[Federal Register Volume 77, Number 83 (Monday, April 30, 2012)]
[Proposed Rules]
[Pages 25378-25381]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-10440]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[REG-119632-11]
RIN 1545-BK87


Regulations Pertaining to the Disclosure of Return Information To 
Carry Out Eligibility Requirements for Health Insurance Affordability 
Programs

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations relating to the 
disclosure of return information under section 6103(l)(21) of the 
Internal Revenue Code, as enacted by the Patient Protection and 
Affordable Care Act and the Health Care and Education Reconciliation 
Act of 2010. The regulations define certain terms and prescribe certain 
items of return information in addition to those items prescribed by 
statute that will be disclosed, upon written request, under section 
6103(l)(21) of the Internal Revenue Code.

DATES: Written (including electronic) comments must be received by July 
30, 2012. Outlines of topics to be discussed at the public hearing 
scheduled for Friday, August 31, 2012, must be received by July 30, 
2012.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-119632-11), Room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
119632-11), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC, or sent electronically via the Federal 
eRulemaking Portal at www.regulations.gov (IRS REG-119632-11). The 
public hearing will be held in the IRS Auditorium, Internal Revenue 
Building, 1111 Constitution Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Steven Karon, (202) 622-4570; concerning the submission of comments, 
the public hearing, and to be placed on the building access list to 
attend the public hearing, Olumafunmilayo Taylor, (202) 622-7180 (not 
toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    Beginning in 2014, under the Patient Protection and Affordable Care 
Act, Public Law 111-148 (124 Stat. 119 (2010)), and the Health Care and 
Education Reconciliation Act of 2010, Public Law 111-152 (124 Stat. 
1029 (2010)) (collectively, the Affordable Care Act), Affordable 
Insurance Exchanges (Exchanges) will provide competitive marketplaces 
for individuals and small employers to directly compare available 
private health insurance options (qualified health plans, or QHPs) on 
the basis of price, quality, and other factors, and to purchase such 
coverage. A Federally-facilitated Exchange will operate on behalf of 
States electing not to pursue a State-based Exchange. In general, a QHP 
is a health plan offered by a health insurance issuer that meets 
minimum standards in the law and set by an Exchange.

[[Page 25379]]

    Qualified individuals and small employers will be able to purchase 
private health insurance through Exchanges. Certain individuals who 
choose to obtain coverage through an Exchange will be eligible to 
qualify for a new premium tax credit and/or cost-sharing reductions 
established to help make the purchase of insurance more affordable.
    Section 1401 of the Affordable Care Act amended the Internal 
Revenue Code to add section 36B, providing for the premium tax credit 
to help eligible individuals and families afford health insurance 
coverage. Section 1402 of the Affordable Care Act provides reduced 
cost-sharing for certain individuals enrolled in qualified health plans 
through the Exchange, decreasing the individual's out-of-pocket limits, 
deductibles, co-insurance, and co-payments in certain situations.
    Section 1411(a) of the Affordable Care Act directs the Secretary of 
the Department of Health and Human Services (HHS) to establish a 
program under which Exchanges will determine whether individuals are 
eligible to enroll in QHPs through the Exchange, and whether they are 
eligible for advance payments of the premium tax credit and cost-
sharing reductions. Section 1412 of the Affordable Care Act directs the 
Secretary of HHS to establish a program for determining eligibility for 
advance payments of the premium tax credit and cost-sharing reductions 
that may be paid directly to an insurance company on behalf of a 
taxpayer. Eligibility for advance payments, like eligibility for the 
premium tax credit itself, is based in part on the household income of 
the individual who will claim the credit. Household income is defined 
in section 36B(d)(2) as the total of the modified adjusted gross 
incomes (MAGI) of the taxpayer claiming the premium tax credit and 
those other individuals for whom the taxpayer was allowed a deduction 
under section 151 and who were required to file a tax return.
    Section 1413(a) of the Affordable Care Act directs the Secretary of 
HHS to establish a system under which an individual may submit a 
single, streamlined application to apply for specified insurance 
affordability programs (that is, the premium tax credit under section 
36B, cost-sharing reductions under section 1402 of the Affordable Care 
Act, Medicaid, the Children's Health Insurance Program (CHIP), and a 
State's basic health program, if applicable, under section 1331 of the 
Affordable Care Act). The system must be compatible with the processes 
set up to determine eligibility for advance payments of the premium tax 
credit and cost-sharing reductions. Where an individual seeking 
eligibility for any of these insurance affordability programs is found 
to be eligible for Medicaid or CHIP, the individual is enrolled in that 
program. If an individual is not eligible for one of these programs, 
the Exchange will make the determination (or provide for HHS to make 
the determination) as to the individual's eligibility for advance 
payments of the premium tax credit under section 36B and for cost-
sharing reductions, and the amount of any advance payments. Under 
section 1412(c)(2) of the Affordable Care Act, advance payments are 
made monthly (or on another periodic basis as HHS may provide) directly 
to the issuer of the qualified health plan in which the individual 
enrolls.
    Section 1411(b)(3) of the Affordable Care Act requires that 
individuals seeking an eligibility determination for advance payments 
of the premium tax credit or for cost-sharing reductions provide the 
Exchange with information regarding their household income and family 
size to demonstrate that they meet the income-based eligibility 
requirements. However, section 1411(c)(4)(B) of the Affordable Care Act 
grants the Secretary of HHS authority to modify the methods used for 
the verification of information if the Secretary of HHS determines 
those modifications would reduce the administrative costs and burdens 
on individuals seeking coverage through an Exchange. The section 
explicitly gives the Secretary of HHS authority to change the manner in 
which Exchanges determine eligibility for advance payments of the 
premium tax credit or for cost-sharing reductions, so long as any 
applicable requirements under section 6103 of the Internal Revenue Code 
with respect to the confidentiality, disclosure, maintenance and use of 
return information would still be met. Section 1411(g) of the 
Affordable Care Act further provides that individuals will be required 
to provide only the minimum amount of information needed to 
authenticate an individual's identity and to determine the individual's 
eligibility for, and amount of, advance payments of the premium tax 
credit or cost-sharing reductions.
    In proposing regulations in the Federal Register on August 17, 
2011, the Secretary of HHS concluded that a less burdensome and more 
reasonable eligibility process would not require an individual to 
provide an Exchange with specific income-related information, such as 
the individual's MAGI (76 FR 51202 at 51214). Accordingly, the 
Secretary of HHS promulgated final regulations published in the Federal 
Register on March 27, 2012 (77 FR 18310), limiting the information an 
individual needs to provide to an Exchange for purposes of income 
verification and allowing the Exchange to solicit information from the 
IRS through HHS with respect to the individual and his family members 
whose names and social security numbers, or adoption taxpayer 
identification numbers, are provided. The regulations also provide 
guidance on the eligibility determination process for enrollment in a 
QHP, advance payments of the premium tax credit and cost-sharing 
reductions, and other insurance affordability programs. Additionally, 
the Secretary of HHS promulgated final regulations published in the 
Federal Register on March 23, 2012 (77 FR 17144) that provide revised 
eligibility rules for Medicaid. The Treasury Department and the IRS 
proposed regulations in the Federal Register on August 17, 2011 (76 FR 
51202) to implement the new premium tax credit.
    Section 6103(l)(21) permits the disclosure of return information to 
assist Exchanges in performing certain functions set forth in section 
1311 of the Affordable Care Act for which income verification is 
required (including determinations of eligibility for the insurance 
affordability programs described in the Affordable Care Act), as well 
as to assist State agencies administering a State Medicaid program 
under title XIX of the Social Security Act, CHIP under title XXI of the 
Social Security Act, or a basic health program under section 1331 of 
the Affordable Care Act (if applicable). Section 6103(l)(21) identifies 
specific items of return information that will be disclosed and permits 
the disclosure of such other items prescribed by regulation that might 
indicate whether an individual is eligible for the premium tax credit 
under section 36B or cost-sharing reductions under section 1402, and 
the amount thereof. After an individual submits an application for 
financial assistance in obtaining health coverage provided pursuant to 
Title I, subtitle E, of the Affordable Care Act (``the application'') 
to an Exchange or State agency, the IRS will disclose the available 
items of return information described under section 6103(l)(21)(A) to 
HHS. Pursuant to section 6103(l)(21)(B), HHS will then disclose the 
information to the Exchange or State agency that is processing the 
application.
    As a condition for receiving return information under section

[[Page 25380]]

6103(l)(21)(A) and (B), each receiving entity (that is, HHS, the 
Exchanges, and State agencies that administer Medicaid, CHIP, or basic 
health plans, and their respective contractors) is required to adhere 
to the safeguards established under section 6103(p)(4). Final HHS 
regulations published in the Federal Register on March 27, 2012 (77 FR 
at 18446, 18450) state that to be certified by HHS an Exchange must 
demonstrate readiness to meet the section 6103 confidentiality 
requirements with respect to the items of return information the 
Exchange will receive. As described in section 6103(l)(21)(C), each 
receiving entity may then use the return information received under 
sections 6103(l)(21)(A) and (B) only for the purposes of, and to the 
extent necessary in, establishing eligibility for participation in the 
Exchange, verifying the appropriate amount of any advance payments of 
the premium tax credit or cost-sharing reductions, and determining 
eligibility for participation in a State Medicaid program, CHIP, or 
basic health program under section 1331 of the Affordable Care Act.
    Under section 6103(l)(21)(A), the IRS will disclose to HHS 
(including its contractor(s)) certain items of return information, as 
enumerated in the statute or by regulation, for any relevant taxpayer. 
For purposes of these regulations, a relevant taxpayer is defined to be 
any individual listed, by name and social security number or adoption 
taxpayer identification number (``taxpayer identity information''), on 
the application whose income may bear upon a determination of the 
eligibility of an individual for an insurance affordability program. 
For each relevant taxpayer, section 6103(l)(21) explicitly authorizes 
the disclosure of the following items of return information from the 
reference tax year: Taxpayer identity information, filing status, the 
number of individuals for which a deduction under section 151 was 
allowed (``family size''), MAGI, and the taxable year to which any such 
information relates or, alternatively, that such information is not 
available. The ``reference tax year'' is the first calendar year or, 
where no return information is available in that year the second 
calendar year, prior to the submission of the application. MAGI is 
defined under section 36B as the taxpayer's adjusted gross income 
defined under section 62, increased by three components: (1) Any amount 
excluded from gross income under section 911, (2) any amount of 
interest received or accrued by the taxpayer during the taxable year 
that is exempt from tax, and (3) the amount of social security benefits 
of the taxpayer excluded from gross income under section 86 for the tax 
year.
    In some situations, the IRS will be unable to calculate MAGI. While 
uncommon, for certain relevant taxpayers who receive nontaxable social 
security benefits, the IRS may not have complete information from which 
to determine the amount of those benefits. If the IRS has information 
indicating that a relevant taxpayer received nontaxable social security 
benefits, but is unable to determine the amount of those benefits, the 
IRS will provide the aggregate amount of the other components used to 
calculate the relevant taxpayer's MAGI, as well as information 
indicating that the amount of nontaxable social security benefits must 
still be taken into account to determine MAGI. Similarly, where MAGI is 
not available, the IRS will disclose the adjusted gross income, as well 
as information indicating that the other components of MAGI must still 
be taken into account to determine MAGI. Because the Affordable Care 
Act and HHS's final regulations (77 FR at 18456-18458) require that 
Exchanges use alternative means to verify income where information is 
not available from the IRS, these explanatory items may assist an 
Exchange in determining an individual's eligibility for, and amount of, 
any advance payment of the premium tax credit or cost-sharing 
reductions.
    The proposed regulations further provide that, in certain 
instances, where some or all of the items of return information 
prescribed by statute or regulation is unavailable, the IRS will 
provide information indicating why the particular item of return 
information is not available. Where an individual jointly filed with a 
spouse who is not a relevant taxpayer (that is, that spouse is not 
included on the application), the IRS will not disclose MAGI from the 
joint return because it cannot be appropriately allocated between the 
two spouses. Instead, the IRS will disclose that a joint return had 
been filed. This additional information may help individuals correct 
any errors or understand why they need to pursue alternative routes to 
verify their income. This information, therefore, also can assist 
Exchanges in determining whether an individual is eligible for advance 
payments of the premium tax credit or cost-sharing reductions.
    Additionally, the IRS may have information in its records 
indicating that a relevant taxpayer had been a victim of identity theft 
or that a relevant taxpayer has been reported as deceased. The proposed 
regulations provide that the IRS will disclose that, although a return 
for that taxpayer is on file, the information described under section 
6103(l)(21) is not being provided because IRS records suggest that the 
Exchange should take additional steps to authenticate the identities of 
the relevant taxpayers and may need to use alternate means for income 
verification.
    Where an individual who is listed as a dependent on the application 
(for the tax year in which the premium tax credit will be claimed) 
filed a return in the reference tax year but did not have a tax filing 
requirement for that year (based upon the return filed), the IRS will 
provide information indicating the dependent listed did not have a 
filing requirement because the information is relevant to the 
Exchange's computation of household income.
    The final regulations issued by HHS provide that advance payments 
of the premium tax credit will not be permitted where the relevant 
taxpayer has received advance payments in the reference tax year and 
failed to file a return reconciling the advance payments with the 
actual premium tax credit. (77 FR at 18453). Therefore, these proposed 
regulations provide that the IRS will disclose to HHS that a relevant 
taxpayer who received an advance payment of a premium tax credit in the 
reference tax year did not file a return reconciling the advance 
payments with any premium tax credit available.

Special Analyses

    It has been determined that this Notice of Proposed Rule Making is 
not a significant regulatory action as defined in Executive Order 
12866, as supplemented by Executive Order 13563. Therefore, a 
regulatory assessment is not required. It has also been determined 
that, because the regulations proposed do not impose a collection of 
information on small entities, the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) does not apply. Pursuant to section 7805(f) of the Code, 
this notice of proposed rulemaking will be submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on its impact on small business.

Comments and Public Hearing

    The Treasury Department and the IRS request comments on all aspects 
of the proposed rules. A public hearing has been scheduled for August 
31, 2012, at 10:00 a.m., in the IRS Auditorium, Internal Revenue 
Building, 1111 Constitution Avenue NW., Washington, DC. Due to building 
security procedures, visitors must enter at the Constitution Avenue 
entrance. In

[[Page 25381]]

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. For information about having your name placed on the 
building access list to attend the hearing, see the FOR FURTHER 
INFORMATION CONTACT section of this preamble.
    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 written or 
electronic comments and an outline of the topics to be discussed and 
the time to be devoted to each topic (a signed original and eight (8) 
copies) by July 30, 2012. A period of 10 minutes will be allotted to 
each person for making comments. An agenda showing the scheduling of 
the speakers will be prepared after the deadline for receiving outlines 
has passed. Copies of the agenda will be available free of charge at 
the hearing.

Drafting Information

    The principal author of the regulations is Steven L. Karon of the 
Office of the Associate Chief Counsel, Procedure and Administration.

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

    Paragraph 1. The authority citation for part 301 is amended by 
adding the entry for Sec.  301.6103(l)(21) to read in part as follows:

    Authority:  26 U.S.C. 7805 * * *
    Section 301.6103(l)(21)-(1) also issued under 26 U.S.C. 
6103(l)(21) and 6103(q).
    Par. 2. Add Sec.  301.6103(l)(21)-1 to read as follows:


Sec.  301.6103(l)(21)-1  Disclosure of return information to the 
Department of Health and Human Services to carry out eligibility 
requirements for health insurance affordability programs.

    (a) General rule. Pursuant to the provisions of section 
6103(l)(21)(A) of the Internal Revenue Code, officers and employees of 
the Internal Revenue Service will disclose, upon written request, for 
each relevant taxpayer on a single application those items of return 
information that are described under section 6103(l)(21)(A) and 
paragraphs (a)(1) through (6) of this section, for the reference tax 
year, as applicable, to officers, employees and contractors of the 
Department of Health and Human Services, solely for purposes of, and to 
the extent necessary in, establishing an individual's eligibility for 
participation in an Exchange established under the Patient Protection 
and Affordable Care Act, including eligibility for, and determining the 
appropriate amount of, any premium tax credit under section 36B or 
cost-sharing reduction under section 1402 of the Patient Protection and 
Affordable Care Act, or determining eligibility for the State programs 
described in section 6103(l)(21)(A).
    (1) With respect to each relevant taxpayer for the reference tax 
year where the amount of social security benefits not included in gross 
income under section 86 of the Internal Revenue Code of that relevant 
taxpayer is unavailable:
    (i) The aggregate amount of the following items of return 
information--
    (A) Adjusted gross income, as defined by section 62 of the Internal 
Revenue Code;
    (B) Any amount excluded from gross income under section 911 of the 
Internal Revenue Code; and
    (C) Any amount of interest received or accrued by the taxpayer 
during the taxable year which is exempt from tax.
    (ii) Information indicating that the amount of social security 
benefits not included in gross income under section 86 of the Internal 
Revenue Code is unavailable.
    (2) Adjusted gross income, as defined by section 62 of the Internal 
Revenue Code, of a relevant taxpayer for the reference tax year, in 
circumstances where the modified adjusted gross income (MAGI), as 
defined by section 36B(d)(2)(B) of the Internal Revenue Code, of that 
relevant taxpayer is unavailable, as well as information indicating 
that the components of MAGI other than adjusted gross income must be 
taken into account to determine MAGI;
    (3) Information indicating that certain return information of a 
relevant taxpayer is unavailable for the reference tax year because the 
relevant taxpayer jointly filed a U.S. Individual Income Tax Return for 
that year with a spouse who is not a relevant taxpayer listed on the 
same application;
    (4) Information indicating that, although a return for an 
individual identified on the application as a relevant taxpayer for the 
reference tax year is available, return information is not being 
provided because of possible authentication issues with respect to the 
identity of the relevant taxpayer;
    (5) Information indicating that a relevant taxpayer who is 
identified as a dependent for the tax year in which the premium tax 
credit under section 36B of the Internal Revenue Code would be claimed, 
did not have a filing requirement for the reference tax year based upon 
the U.S. Individual Income Tax Return the relevant taxpayer filed for 
the reference tax year; and
    (6) Information indicating that a relevant taxpayer who received 
advance payments of the premium tax credit in the reference tax year 
did not file a tax return for the reference tax year reconciling the 
advance payments of the premium tax credit with any premium tax credit 
under section 36B of the Internal Revenue Code available for that year.
    (b) Relevant taxpayer defined. For purposes of paragraph (a) of 
this section, a relevant taxpayer is defined to be any individual 
listed, by name and social security number or adoption taxpayer 
identification number, on an application submitted pursuant to Title I, 
Subtitle E, of the Patient Protection and Affordable Care Act, whose 
income may bear upon a determination of any advance payment of any 
premium tax credit under section 36B of the Internal Revenue Code, 
cost-sharing reduction under section 1402 of the Patient Protection and 
Affordable Care Act, or eligibility for any program described in 
section 6103(l)(21)(A) of the Internal Revenue Code.
    (c) Reference tax year defined. For purposes of section 
6103(l)(21)(A) of the Internal Revenue Code and this section, the 
reference tax year is the first calendar year or, where no return 
information is available in that year, the second calendar year, prior 
to the submission of an application pursuant to Title I, Subtitle E, of 
the Patient Protection and Affordable Care Act.
    (d) Effective/applicability date. This section applies to 
disclosures to the Department of Health and Human Services on or after 
these proposed regulations are published as final regulations in the 
Federal Register.

 Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2012-10440 Filed 4-27-12; 8:45 am]
BILLING CODE 4830-01-P