Upon realizing this mistake, Accounting Firm informed Taxpayer and promptly prepared this request for a letter ruling to obtain an extension of time under sections 301.9100-1(c) and 301.9100-3 to file the missing Form 3115. RULING REQUESTED Taxpayer requests an extension of time for filing the required Form 3115 for Tax Year under sections 301.9100-1(c) and 301.9100-3. LAW AND ANALYSIS Section 301.9100-1(c) provides that the Commissioner has the discretion to grant a reasonable extension of time under the rules set forth in sections 301.9100-2 and 301.9100-3 to make certain regulatory elections. Section 301.9100-1(b) defines a regulatory election as an election whose due date is prescribed by regulations published in the Federal Register, or in a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin. The requested accounting method changes are regulatory elections as defined under section 301.9100-1(b) because the due date of the changes are prescribed in section 1.446-1 of the Income Tax Regulations and section 6.03(3)(a) of Rev. Proc. 2015 -13. Section 301.9100-2 provides for automatic extensions of time for making certain elections. Section 301.9100-3 provides for extensions of time for making elections that do not meet the requirements of section 301.9100-2. Taxpayer's request for an extension of time must be analyzed under the requirements of section 301.9100-3 because the automatic provisions of section 301.9100-2 are not applicable. Requests for relief under section 301.9100-3 will be granted when a taxpayer provides evidence to establish to the satisfaction of the Commissioner (i) that the taxpayer acted reasonably and in good faith and (ii) that granting relief will not prejudice the interest of the government. See section 301.9100-3(a). Section 301.9100-3(b)(1) provides that a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer: (i) requests relief before the failure to make a regulatory election is discovered by the IRS; (ii) failed to make the election because of intervening events beyond the taxpayer's control; (iii) failed to make the election because, after exercising reasonable diligence, the taxpayer was unaware of the necessity of the election; (iv) reasonably relied on written advice of the IRS; or (v) reasonably relied on a qualified tax professional, including a tax professional employed by the taxpayer, and the tax professional failed to make, or advise the taxpayer to make, the election. Section 301.9100-3(b)(3) provides that a taxpayer is deemed not to have acted reasonably and in good faith if the taxpayer: (i) seeks to alter a return position for which an accuracy-related penalty has been or could be imposed under section 6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested; (ii) was informed in all material respects of the required election and related tax consequences and chose not to file the election; or (iii) uses hindsight in requesting relief. Section 301.9100-3(c)(i) provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax liability in the aggregate for all tax years affected by the election than the taxpayer would have had if the election had been timely made (taking into account the time value of money). The section also provides that, if the tax consequences of more than one taxpayer are affected by the election, the government's interests are prejudiced if extending the time for making the election may result in the affected taxpayers, in the aggregate, having a lower tax liability than if the election had been timely made. Section 301.9100-3(c)(1)(ii) provides, in part, that the interests of the government are ordinarily prejudiced if the tax year in which the regulatory election should be been made, or any tax years that would have been affected by the election had it been timely made, are closed by the period of limitations on assessment under section 6501(a) before the taxpayer's receipt of a ruling granting relief under this section. CONCLUSION On the basis of Taxpayer's representations, we conclude that the requirements of sections 301.9100-1(c) and 301.9100-3 have been satisfied. Accordingly, we hereby grant an extension of time for Taxpayer to file the original Form 3115 that should have been attached to its consolidated Federal income tax return that was filed for Tax Year. This Form 3115 must be identical to the copy of the Form 3115 that had been filed with the appropriate IRS office. No other revision to the consolidated Federal income tax return filed for Tax Year can be made. This extension shall be for a period of 45 days from the date of this letter ruling. Except as expressly set forth above, we neither express nor imply any opinion concerning the tax consequences of the facts described above under any other provision of the Code or regulations. Specifically, we have no opinion, either expressed or implied, concerning whether the accounting method changes Taxpayer has attempted to make on Subsidiaries' behalf are eligible to be made under the automatic consent procedures of Rev. Proc. 2015-13. Further, no opinion is expressed regarding the correctness of Subsidiaries' Simplified Service Cost Method or Simplified Production Method without the historic absorption ratio election. Lastly, no opinion is expressed regarding the filing of consolidated Federal income tax return by Taxpayer. The ruling contained in this letter is based upon information and representations submitted by Taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of this request for an extension of time to file the required Form 3115, all material is subject to verification on examination. This ruling is directed only to Taxpayer, who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent. In accordance with the power of attorney on file with this office, a copy of this letter is being sent to each of Taxpayer's authorized representatives. Sincerely, Cheryl L. Oseekey Senior Counsel, Branch 6 Office of Associate Chief Counsel (Income Tax & Accounting) cc:

Notice 2023-75 Internal Revenue Service 2023-47 I.R.B. 1256 2024 Limitations Adjusted as Provided in Section 415(d), etc. Notice 2023-75 Section 415 of the Internal Revenue Code ("Code") provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost-of-living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under section 415. Under section 415(d), the adjustments are to be made under adjustment procedures similar to those used to adjust benefit amounts under section 215(i)(2)(A) of the Social Security Act. Cost-of-Living Adjusted Limits for 2024 Effective January 1, 2024, the limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) of the Code is increased from $265,000 to $275,000. For a participant who separated from service before January 1, 2024, the participant's limitation under a defined benefit plan under section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2023, by 1.0351. The limitation for defined contribution plans under section 415(c)(1)(A) is increased in 2024 from $66,000 to $69,000. The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of section 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2024 are as follows: The limitation under section 402(g)(1) on the exclusion for elective deferrals described in section 402(g)(3) is increased from $22,500 to $23,000. The annual compensation limit under sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $330,000 to $345,000. The dollar limitation under section 416(i)(1)(A)(i) concerning the definition of "key employee" in a top-heavy plan is increased from $215,000 to $220,000. The dollar amount under section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5-year distribution period is increased from $1,330,000 to $1,380,000, while the dollar amount used to determine the lengthening of the 5-year distribution period is increased from $265,000 to $275,000. The limitation used in the definition of "highly compensated employee" under section 414(q)(1)(B) is increased from $150,000 to $155,000. The dollar limitation under section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in section 401(k)(11) or section 408(p) for individuals aged 50 or over remains $7,500. The dollar limitation under section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in section 401(k)(11) or section 408(p) for individuals aged 50 or over remains $3,500. The annual compensation limitation under section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limitation under the plan under section 401(a)(17) to be taken into account, is increased from $490,000 to $505,000. The compensation amount under section 408(k)(2)(C) regarding simplified employee pensions remains $750. The limitation under section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $15,500 to $16,000. The limitation on the aggregate amount of length of service awards accruing with respect to any year of service for any bona fide volunteer under section 457(e)(11)(B)(ii) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $7,000 to $7,500. The limitation on deferrals under section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $22,500 to $23,000. The limitation under section 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan remains $60,000. The compensation amount under § 1.61-21(f)(5)(i) of the Income Tax Regulations concerning the definition of "control employee" for fringe benefit valuation purposes is increased from $130,000 to $135,000. The compensation amount under § 1.61-21(f)(5)(iii) is increased from $265,000 to $275,000. The dollar limitation on premiums paid for a qualifying longevity annuity contract under § 1.401(a)(9)-6, A-17(b)(2)(i), which was increased to $200,000 pursuant to section 202 of the SECURE 2.0 Act of 2022 ("SECURE 2.0 Act" 1 ) with respect to contracts purchased or received in an exchange on or after December 29, 2022 remains $200,000. ******** 1 Division T of the Consolidated Appropriations Act, 2023, Pub. L. 117-328, 136 Stat. 4459 (2022). ******** The Code provides that the $1,000,000,000 threshold used to determine whether a multiemployer plan is a systemically important plan under section 432(e)(9)(H)(v)(III)(aa) of the Code is adjusted using the cost-of-living adjustment provided under section 432(e)(9)(H)(v)(III)(bb). After taking the applicable rounding rule into account, the threshold used to determine whether a multiemployer plan is a systemically important plan under section 432(e)(9)(H)(v)(III)(aa) is increased from $1,256,000,000 to $1,369,000,000. The Code also provides that several retirement-related amounts are to be adjusted using the cost-of-living adjustment under section 1(f)(3). After taking the applicable rounding rules into account, the amounts for 2024 are as follows: The adjusted gross income limitation under section 25B(b)(1)(A) for determining the retirement savings contributions credit for married taxpayers filing a joint return is increased from $43,500 to $46,000; the limitation under section 25B(b)(1)(B) is increased from $47,500 to $50,000; and the limitation under sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $73,000 to $76,500. The adjusted gross income limitation under section 25B(b)(1)(A) for determining the retirement savings contributions credit for taxpayers filing as head of household is increased from $32,625 to $34,500; the limitation under section 25B(b)(1)(B) is increased from $35,625 to $37,500; and the limitation under sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $54,750 to $57,375. The adjusted gross income limitation under section 25B(b)(1)(A) for determining the retirement savings contributions credit for all other taxpayers is increased from $21,750 to $23,000; the limitation under section 25B(b)(1)(B) is increased from $23,750 to $25,000; and the limitation under sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $36,500 to $38,250. The deductible amount under section 219(b)(5)(A), which limits the amount of an individual's deductible qualified retirement contributions for a taxable year, is increased from $6,500 to $7,000. The increase in the deductible amount pursuant to section 219(b)(5)(B)(ii) for individuals who have attained age 50 before the close of the taxable year remains $1,000. The applicable dollar amount under section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) is increased from $116,000 to $123,000. The applicable dollar amount under section 219(g)(3)(B)(ii) for all other taxpayers who are active participants (other than married taxpayers filing separate returns) is increased from $73,000 to $77,000. If an individual or the individual's spouse is an active participant, the applicable dollar amount under section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. The applicable dollar amount under section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $218,000 to $230,000. Accordingly, under section 219(g)(2)(A), the deduction for taxpayers making contributions to a traditional IRA is phased out for single individuals and heads of household who are active participants in a qualified plan (or another retirement plan specified in section 219(g)(5)) and have adjusted gross incomes (as defined in section 219(g)(3)(A)) between $77,000 and $87,000, increased from between $73,000 and $83,000. For married couples filing jointly, if the spouse who makes the IRA contribution is an active participant, the income phase-out range is between $123,000 and $143,000, increased from between $116,000 and $136,000. For an IRA contributor who is not an active participant and is married to someone who is an active participant, the deduction is phased out if the couple's income is between $230,000 and $240,000, increased from between $218,000 and $228,000. For a married individual filing a separate return who is an active participant, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000. The adjusted gross income limitation under section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $218,000 to $230,000. The adjusted gross income limitation under section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $138,000 to $146,000. The applicable dollar amount under section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. Accordingly, under section 408A(c)(3)(A), the adjusted gross income phase-out range for taxpayers making contributions to a Roth IRA is between $230,000 and $240,000 for married couples filing jointly, increased from between $218,000 and $228,000. For singles and heads of household, the income phase-out range is between $146,000 and $161,000, increased from between $138,000 and $153,000. For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000. The aggregate amount of qualified charitable distributions that are not includible in gross income under section 408(d)(8)(A) is increased from $100,000 to $105,000. The amount of qualified charitable distributions made directly to a split-interest entity that are not includible in gross income under section 408(d)(8)(F) pursuant to a one-time election is increased from $50,000 to $53,000. Drafting Information The principal author of this notice is Tom Morgan of the Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). However, other personnel from the IRS participated in the development of this guidance. For further information regarding this notice, contact Mr. Morgan at (202) 317 - 6700 (not a toll-free number).

Private Letter Ruling Number: 202224009 Internal Revenue Service March 23, 2022 Internal Revenue Service Department of the Treasury Washington, DC 20224 Number: 202224009 Release Date: 6/17/2022 Index Number: 2010.04-00, 9100.35-00 Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ID No. Telephone Number: Refer Reply To: CC:PSI:4 PLR-125454-21 Date: March 23, 2022 Dear *******: This letter responds to a letter dated October 4, 2021, and subsequent correspondence, submitted on behalf of Decedent's estate, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make an election. Decedent's estate is requesting to make an election under § 2010(c)(5)(A) of the Internal Revenue Code (a "portability" election) to allow a decedent's surviving spouse to take into account that decedent's deceased spousal unused exclusion (DSUE) amount. The information submitted for consideration is summarized below. Decedent died on Date, survived by Spouse. It is represented that based on the value of Decedent's gross estate and taking into account any taxable gifts, Decedent's estate is not required under § 6018(a) to file an estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return). It is further represented that there is an unused portion of Decedent's applicable exclusion amount and that a portability election is required to allow Spouse to take into account that amount (the "DSUE" amount). A portability election is made upon the timely filing of a complete and properly prepared estate tax return, unless the requirements for opting out are satisfied. See § 20.2010-2(a)(2) of the Estate Tax Regulations. For various reasons, an estate tax return was not timely filed and a portability election was not made. After discovery of this, Decedent's estate submitted this request for an extension of time under § 301.9100-3 to make a portability election. LAW AND ANALYSIS Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. Section 2010(a) provides that a credit of the applicable credit amount shall be allowed to the estate of every decedent against the tax imposed by § 2001. Section 2010(c)(1) provides that the applicable credit amount is the amount of the tentative tax that would be determined under § 2001(c) if the amount with respect to which such tentative tax is to be computed were equal to the applicable exclusion amount. On December 17, 2010, Congress amended § 2010(c), effective for estates of decedents dying and gifts made after December 31, 2010, to allow portability of a decedent's unused applicable exclusion amount between spouses. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111-312, § 303, 124 Stat. 3296, 3302 (2010). Section 2010(c)(2) provides that the applicable exclusion amount is the sum of the basic exclusion amount, and, in the case of a surviving spouse, the DSUE amount. Section 2010(c)(3) provides the basic exclusion amount available to the estate of every decedent, an amount to be adjusted for inflation annually after calendar year 2011. Section 2010(c)(4) defines the DSUE amount to mean the lesser of (A) the basic exclusion amount, or (B) the excess of -- (i) the applicable exclusion amount of the last deceased spouse of the surviving spouse, over (ii) the amount with respect to which the tentative tax is determined under § 2001(b)(1) on the estate of such deceased spouse. Section 2010(c)(5)(A) provides that a DSUE amount may not be taken into account by a surviving spouse under § 2010(c)(2) unless the executor of the estate of the deceased spouse files an estate tax return on which such amount is computed and makes an election on such return that such amount may be so taken into account. The election, once made, shall be irrevocable. No election may be made if such return is filed after the time prescribed by law (including extensions) for filing such return. Section 20.2010-2(a)(1) provides that the due date of an estate tax return required to elect portability is nine months after the decedent's date of death or the last day of the period covered by an extension (if an extension of time for filing has been obtained). Further, an extension of time under § 301.9100-3 to make a portability election may be granted in the case of an estate that is not required to file an estate tax return under § 6018(a), as determined solely based on the value of the gross estate and any adjusted taxable gifts (and without regard to § 20.2010-2(a)). Under § 301.9100-1(c), the Commissioner has discretion to grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time to make an election whose due date is prescribed by a regulation (and not expressly provided by statute). Requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. In this case, based on the representation as to the value of the gross estate and any adjusted taxable gifts, the time for filing the portability election is fixed by the regulations. Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Decedent's estate to elect portability, provided Decedent's estate establishes it acted reasonably and in good faith, the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government. Information, affidavits, and representations submitted on behalf of Decedent's estate explain the circumstances that resulted in the failure to timely file a valid election. Based solely on the information submitted and the representations made, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Therefore, we grant an extension of time of 120 days from the date of this letter in which to make the portability election. The election should be made by filing a complete and properly prepared Form 706 and a copy of this letter, within 120 days from the date of this letter, with the Kansas City Service Center, at the following address: Department of the Treasury, Internal Revenue Center, Kansas City, MO 64999. For purposes of electing portability, a Form 706 filed by Decedent's estate within 120 days from the date of this letter will be considered to be timely filed. If it is later determined that, based on the value of the gross estate and taking into account any taxable gifts, Decedent's estate is required to file an estate tax return pursuant to § 6018(a), the Commissioner is without authority under § 301.9100-3 to grant an extension of time to elect portability and the grant of the extension referred to in this letter is deemed null and void. See § 20.2010-2(a)(1). We neither express nor imply any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In particular, we express no opinion as to the DSUE amount to be potentially taken into account by Spouse. Any claimed DSUE amount will be included in the applicable exclusion amount of Spouse only to the extent that Spouse can substantiate such amount and will be subject to determination by the Director's office upon audit of relevant Federal gift or estate tax returns. See § 20.2010-3(c)(1) and (d). The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, we have sent a copy of this letter to your authorized representative. Sincerely, Associate Office of Chief Counsel (Passthroughs & Special Industries) By: Melissa C. Liquerman Melissa C. Liquerman Chief, Branch 4 Office of the Associate Chief Counsel (Passthroughs & Special Industries) Enclosure Copy for § 6110 purposes cc:

Private Letter Ruling Number: 202305014 Internal Revenue Service August 23, 2022 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Release Number: 202305014 Release Date: 2/3/2023 UIL Code: 501.03-00 Date: August 23, 2022 Taxpayer ID number Form: Tat periods ended: Person to contact Name: ID number: Telephone: Fax: CERTITFIED MAIL - RETURN RECEIPT REQUESTED Dear ******: Why we are sending you this letter This is a final determination that you don't qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3), effective ******. Your determination letter dated ******, is revoked. Our adverse determination as to your exempt status was made for the following reasons: You have not demonstrated that you are both organized and operated exclusively for charitable, educational, or other exempt purposes within the meaning of IRC Section 501(c)(3). You were inactive and did not engage in any substantial activity that accomplished one or more exempt purposes under IRC Section 501(c)(3). Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns and pay tax, where applicable. For further instructions, forms and information please visit www.irs.gov. Because you were a private foundation as of the effective date of the adverse determination, you are considered to be a taxable private foundation until you terminate your private foundation status under IRC Section 507. In addition to your income tax return, you must also continue to file Form ******, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation, by the ****** of the ****** month after the end of your annual accounting period. Contributions to your organization are no longer deductible under IRC Section 170. What you must do if you disagree with this determination If you want to contest our final determination, you have 90 days from the date this determination letter was mailed to you to file a petition or complaint in one of the three federal courts listed below. How to file your action for declaratory judgment If you decide to contest this determination, you may file an action for declaratory judgment under the provisions of IRC Section 7428 in one of the following three venues: 1) United States Tax Court, 2) the United States Court of Federal Claims or 3) the United States District Court for the District of Columbia. Please contact the clerk of the appropriate court for rules and the appropriate forms for filing an action for declaratory judgment by referring to the enclosed Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. You may write to the courts at the following addresses: United States Tax Court 400 Second Street, NW Washington, DC 20217 U.S. Court of Federal Claims 717 Madison Place, NW Washington, DC 20439 U.S. District Court for the District of Columbia 333 Constitution Ave., N.W. Washington, DC 20001 Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory judgment under IRC Section 7428. We'll notify the appropriate state officials (as permitted by law) of our determination that you aren't an organization described in IRC Section 501(c)(3). Information about the IRS Taxpayer Advocate Service The IRS office whose phone number appears at the top of the notice can best address and access your tax information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Contact your local Taxpayer Advocate Office at: Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights, go to taxpayeradvocate.irs.gov. Do not send your federal court pleading to the TAS address listed above. Use the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time to file an action for declaratory judgment. Where you can find more information Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for more comprehensive information. Find tax forms or publications by visiting www.irs.gov/forms or calling 800-TAX-FORM (800-829-3676). If you have questions, you can call the person shown at the top of this letter. If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best time to call, and a copy of this letter. Keep the original letter for your records. Sincerely, Lynn A. Brinkley Acting Director, Exempt Organizations Examinations Enclosures: Publication 1 Publication 594 Publication 892 Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities Date: 05/16/2022 Taxpayer ID number: Form: Tax periods ended: Person to contact: Name: ID number: Telephone: Fax: Address: Managers contact information: Name: ID number. Telephone: Response due date: 06-15-2021 CERTIFIED MAIL -- Return Receipt Requested Dear ******: Why you're receiving this letter We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to revoke your tax-exempt status as an organization described in Internal Revenue Code (IRC) Section 501(c)(3). If you agree If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. We'll issue a final adverse letter determining that you aren't an organization described in IRC Section 501(c)(3) for the periods above. After we issue the final adverse determination letter, we'll announce that your organization is no longer eligible to receive tax deductible contributions under IRC Section 170. If you disagree 1. Request a meeting or telephone conference with the manager shown at the top of this letter. 2. Send any information you want us to consider. 3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information. The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For your protest to be valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't apply now that we've issued this letter. 4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the IRS. If you're considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals. If we don't hear from you If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final adverse determination letter. Contacting the Taxpayer Advocate Office is a taxpayer right The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778. Additional information You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person shown at the top of this letter. Sincerely, For Lynn A. Brinkley Acting Director, Exempt Organizations Examinations Enclosures: Form 886-A Form 6018 Issues: Whether Fellowship of the Lens Educational Foundation (Organization) qualifies for exemption of Federal income tax under Internal Revenue Code (IRC) Section (Sec.) 501(c)(3), as a private foundation. Facts: The Organization filed Form ******, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, on ******. Internal Revenue Service Letter ****** granted the organization exempt status under 501(c)(3) as a private foundation on ******, with an effective date of exemption on ******. The organization stated its mission in the Form ****** is to, "******". The Form ******, states the organization must be organized and operated exclusively to further one or more purposes. The form gives the applicant ****** options to choose from and the organization selected ****** of the ******, "Charitable" and "Educational". The organization selected line *** of Part ****** - Foundation Classification. Which states, "******." The organization's main activities are displaying ******, and ****** of past ******, and the sale of ****** that will protect the public and make them aware of the organization's goal to name a ****** after a past ******, most members of the organization are ******. On ******, the organization filed a Form ******, Short Form Return of Organization Exempt from Income Tax, for the period ending ******. The Agent during an interview with the Founder and Treasurer of the organization, asked, given their activities, why ****** applied for exempt status as a foundation. The Founder and Treasurer said it was an error, ****** thought ****** did apply for public charity. Law: Internal Revenue Code (IRC) IRC Sec. 501(c)(3) provides that an organization organized and operated exclusively for charitable or educational purposes is exempt from Federal income tax. IRC Sec. 509(a) General rule - For purposes of this title, the term "private foundation" means a domestic or foreign organization described in section 501(c)(3) other than -- 1. an organization described in section 170(b)(1)(A) (other than in clauses (vii) and (viii)); (2) an organization which-- (A) normally receives more than ****** of its support in each taxable year from any combination of-- (i) gifts, grants, contributions, or membership fees Treasury Regulations (Treas.Reg.) Organization's Position The Organization's Founder and Treasurer has indicated agreement with Government's position. While the organization may qualify for reclassification as a public charity, the Treasurer does not want to continue with the organization due to health reasons. Government's Position It is the Government's position, ****** does not qualify for exemption of Federal income tax under Internal Revenue Code (IRC) Section (Sec.) 501(c)(3), private foundation. Under IRC Sec. 509(a), the general rule is the term "private foundation" means a domestic or foreign organization described in section 501(c)(3) other than...those described in IRC Sec. 170(b)(1)(A)(i)-(vi) and (ix). Thus, making all IRC Sec. 501(c)(3) organizations private foundations unless they are excepted. In the facts above, the Treasurer selected charitable and educational as ****** purpose, but instead of checking the appropriate ******, line *** box *** selected line *** for private foundation in error. This error does seem unintentional, as the Treasurer subsequently filed the Form for a public charity and not Form ******, Return of Private Foundation. As indicated above the organization may qualify for reclassification as a public charity, the Treasurer has indicated, due to health concerns ****** does not want to continue the organization, and there is no one to else to continue in his place. Treasurer has stated ****** agrees with Internal Revenue Service, that the revocation of the organization exempt status is appropriate. Conclusion: Based on the foregoing reasons, the Organization does not qualify for exemption under section 501(c)(3) and its tax-exempt status should be revoked, effective ******. (this is the date the exemption went into effect, and this is a short tax year). Form ******, U.S. Corporate Income Tax Return, returns should be filed for the tax periods after ******, and Form ******, Return of Private Foundation.

Internal Revenue Service - Information Release IR-2023-35 Tax Time Guide: IRS reminder to report all income; gig economy and service industry, digital or foreign assets and sources March 1, 2023 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 Tax Time Guide: IRS reminder to report all income; gig economy and service industry, digital or foreign assets and sources IR-2023-35, March 1, 2023 WASHINGTON -- The Internal Revenue Service reminds taxpayers of their reporting and potential tax obligations on income from the gig economy and service industry, transactions from digital assets, and foreign sources or holding certain foreign assets. Information available on IRS.gov and Instructions for Form 1040 and Form 1040-SR can help taxpayers understand and meet these reporting and tax requirements. Gig economy earnings are taxable Generally, income earned from the gig economy is taxable and must be reported to the IRS on tax returns. The gig economy is activity where people earn income providing on-demand work, services or goods, such as selling goods online, driving a car for deliveries or renting out property. Often, it's through a digital platform like an app or website. Taxpayers must report income earned from the gig economy on a tax return, even if the income is: - From part-time, temporary or side work. - Paid in any form, including cash, property, goods or digital assets - Not reported on an information return form like a Form 1099-K, 1099-MISC, W-2 or other income statement. For more information on the gig economy, visit the gig economy tax center. Service industry tips are also taxable People who work in restaurants, salons, hotels and similar service industries often receive tips for the customer service they provide. Tips are usually taxable income, and it's important for people working in these areas to understand details on how to report tips. Tips are optional cash or noncash payments customers make to employees. - Cash tips include those received directly from customers, electronically paid tips distributed to the employee by their employer and tips received from other employees under any tip-sharing arrangement. All cash tips must be reported to the employer, who must include them on the employee's Form W-2, Wage and Tax Statement. - Noncash tips are those of value received in any other medium than cash, such as: tickets, passes or other goods or commodities a customer gives the employee. Noncash tips aren't reported to the employer but must be reported on a tax return. - Any tips the employee didn't report to the employer must be reported separately on Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to include as additional wages with their tax return. The employee must also pay the employee share of Social Security and Medicare tax owed on those tips. Employees don't have to report tip amounts of less than $20 per month per employer. For larger amounts, employees must report tips to the employer by the 10th of the month following the month the tips were received. The employee can use Form 4070, Employee's Report of Tips to Employer, available in Publication 1244, Employee's Daily Record of Tips and Report to Employer, an employer-provided form or other electronic system used by their employer. For more information on how to report tips see Tip Recordkeeping and Reporting. Understand digital asset reporting and tax requirements The IRS reminds taxpayers that there's a question at the top of Forms 1040 and 1040-SR that asks about digital asset transactions. All taxpayers filing these forms must check the box indicating either "yes" or "no." If an individual disposed of any digital asset that was held as a capital asset through a sale, exchange or transfer, they should check "Yes" and use Form 8949, Sales and other Dispositions of Capital Assets, to figure their capital gain or loss and report it on Schedule D (Form 1040), Capital Gains and Losses, or Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, in the case of a gift. Examples of transactions involving digital assets include: - A sale of digital assets. - The receipt of digital assets as payment for goods or services provided. - The receipt or transfer of digital assets for free (without providing any consideration) that does not qualify as a bona fide gift. - The receipt of new digital assets as a result of mining and staking activities. - The receipt of new digital assets as a result of a hard fork. - An exchange of digital assets for property, goods or services. - An exchange/trade of digital assets for another digital asset(s). - Any other disposition of a financial interest in digital assets. If individuals received any digital assets as compensation for services or disposed of any digital assets they held for sale to customers in a trade or business, they must report the income as they would report other income of the same type (for example, W-2 wages on Form 1040 or 1040-SR, line 1a, or inventory or services on Schedule C). More information on digital assets can be found in the Instructions for Form 1040 and 1040-SR and on the IRS' Digital Assets page. Report foreign source income A U.S. citizen or resident alien's worldwide income is generally subject to U.S. income tax, regardless of where they live. They're also subject to the same income tax filing requirements that apply to U.S. citizens or resident aliens living in the United States. U.S. citizens and resident aliens must report unearned income, such as interest, dividends and pensions from sources outside the United States unless exempt by law or a tax treaty. They must also report earned income, such as wages and tips, from sources outside the United States. An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income Exclusion or the Foreign Tax Credit, which substantially reduce or eliminate U.S. tax liability. These tax benefits are available only if an eligible taxpayer files a U.S. income tax return. A taxpayer is allowed an automatic two-month extension to June 15 if both their tax home and abode are outside the United States and Puerto Rico. Even if allowed an extension, a taxpayer will have to pay interest on any tax not paid by the regular due date of April 18, 2023. Those serving in the military outside the U.S. and Puerto Rico on the regular due date of their tax return also qualify for the extension to June 15. IRS recommends attaching a statement if one of these two situations applies. More information can be found in the Instructions for Form 1040 and Form 1040-SR, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad and Publication 519, U.S. Tax Guide for Aliens. Reporting required for foreign accounts and assets Federal law requires U.S. citizens and resident aliens to report their worldwide income, including income from foreign trusts and foreign bank and other financial accounts. In most cases, affected taxpayers need to complete and attach Schedule B (Form 1040), Interest and Ordinary Dividends, to their tax return. Part III of Schedule B asks about the existence of foreign accounts such as bank and securities accounts and usually requires U.S. citizens to report the country in which each account is located. In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details. Further, separate from reporting specified foreign financial assets on their tax return, U.S. persons with an interest in or signature or other authority over foreign financial accounts where the aggregate value exceeded $10,000 at any time during 2022 must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Because of this threshold, the IRS encourages U.S. persons with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is available only through the BSA E-filing System website. The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is April 15, 2023. FinCEN grants U.S. persons who miss the original deadline an automatic extension until Oct. 15, 2023, to file the FBAR. There is no need to request this extension. See FinCEN's PDF website for further information. This news release is part of a series called the Tax Time Guide, a resource to help taxpayers file an accurate tax return. Additional guidance is available in Publication 17, Your Federal Income Tax (For Individuals).

Internal Revenue Service - Information Release IR-2020-276 IRS: Volunteers needed for free tax prep help December 11, 2020 Media Relations Office Washington, D.C. www.IRS.gov/newsroom Media Contact: 202.317.4000 Public Contact: 800.829.1040 IRS: Volunteers needed for free tax prep help IR-2020-276, December 11, 2020 IRS YouTube Video: - Volunteer Income Tax Assistance Recruitment English WASHINGTON -- Safety and social distancing, along with virtual options, will be the emphasis now and for the upcoming tax season as the Internal Revenue Service seeks volunteers to provide free tax return preparation through its Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs. In response to the coronavirus pandemic, the IRS is rolling out new ways to make volunteering easier and safer. More help for new volunteers In preparation for the upcoming tax filing season, to keep everyone safe, potential volunteers can tune in virtually to learn more about the programs, ask questions and find out which volunteer role is right for them. Also, some volunteer sites will offer virtual help to taxpayers in place of face-to-face assistance. This allows volunteers to help taxpayers over the phone or online to complete their returns. Other volunteers will conduct a virtual quality review with the taxpayer before e-filing their tax return to the IRS. While virtual volunteering will be an option this tax season, some VITA/TCE sites will still offer in-person free tax help. However, safety and social distancing will be emphasized. Support for new volunteers is always available through more experienced volunteers familiar with the program and tax preparation. Join a well-established program For over 50 years, volunteers have prepared tax returns in communities across the country. Each year, thousands of volunteers prepare millions of tax returns through the VITA and TCE programs. The VITA program offers free tax help to people who make $57,000 or less, persons with disabilities and limited English-speaking taxpayers. The TCE program offers free tax help to those who are 60 years of age and older. TCE volunteers specialize in questions about pensions and retirement-related issues unique to seniors. There are many available volunteer roles: - Greeters to help screen taxpayers to determine the type of assistance they need. - Interpreters to provide language services. - Tax preparers to use electronic filing software to complete tax returns. - Tax coaches, at some sites, to encourage taxpayers to prepare their own tax returns and help them through the process. The programs offer free training to help volunteers learn the skills they need. Some roles require tax law training and certification, but other roles do not. There is a spot for everyone who wants to help. Experienced volunteers Another recent addition to the VITA/TCE program gives credit for experience. A new Qualified Experienced Volunteer test is shorter than the traditional test, allowing returning VITA and TCE volunteers to devote more of their time to helping taxpayers. To learn more about volunteering and to sign up, go to IRS.gov/volunteers. Shortly after signing up, interested participants will receive an invite to attend a virtual orientation.