Final Exemption Procedure for Exempt Health Insurance Issuers Issued

• DOI: http://doi.org/10.1002/npc.30049
• Published date: 01 March 2015
• Date: 01 March 2015

Bruce R. Hopkins’ NONPROFIT COUNSEL

7

March 2015

THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonprofit Counsel DOI:10.1002/npc

§ 512(b)(2)). Second, even though the university will

own 100 percent of the stock of the subsidiary, dividend

income is not a specified payment under the special

rules taxing forms of income from controlled subsidiaries

(IRC § 512(b)(13)). [24.6(b), 29.2, 29.7]

Commentary: This is a case study as to how to structure

an arrangement between a tax-exempt parent and a

wholly owned subsidiary. Indeed, the parties may have

overdone things a bit. There normally is no need to limit

the parent’s involvement on the subsidiary’s board of

directors to a minority. This is because directors normally

are not engaged in the day-to-day management of the

subsidiary. ◆

FINAL EXEMPTION

PROCEDURE FOR EXEMPT

HEALTH INSURANCE ISSUERS

ISSUED

The Treasury and IRS, on January 26, issued final regu-

lations authoring the IRS to prescribe the procedures by

which qualified nonprofit health insurance issuers par-

ticipating in the Consumer Operated and Oriented Plan

program (IRC § 501(c)(29) entities) seek exemption from

the federal income tax (T.D. 9709).

The purpose of the CO-OP program is to foster the

creation of member-owned exempt health insurance

issuers that will operate with a consumer focus and

offer qualified health plans in the individual and small-

group markets. The Centers for Medicare and Medicaid

Services provides loans and repayable grants to organi-

zations applying to become nonprofit health insurance

issuers to help cover start-up costs and meet any sol-

vency requirements in states in which the organization

is licensed to issue qualified health plans. For each loan

or grant, the CMS issues a notice of award and agree-

ment to the issuer. The appropriate officer of the issuer

or member of its board of directors must sign and return

the loan or grant agreement to the CMS.

These regulations (Reg. 1.501(c)(29)-1) provide that

an organization will not be treated as a tax-exempt

health insurance issuer unless it has provided the requi-

site notice to the IRS that it is applying for recognition

of exemption in the manner prescribed by the IRS in

(forthcoming) published guidance.

An organization may be recognized as an exempt

health insurance issuer as of a date prior to the date of

this notice if the notice is given in the manner and within

the time prescribed by the IRS, and the organization’s

purposes and activities prior to the giving of the notice

were consistent with the requirements for this category

of exemption. In any event, an organization may not be

recognized as an exempt organization under this body

of law before the later of its formation or March 23,

2010 (the date this exemption category was added to

the federal tax law by enactment of the Patient Protec-

tion and Affordable Care Act). [19.18, 25.6] ◆

HOUSE ADOPTS DYNAMIC

SCORING METHODOLOGY

TO ASSESS MAJOR TAX AND

OTHER LEGISLATION

The House of Representatives, kicking off the 114th

Congress, on January 5, passed rules for the new

Congress (H. Res. 5), which include mandatory use of

macroeconomic analysis in assessing major tax and

other legislation. This approach to the assessment of the

economic impact of legislation—also known as dynamic

scoring—replaces the present, conventional—or more

static—method. This change is controversial because it

moves away from the traditional method of determining

whether an item of legislation is “revenue neutral.” As a

paper accompanying the rules change states the matter,

“[i]nstead of concentrating on the top line—whether

it’s good for the Treasury—elected officials would [using

dynamic scoring] concentrate on the bottom line—

whether it’s good for the taxpayer.”

The House rules now state that, in providing cost

estimates for major legislation, the Congressional

Budget Office and the Joint Committee on Taxation

“shall, to the extent practicable, incorporate the budget-

ary effects of changes in economic output, employment,

capital stock, and other macroeconomic variables result-

ing from such legislation.” They state that an estimate

shall include a “qualitative assessment of the budgetary

effects,” including these macroeconomic variables, of

legislation “in the 20-fiscal year period beginning after

the last fiscal year of the most recently agreed to con-

current resolution on the budget” that set forth certain

levels required by the Congressional Budget Act, and an

“identification of the critical assumptions and the source

of data underlying that estimate.”

The new rule applies to “major legislation,” which

includes bills that would increase the deficit by an

amount “equal to or greater than 0.25 percent of the

current projected gross domestic product” of the United

States in any year involved in connection with a bill. This

paper notes that the gross domestic product in fiscal

year 2014 was about $17.3 trillion, so the .25 percent

threshold would have been $43 billion. For example,

the just-passed Tax Increase Prevention Act of 2014

(see last month’s issue) would have qualified as major

legislation. ◆