Affordable Care Act - Tax Matters

1. Patient Protection and
Affordable Care Act -
Tax Provisions
Paul M. Spizzirri, Esq., J.D., LL.M., M.B.A., M.A.F.M.
Hall Booth Smith, P.C.
191 Peachtree Street NE
Suite 2900
Atlanta, GA 30303
(404) 954-5000 Main
(678) 539-1580 Fax
(404) 954-1781 Mobile
ps@hallboothsmith.com

2. Minimum Value
• Notice 2012-31 provides information and requested
public comment on approach to determining whether an
eligible employer-sponsored health plan provides
minimum value within the meaning of § 36B(c)(2)(C)(ii)
• Under § 36B(c)(2)(C)(ii), a plan fails to provide minimum
value if “the plan’s share of the total allowed costs of
benefits provided under the plan is less than 60% of such
costs”
• If the coverage offered by the employer fails to provide
minimum value, an employee may be eligible to receive a
premium tax credit
• See Exhibit 1
• In 2014 minimum value will be relevant to eligibility for
the premium tax credit and application of employer
shared responsibility payment

3. Information Reporting on Health
Insurance Coverage
• Notices 2012-32 and 2012-33 invite comments on development of guidance
on annual information reporting under § 6055 for health insurance issuers,
government agencies, employers that sponsor self-insured plans and other persons
that provide minimum essential coverage of an individual
• See Exhibit 2 & 3
• Information reporting to be provided by:
o Health insurance issuers
o Certain employers that sponsor self-insured plans
o Government agencies
o Certain other parties providing health insurance coverage
• Minimum essential coverage is a term defined to include health insurance
coverage offered in the individual market (qualified health plan covered through
an Affordable Insurance Exchange), an eligible employer-sponsored plan, or
government-sponsored coverage such as Medicare, Medicaid, the Children’s
Health Insurance Program, TRICARE, or veterans’ health care under chapter 17 or
18 of Title 38 USC § 5000A(f)

4. Disclosure of Return
Information
Proposed regulations issued and comments solicited
regarding rules for disclosure of return information to
determine eligibility for:
• Advance payments of the premium tax credit
• Medicaid
• Other health insurance affordability programs

5. Small Business Health Care Tax Credit
• Helps small businesses and small tax-exempt
organizations afford the cost of covering employees
• Targeted for low- and moderate-income workers
• Designed to encourage small employers to offer
health insurance coverage or maintain coverage
• Available generally to small employers paying at least
half the cost of single coverage for employees
• Form 8941 / Form 990-T Line 44(f); See Exhibits 8 - 11

6. Small Business Health Care Tax Credit

7. Health Flexible Spending Arrangements
• Effective Jan. 1, 2011, without a prescription, the
cost of over-the-counter medicine/drug cannot be
reimbursed from Flexible Spending Arrangements
(FSAs) or health reimbursement arrangements
(HSAs) – See IR-2010-95 Sept. 3, 2010; Exhibit 12
• Even if purchased without a prescription, change
does not affect insulin, or other health care
expenses such as medical devices, eye glasses,
contact lenses, co-pays and deductibles – Id.

8. Health Flexible Spending
Arrangements
• Effective Jan. 1, 2011, similar rule applies for Health
Savings Accounts (HSAs), and Archer Medical Savings
Accounts (Archer MSAs)
• See Exhibits 5 & 6
• These changes should be considered before making
health benefit decisions
• See IRS website: news release IR: 2010-95, Notice
2010-59, Ruling 2010-23, questions and answers
• See Exhibit 13 – 16

9. Health Flexible Spending
Arrangements
FSA and HRA participants can continue using debit
cards to buy prescribed over-the-counter medicines, if
requirements are met. See news release IR-2010-128
and Notice 2011-5
• See Exhibit 17 & 18
• Starting in 2013, there are new rules about the
amount of contributions to an FSA. See Notice
2012-40 for rules and flexibility for employers; See
Exhibit 21

10. Proposed Regulations Issued on
Medical Device Excise Tax
• New 2.3% medical device excise tax proposed (IRC
§4191) for manufacturers and importers on sales of
taxable medical devices starting in 2013
• Additional information available in the Medical
Device Excise Tax FAQs
• See Exhibit 22 - 23

11. Health Insurance Premium Tax
Credit
• Beginning in 2014, individuals and families can take
this credit to help afford health insurance coverage
purchased through an Affordable Insurance
Exchange that will operate in every state and the
District of Columbia
• See Exhibit 24
• Credit is refundable so taxpayers who have little or
no income tax liability can still benefit

12. Health Insurance Premium Tax
Credit
• Credit can be paid in advance to a taxpayer's
insurance company to help cover premium cost
• On May 18, 2012, the IRS issued final regulations
providing guidance for:
o Individuals who enroll in qualified health plans
through Exchanges and claim premium tax credit
o Exchanges that make qualified health plans available
to individuals and employers

13. Health Insurance Premium Tax Credit
• Exchanges will offer individuals a choice of health
plans that meet certain benefit and cost standards
• See Exhibit 25 & 26
• The Department of Health and Human Services
(HHS) administers the requirements for the
Exchanges and the health plans they offer

14. Health Coverage for Older Children
• Generally tax-free coverage for employee's children
under 27 years of age
• See Exhibit 27 & 28
• Applies to various work place and retiree health
plans
• Immediately allows employers with cafeteria plans
to permit employees to begin making pre-tax
contributions to pay for expanded benefit

15. Health Coverage for Older Children
• Also applies to self-employed individuals qualifying for self-employed health
insurance deduction on federal income tax return
• Notice 2010-38 (Exhibit 28) provides guidance on the tax treatment of
health coverage for children up to age 27 under the Affordable Care Act
• As amended by the Affordable Care Act, the exclusion from gross income
under § 105(b) applies with respect to an employee child’ who has not
attained the age of 27 as of the end of the taxable year, including the child of
the employee who is not the employee’s dependent within the meaning of §
152(a).
• Section 106 provides an exclusion from an employee’s gross income coverage
under an employer-provided accident or health plan for an employee,
employee’s spouse or dependents as defined in § 152, determined without
regard to 152(b)(1), (b)(2) or (d)(1)(B); See Prop. Treas. Reg. § 1.106-1.
• There is no indication that Congress intended to provide a broader exclusion
in § 105(b) than in § 106, so IRS and Treasury intend to amend the § 106
regulations retroactively to provide that coverage for an employee’s child
under age 27 is excluded from gross income.

16. Excise Tax on Indoor Tanning
Services
• Effective July 1, 2010, 10% excise tax levied on
indoor UV tanning services and reported on Form
720, Exhibit 29, Quarterly Federal Excise Tax Return
• Does not apply to phototherapy services performed
by a licensed medical professional on his or her
premises
• Exception for certain physical fitness facilities that
offer tanning as an incidental service to members
without a separately identifiable fee
• See Exhibit 30

17. Reporting Employer Provided
Health Coverage in Form W-2
• Employers required to report cost of coverage under
employer-sponsored group health plan on
employee's Form W-2
• See Exhibit 31
• Many employers are eligible for transition relief for
tax-year 2012 and beyond, until the IRS issues final
guidance for this reporting requirement
• Box 12 with Code DD to identify the amount

18. Reporting Employer Provided
Health Coverage in Form W-2
• Amount reported is not taxable and does not affect
tax liability since the value of the employer
contribution to health coverage is not included in
employee's income
• Reporting is for informational purposes only to show
employees the value of their health care benefits

19. Adoption Credit
• Maximum adoption credit of $13,360 per child, up from
$13,170 in 2010 and $12,150 in 2009
• Credit refundable for tax year 2011 for eligible taxpayers
even if they owe no tax for that year
• See Exhibit 32
• Credit is based on the reasonable and necessary expenses
related to a legal adoption, including:
o Adoption fees
o Court costs
o Attorney's fees
o Travel expenses

20. Adoption Credit
• Income limits and other special rules apply
• Qualified Adoption Expenses reported on Form 8839 –
attached as Exhibit 32 with instructions attached as
Exhibit 33
• Eligible taxpayers must include with 2011 paper tax
return, one or more adoption-related documents to
avoid delaying their refund
• After filing returns, taxpayers may be asked to
substantiate any qualified adoption expenses paid
• See Exhibit 34 for details

21. Medicare Shared Savings Program
• Establishes a Medicare shared savings program
(MSSP) to:
o Encourage Accountable Care Organizations (ACOs) to
facilitate cooperation among providers
o Improve quality of care provided to Medicare
beneficiaries
o Reduce unnecessary costs

22. Medicare Shared Savings Program
• Notice 2011-20 solicited written comments
regarding what additional guidance is needed for
tax-exempt organizations participating in the
MSSP through an ACO
• See Exhibit 35
• Above notice addresses the participation of tax-
exempt organizations in non-MSSP activities
through ACOs

23. Medicare Shared Savings Program
• Final regulations describing rules for Shared
Savings Program and accountable care
organizations released by Centers for Medicare
and Medicaid Services
• See Exhibit 36
• Fact Sheet 2011-11 confirms:
o Notice 2011-20 reflects IRS expectations regarding
the Shared Savings Program and ACOs
o Provides additional information for charitable
organizations that may wish to participate
o Attached as Exhibit 37

24. Qualified Therapeutic Discovery Project Program
• Designed to:
o provide tax credits and grants to small firms that
show significant potential to produce new and cost-
saving therapies
o support U.S. jobs
o Increase U.S. competitiveness.
• Exhibit 38
• Applicants required to have research projects
certified as eligible for the credit or grant.

25. Qualified Therapeutic Discovery
Project Program
• Submission of certification applications began
June 21, 2010
• Applications had to be postmarked by July 21,
2010 for consideration
• Applications postmarked by July 21, 2010 were
reviewed by both Department of Health and
Human Services (HHS) and IRS

26. Qualified Therapeutic Discovery
Project Program
• All applicants were notified by letter dated
October 29, 2010 as to approval or rejection
• For those applications that were approved, the
letter also provided:
o amount of the grant to be awarded
o tax credit the applicant was eligible to take

27. Qualified Therapeutic Discovery
Project Program
• IRS published the names of the applicants whose projects
were approved as required by law
• Listings of results are available by state
• Notice 2010-45 (Exhibit 38) – establishes the qualifying
therapeutic discovery project program under § 48D of the IRC
• Provides procedures under which an eligible taxpayer may
apply for certification from the IRS of a qualified investment
with respect to a qualifying therapeutic discovery project as
eligible for a credit, or for certain taxpayers, a grant under the
program
• Listed by State at IRS.gov – See Exhibit 39

28. Group Health Plan Requirements
• Number of new requirements for group health
plans:
o Interim guidance on changes to nondiscrimination
requirements for group health plans outlined in Notice
2011-1
o Notice 2011-1 also provides that employers will not be
subject to penalties until after additional guidance is
issued
o TD 9575 and REG-4003810, issued by DOL, HHS and
IRS, provide information on summary of benefits and
coverage and uniform glossary
o See Exhibit 40 & 41/42

29. Group Health Plan Requirements
• Notice 2012-59 provides guidance to group health
plans on the waiting periods they may apply before
coverage starts
• Exhibit 43
• Other information on group health plan requirements
available on the websites of the Departments of
Health and Human Services and Labor and in
additional guidance
• See also Exhibit 44

30. Tax-Exempt 501(c)(29) Qualified
Nonprofit Health Insurance Issuers
• The Affordable Care Act requires the
Department of Health and Human Services
(HHS) to:
o Establish the Consumer Operated and Oriented Plan
program (CO-OP program)
o Provide for tax exemption for recipients of CO-OP
program grants and loans that meet additional
requirements under section 501(c)(29)

31. Tax-Exempt 501(c)(29) Qualified
Nonprofit Health Insurance Issuers
• IRS Notice 2011-23:
o Outlined requirements for tax exemption under section
501(c)(29)
o Guidance on the annual filing requirement for qualified nonprofit
health insurance issuers that intend to apply for tax exempt
status under § 501(c)(29)
o Solicited written comments regarding requirements and
application process
• See Exhibit 45
• Revenue Procedure 2012-11 sets out procedures for:
o Issuing determination letters
o Rulings on exempt status of organizations applying for recognition
of exemption under 501(c)(29)
o See Exhibit 46
o Temporary Regulations at Exhibit 47

32. Medicare Part D Coverage Gap
“Donut Hole" Rebate
• The Act provides a one-time $250 rebate in 2010
to assist Medicare Part D recipients who have
reached their Medicare drug plan's coverage gap
• This payment is not taxable
• This payment is not made by the IRS

33. Additional Requirements for Tax-
Exempt Hospitals
• The Act added new requirements for charitable
hospitals (Notice 2010-39 and Notice 2011-52)
• See Exhibit 48 - 50
• On June 22, 2012, the IRS issued proposed
regulations providing information on:
o Requirements for charitable hospitals relating to
financial assistance and emergency medical care policies
o Charges for emergency or medically necessary care
provided to individuals eligible for financial assistance
o Billing and collections
o See Exhibit 51

34. Additional Requirements for Tax-
Exempt Hospitals
Comments on the proposed regulations requested by September 24,
2012
• Form 990, Schedule H, for tax year 2010:
o Revised to gather information on compliance with new requirements
and related policies and practices
o Made optional for the 2010 tax year to give hospitals time to become
familiar with types of information requested by IRS
o See Exhibit 52 (Form 990) and Exhibit 53 Instructions

35. Additional Requirements for Tax-
Exempt Hospitals
• IRS made revisions to Part V, Section B for tax
year 2011
• Hospitals required to complete all parts and sections of Schedule H
for tax year 2011, with the exception of lines 1-7 of Part V, Section B,
relating to community health needs assessments (optional for 2011)
• See Exhibit 54
• The IRS decided to make Part V.B optional for the 2010 tax year to
give hospitals more time to become familiar with the types of
information collected related to compliance with § 9007 of the
Patient Protection and Affordable Care Act.

36. Annual Fee on Branded Prescription Pharmaceutical
Manufacturers and Importers
• Annual fee payable in 2011 by certain
manufacturers and importers of brand name
pharmaceuticals
• IRS issued temporary regulations and notice of
proposed rule making on branded prescription
drug fee on August 15, 2011
• Temporary regulations describe rules related to
the fee
• Exhibit 56

37. Annual Fee on Branded Prescription
Pharmaceutical Manufacturers and Importers
• On Nov. 4, 2011, IRS issued Notice 2011-92
providing additional guidance on branded
prescription drug fee for 2012

38. Modification of Section 833
Treatment of Certain Health
Organizations
• Act amended section 833 of the Code, which provides
special rules for the taxation of Blue Cross and Blue
Shield organizations and certain other organizations
that provide health insurance
• See Exhibit 57
• IRS Notice 2010-79 provides:
o Transitional relief and interim guidance on the computation of
an organization's taxpayer's Medical Loss Ratio for purposes of
section 833
o See Exhibit 58
o The consequences of non-application and changes in
accounting method

39. Modification of Section 833
Treatment of Certain Health
Organizations
• Notice 2011-04 provides additional information
and the procedures for qualifying organizations
to obtain automatic consent to change its
method of accounting for unearned premiums
• Notice 2011-51 extends transitional relief and
interim guidance provided in Notice 2010-79 for
another year to any taxable year beginning in
2010 and the first taxable year beginning after
December 31, 2010

40. Modification of Section 833
Treatment of Certain Health
Organizations
• Notice 2012-37 extends transitional relief and
interim guidance provided in Notice 2010-79 for
another year to any taxable year beginning in
2012 and the first taxable year beginning after
December 31, 2012

41. Medical Loss Ratio (MLR)
• Beginning in 2011, insurance companies are
required to spend a specified percentage of
premium dollars on medical care and quality
improvement activities
• Must meet a medical loss ratio (MLR) standard
or provide rebates to their consumers beginning
in 2012

42. Limitation on Deduction for
Compensation Paid by Certain Health
Insurance Providers
• Act amended section 162(m) of the Code to limit the
compensation deduction available to certain health
insurance providers
• See Exhibit 59 & 60
• Amendment goes into effect for taxable years
beginning after December 31, 2012
• Amendment may affect deferred compensation
attributable to services performed in a taxable year
beginning after December 31, 2009

43. Employer Shared Responsibility
Payment
• Starting in 2014, certain employers must offer health coverage
to full-time employees or a shared responsibility payment may
apply
• Notice 2012-58:
o expands upon and modifies previous guidance
o describes safe harbors that employers may use to determine
whether certain workers are full-time employees
o describes safe harbors that employers may use to establish that
coverage is affordable at least through end of 2014
o See Exhibit 64

44. Employer Shared Responsibility
Payment
• Notice 2012-59 provides related guidance for group health
plans on the waiting periods they may apply before starting
coverage
• See Exhibit 60
• Generally, § 4980(c)(2) is subject to an assessable payment if any
full-time employee is certified to receive an applicable premium
tax credit or cost-sharing reduction and either:
• (1) the employer does not offer to its full-time employees (and
their dependents) the opportunity to enroll in minimum essential
coverage under an eligible employer-sponsored plan; or
• (2) the employer offers its full-time employees (and their
dependents) the opportunity to enroll in minimum essential
coverage that either is unaffordable within the meaning or §
36(B)(c)(2)(C)(i) or does not provide minimum value within the
meaning of § 36(B)(c)(2)(C)(ii).
• See Exhibit 61 - 65

45. Patient-Centered Outcomes
Research Institute
• Act establishes the Patient-Centered
Outcomes Research Institute
• By advancing clinical effectiveness
research, the Institute will assist patients,
clinicians, purchasers and policy-makers
in making informed health decisions
• Funded by the Patient-Centered
Outcomes Research Trust Fund

46. Patient-Centered Outcomes
Research Institute
• Trust fund will be funded in part by fees paid by
issuers of health insurance policies and sponsors
of self-insured health plans
• On April 12, 2012, the IRS and the Treasury
Department issued proposed regulations on this
fee
• The IRS and Treasury requested comment on the
proposed regulations by July 16, 2012
• See Exhibit 66

47. Patient Protection and
Affordable Care Act -
Tax Provisions
Paul M. Spizzirri, Esq., J.D., LL.M., M.B.A., M.A.F.M.
Hall Booth Smith, P.C.
191 Peachtree Street NE
Suite 2900
Atlanta, GA 30303
(404) 954-5000 Main
(678) 539-1580 Fax
(404) 954-1781 Mobile
ps@hallboothsmith.com