IRB 2014-33 (Rev. August 11, 2014) · 2014. 8. 13. · 2014. Additionally, Revenue Procedure...

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

REG–104579–13, page 370.These proposed regulations provide further guidance on thepremium tax credit. In particular, the regulations allow certainvictims of domestic abuse or spousal abandonment to claimthe premium tax credit while filing a return using the MarriedFiling Separately filing status. In addition, the proposed regu-lations provide special allocation rules for reconciling advancecredit payments, address the indexing in future years of certainamounts used to compute the credit, and describe the coor-dination between the credit and the deduction under section162(l) for health insurance costs of self-employed individuals.Comments and requests for a public hearing must be receivedby October 27, 2014.

REG–107012–14, page 371.These proposed regulations provide a permissible method ofaccounting for gains and losses on shares in certain moneymarket funds. They also clarify that an exception to certaininformation reporting requirements applies to sales of sharesin these money market funds. Written or electronic commentsmust be received by October 27, 2014.

Rev. Proc. 2014–37, page 363.This Revenue Procedure provides the methodology to deter-mine the applicable percentage table in § 36B(b)(3)(A) of theInternal Revenue Code used to calculate an individual’s premiumassistance credit amount for taxable years beginning after calen-dar year 2014. It also provides the methodology to determine therequired contribution percentage in § 36B(c)(2)(C)(i)(II) used todetermine whether an individual is eligible for affordableemployer-sponsored minimum essential coverage for pur-poses of § 36B for plan years beginning after calendar year2014. Additionally, Revenue Procedure 2014–37 reproducesthe required contribution percentage, as determined under

guidance issued by the Department of Health and HumanServices, used to determine whether an individual is eligible foran exemption from the individual shared responsibility paymentbecause of a lack of affordable minimum essential coverageunder § 5000A(e)(1)(A) for plan years beginning after calendaryear 2014.

Rev. Proc. 2014–41, page 364.Rev. Proc. 2014–41 provides calculation methods a taxpayermay use to resolve the interrelationship between the section162(l) deduction and the premium tax credit under section36B. It provides an iterative calculation and alternative calcu-lation taxpayers may use, as well as examples demonstratingthe calculations.

Rev. Proc. 2014–46, page 367.This Revenue Procedure provides the 2014 monthly nationalaverage premium for qualified health plans that have a bronzelevel of coverage for taxpayers to use in determining theirmaximum individual shared responsibility payment under§ 5000A(c)(1)(B) of the Internal Revenue Code and§ 1.5000A–4 of the Income Tax Regulations. The revenueprocedure also provides an explanation of the methodologyused to determine the monthly national average premiumamount.

T.D. 9681, page 340.These final regulations provide guidance regarding the deduct-ibility of start-up expenditures and organizational expenses forpartnerships following a termination of a partnership undersection 708(b)(1)(B). Specifically, these final regulations pro-vide that the new partnership is required to continue to amor-tize those expenditures using the same amortization periodadopted by the terminating partnership These final regulationsaffect partnerships that undergo section 708(b)(1)(B) termina-tions and their partners.

(Continued on the next page)

Finding Lists begin on page ii.Index for July through August begins on page iv.

Bulletin No. 2014–33August 11, 2014

T.D. 9682, page 342.This document contains final regulations relating to basis ofindebtedness of S corporations to their shareholders. Theseregulations provide that S corporation shareholders increasetheir basis of indebtedness of the S corporation to the share-holder only if the indebtedness is bona fide. The final regula-tions affect shareholders of S corporations.

T.D. 9683, page 330.These temporary and final regulations provide further guidanceon the premium tax credit. In particular, the regulations allowcertain victims of domestic abuse or spousal abandonment toclaim the premium tax credit while filing a return using theMarried Filing Separately filing status. In addition, the regula-tions provide special allocation rules for reconciling advancecredit payments, address the indexing in future years of certainamounts used to compute the credit, and describe the coor-dination between the credit and the deduction under section162(l) for health insurance costs of self-employed individuals.

EXCISE TAX

REG–123286–14, page 377.These proposed regulations modify the definition of controlledgroup for purposes of the branded prescription drug fee.These proposed regulations affect persons engaged in thebusiness of manufacturing or importing certain branded pre-scription drugs. Comments and requests for a public hearingmust be received by October 27, 2014.

T.D. 9684, page 345.This document contains final regulations that provide guidanceon the annual fee imposed on covered entities engaged in thebusiness of manufacturing or importing branded prescriptionsdrugs. This document also withdraws the Branded PrescriptionDrug Fee temporary regulations and contains new temporaryregulations regarding the definition of controlled group thatapply January 1, 2015.

The IRS MissionProvide America’s taxpayers top-quality service by helpingthem understand and meet their tax responsibilities and en-force the law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly.

It is the policy of the Service to publish in the Bulletin allsubstantive rulings necessary to promote a uniform applicationof the tax laws, including all rulings that supersede, revoke,modify, or amend any of those previously published in theBulletin. All published rulings apply retroactively unless other-wise indicated. Procedures relating solely to matters of internalmanagement are not published; however, statements of inter-nal practices and procedures that affect the rights and dutiesof taxpayers are published.

Revenue rulings represent the conclusions of the Service onthe application of the law to the pivotal facts stated in therevenue ruling. In those based on positions taken in rulings totaxpayers or technical advice to Service field offices, identify-ing details and information of a confidential nature are deletedto prevent unwarranted invasions of privacy and to comply withstatutory requirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A, TaxConventions and Other Related Items, and Subpart B, Legisla-tion and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the Treasury’s Office of the Assistant Sec-retary (Enforcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index forthe matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

August 11, 2014 Bulletin No. 2014–33

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 36.—RefundableCredit for Coverage undera Qualified Health Plan26 CFR 1.36B–2: Premium Assistance Amount.

TD 9683

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 1

Rules Regarding the HealthInsurance Premium TaxCredit

AGENCY: Internal Revenue Service (IRS),Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains fi-nal and temporary regulations relating tothe health insurance premium tax creditenacted by the Patient Protection and Af-fordable Care Act and the Health Care andEducation Reconciliation Act of 2010, asamended by the Medicare and MedicaidExtenders Act of 2010, the Comprehen-sive 1099 Taxpayer Protection and Re-payment of Exchange Subsidy Overpay-ments Act of 2011, and the Department ofDefense and Full-Year Continuing Appro-priations Act of 2011 and the 3% With-holding Repeal and Job Creation Act.These regulations affect individuals whoenroll in qualified health plans throughAffordable Insurance Exchanges (Ex-changes) and claim the premium taxcredit, and Exchanges that make qualifiedhealth plans available to individuals. Thetext of the temporary regulations in thisdocument also serves as the text of pro-posed regulations set forth in a notice ofproposed rulemaking (REG–104579–13)on this subject in the Proposed Rules sec-tion in this issue of the Bulletin.

DATES: Effective Date: These regula-tions are effective on July 28, 2014.

Applicability Date: For applicabilitydates, see §§ 1.36B–2T(d), 1.36B–3T(m),1.36B–4T(c), and 1.162(l)–1T(c).

FOR FURTHER INFORMATIONCONTACT: Arvind Ravichandran orShareen Pflanz, (202) 317-4718 (not atoll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains final and tem-porary regulations that amend the IncomeTax Regulations (26 CFR part 1) undersection 36B relating to the premium taxcredit and under section 162(l) relating tothe deduction for health insurance costsfor self-employed individuals. Section36B was enacted by the Patient Protectionand Affordable Care Act, Public Law111–148 (124 Stat. 119 (2010)), and theHealth Care and Education ReconciliationAct of 2010, Public Law 111–152 (124Stat. 1029 (2010)) (collectively, the Af-fordable Care Act). Section 36B providesa refundable premium tax credit to helpindividuals and families afford health in-surance purchased through an Exchange.

To be eligible for a premium tax creditunder section 36B, an individual must bean applicable taxpayer. Section 36B(c)(1)provides that an applicable taxpayer is ataxpayer (1) with household income forthe taxable year between 100 percent and400 percent of the federal poverty line forthe taxpayer’s family size, (2) who maynot be claimed as a dependent by anothertaxpayer, and (3) who files a joint return ifmarried (within the meaning of section7703).

Section 7703(b) allows certain marriedindividuals to be considered not marriedfor purposes of the Internal RevenueCode. Under section 7703(b), a marriedtaxpayer who lives apart from the taxpay-er’s spouse for the last six months of thetaxable year is considered unmarried if heor she files a separate return, maintains asthe taxpayer’s home a household that isalso the principal place of abode of adependent child for more than half theyear, and furnishes over half the cost ofthe household during the taxable year.

Section 36B(b)(2) provides that a tax-payer’s premium tax credit is the lesser ofthe premiums for the plan or plans in

which the taxpayer and the taxpayer’sfamily enroll or the excess of the premi-ums for the second lowest cost silver plancovering the taxpayer’s family (the bench-mark plan) over the taxpayer’s contribu-tion amount. A taxpayer’s contributionamount is the product of the taxpayer’shousehold income and an applicable per-centage that increases as the taxpayer’shousehold income increases. Under sec-tion 1412 of the Affordable Care Act,eligible taxpayers may receive advancepayments of the premium tax credit (ad-vance credit payments). Section 36B(f)provides that taxpayers must reconcileany differences between the taxpayer’sadvance credit payments for a taxableyear and the taxpayer’s premium taxcredit for the year. If the taxpayer’s ad-vance credit payments exceed the allowedpremium tax credit, the taxpayer owes theexcess as a tax liability, subject to a re-payment limitation in section36B(f)(2)(B).

Under section 162(l), a taxpayer who isan employee within the meaning of sec-tion 401(c)(1)—generally, a self-employed individual—is allowed a deduc-tion for all or a portion of the taxpayer’spremiums paid during the taxable year forhealth insurance for the taxpayer, the tax-payer’s spouse, the taxpayer’s depen-dents, and any child of the taxpayer underthe age of 27. The deduction allowed un-der section 162(l) is limited to the taxpay-er’s earned income from the trade or busi-ness with respect to which the healthinsurance plan is established. In addition,section 280C(g) provides that no deduc-tion is allowed under section 162(l) for theportion of premiums for a qualified healthplan equal to the amount of the premiumtax credit determined under section36B(a) with respect to those premiums.

Explanation of Provisions

1. Circumstances in which a MarriedTaxpayer May Claim a Premium TaxCredit on a Separate Return

Final regulations under section 36B(TD 9590) were published on May 23,2012 (77 FR 30377). The final regulations


provide that married taxpayers must file ajoint return to claim the premium taxcredit. However, the preamble to thoseregulations provided that Treasury and theIRS would propose additional regulationsaddressing domestic abuse, abandonment,or similar circumstances that create obsta-cles to filing a joint return. The preamblealso requested comments on how to struc-ture a rule to address these situations.

Several comments were received urg-ing that such a rule be provided. Com-menters suggested that the rule draw onthe existing regime for innocent spouserelief. Commenters also suggested that re-lief should be allowed for up to threeyears.

Notice 2014–23, 2014–16 IRB. 942(March 26, 2014), allows married victimsof domestic abuse to claim a premium taxcredit without filing a joint return in 2014.Under Notice 2014–23, for calendar year2014, a married taxpayer will satisfy thejoint filing requirement of section36B(c)(1)(C) if the taxpayer files a 2014tax return using a filing status of marriedfiling separately and the taxpayer (i) isliving apart from the individual’s spouseat the time the taxpayer files his or her taxreturn, (ii) is unable to file a joint returnbecause the taxpayer is a victim of domes-tic abuse, and (iii) indicates on his or her2014 income tax return in accordancewith the relevant instructions that the tax-payer meets the criteria under (i) and (ii).Notice 2014–23 also provides that theIRS and Treasury intend to propose regu-lations incorporating this rule.

Accordingly, the temporary regulationsincorporate the rule in Notice 2014–23 for2014 and subsequent taxable years to pro-vide relief from the joint filing require-ment for victims of domestic abuse. Thetemporary regulations also provide reliefto victims of spousal abandonment. Con-sistent with the comments received, tax-payers may not qualify for relief from thejoint filing requirement for a period thatexceeds three consecutive years.

The temporary regulations define do-mestic abuse using a definition that isclosely based on the definition of spousalabuse in Rev. Proc. 2013–34, 2013– 2 CB397, for innocent spouse relief. In partic-ular, domestic abuse includes physical,psychological, sexual, or emotional abuse,including efforts to control, isolate, humil-

iate, and intimidate, or to undermine thevictim’s ability to reason independentlyand that all facts and circumstances areconsidered in determining whether an in-dividual is abused. A taxpayer qualifies asa victim of spousal abandonment for ataxable year if the taxpayer is abandonedby his or her spouse and, taking into ac-count all facts and circumstances, the tax-payer is unable to locate his or her spouseafter reasonable diligence. It is expectedthat the instructions for the tax form tax-payers will use to compute the premiumtax credit will provide further guidance onclaiming this relief, including that a tax-payer must certify that the taxpayer meetsthe criteria for the relief.

On March 31, 2014, the Department ofHealth and Human Services (HHS) issuedguidance on the application of Notice2014–23 to advance credit payments andcost-sharing reductions. In accordancewith the temporary regulations includedhere, it is anticipated HHS will extend itsguidance beyond 2014 and to include vic-tims of spousal abandonment.

Comments are requested on the appro-priateness of the relief provided in thetemporary regulations, and the appropri-ateness of the scope of relief, includingthe circumstances that would make a tax-payer eligible for relief.

2. Indexing

To compute the premium tax credit, ataxpayer determines his or her contribu-tion amount by multiplying an applicablepercentage by the taxpayer’s householdincome. The taxpayer uses the percentagetable in section 36B(b)(3)(A)(i) to com-pute his or her applicable percentage. Sec-tion 36B(b)(3)(A)(ii) provides that, begin-ning in 2015, the percentages in the tableare adjusted to reflect the excess of therate of premium growth over the rate ofincome growth for the preceding calendaryear. Similarly, section 36B(c)(2)(C)(iv)provides that the affordability percentageprovided in section 36B(c)(2)(C)(i)(II) isupdated in the same manner for plan yearsbeginning in calendar years after 2014.The affordability percentage is used todetermine whether an employer’s offer ofcoverage to an employee is affordable tothe employee. Under section 36B(c)(2)(C)(i),a taxpayer who is not offered affordable

employer coverage may be eligible for apremium tax credit.

Section 36B(b)(3)(A)(ii) does notspecify what measures should be used forpremium growth and income growth. Thetemporary regulations provide that pre-mium growth and income growth will bedetermined in accordance with furtherpublished guidance, see § 601.601(d)(2)of this chapter. Rev. Proc. 2014–37,which is being released simultaneouslywith these temporary regulations, pro-vides further details on the measures to beused for premium growth and incomegrowth. In particular, consistent with thefactors used by HHS to define premiumgrowth in indexing the required contribu-tion percentage in section 5000A, Rev.Proc. 2014–37 provides that premiumgrowth for the preceding calendar year isthe projected per enrollee spending foremployer-sponsored private health insur-ance for the preceding calendar year, di-vided by the projected per enrollee spend-ing for employer-sponsored private healthinsurance for the calendar year two yearsprior. Income growth for the precedingcalendar year will be the projected GDPper capita for the preceding calendar yeardivided by the projected GDP per capitafor the calendar year two years prior. Pro-jected per enrollee spending for employer-sponsored private health insurance andprojected GDP per capita are published bythe Office of the Actuary at the Centersfor Medicare and Medicaid Services.

Section 36B(b)(3)(A)(ii) also does notmake clear what it means to adjust theapplicable percentages to “reflect the ex-cess” of one rate “over” the other. Rates ofgrowth are commonly compared by takingtheir ratio. In addition, the applicable per-centages in section 36B(b)(3)(A)(i) andthe affordability percentage in section36B(c)(2)(C)(i)(II) represent shares of in-come that a taxpayer is expected to spendon health care premiums. The indexing ofthese measures in section 36B(b)(3)(A)(ii)appears designed to adjust these fractionsto reflect changes in the observed share ofoverall income that is spent on health carepremiums. Preserving this relationship re-quires that the applicable percentages beadjusted based on the ratio of the rate ofpremium growth to the rate of incomegrowth. Accordingly, the temporary regu-lations provide that, for taxable years

Bulletin No. 2014–33 August 11, 2014331

beginning after December 31, 2014, theapplicable percentages in the table willbe adjusted by the ratio of premiumgrowth to income growth for the preced-ing calendar year.

In addition, the temporary regulationsprovide that adjustments may be made toreflect updates to the data used to computethis ratio for the 2014 calendar year or toreflect updates to data sources used tocompute the ratio of premium growth toincome growth. Such an adjustment maybe necessary to avoid error propagationwhen making updates. In particular, incomputing this ratio for a given calendaryear, the computations rely on projecteddata for the prior year and the 2013 cal-endar year. To the extent that the final datafor the prior calendar year prove differentfrom the projected data, the projected dataused in later years will automatically ad-just for those differences. However, if thefinal data for the 2013 calendar yearproves different from the projected data,projected data in later years will not adjustfor these differences, so an additional ad-justment will be needed. Similarly, if al-ternative data sources are used to computethe ratio in later years, an additional ad-justment may be needed to avoid errorthat could result from transitioning fromthe prior data sources to the new ones.These adjustments will be made as part ofthe procedure by which the applicablepercentages and affordability percentageare updated by the ratio of premiumgrowth to income growth and will applyprospectively only. For example, if datafor the 2013 calendar year data is finalizedin early 2016, the additional adjustmentwill be made in determining the applica-ble percentages and affordability percent-age in effect for the 2017 calendar year.

With respect to the affordability per-centage, the final regulations under sec-tion 36B inadvertently refer to taxableyears rather than plan years beginning af-ter 2014. Consistent with the language insection 36B(c)(2)(C)(iv), the temporaryregulations provide that, for plan yearsbeginning in a calendar year after 2014,the affordability percentage will be ad-justed by the same method used to adjustthe applicable percentages.

The indexing methodology providedfor in the temporary regulations is basedon the same data sources as the method-

ology adopted by HHS for adjusting therequired contribution percentage in sec-tion 5000A, which is used to determineeligibility for an exemption from theshared responsibility payment, and it willresult in adjustments to the applicable per-centages and affordability percentage thatare consistent with the adjustments madeby HHS to the required contribution per-centage in section 5000A. See 79 Fed.Reg. 30240 (May 27, 2014).

Comments are requested on the meth-odology for indexing. In particular, com-ments are requested on whether this ap-proach properly captures the rate ofpremium growth relative to the rate ofincome growth and whether alternativeindices or data sources should be used.

3. Allocations for Reconciliation ofAdvance Credit Payments and thePremium Tax Credit

The final regulations under section 36Bprovide that a taxpayer must reconcile alladvance credit payments for coverage ofany member of the taxpayer’s family. Ataxpayer’s family includes the taxpayer,the taxpayer’s spouse and the taxpayer’sdependents. The final regulations, how-ever, do not address how a taxpayer com-putes the premium tax credit and recon-ciles advance credit payments forcoverage of a family member if the familymember was enrolled in a qualified healthplan by another taxpayer, especially insituations in which the family member isenrolled with others who are not in thetaxpayer’s family. For example, supposeAdult 1 enrolls herself and her three chil-dren in a qualified health plan and, basedon a good faith assertion that she willclaim the children as dependents, is ap-proved for advance credit payments forcoverage of the family. One of the chil-dren (Child), however, is not claimed byAdult 1 and instead is properly claimed byAdult 2 as a dependent for the taxableyear. In this circumstance, the final regu-lations neither address how much of thepremium for the plan purchased by Adult1 each taxpayer should take into accountin determining his or her premium taxcredit, nor the amount of advance creditpayments for Adult 1’s plan that Adult 2must reconcile for Child’s coverage. Inaddition, the final regulations under sec-

tion 36B require Adult 1 and Adult 2 todetermine their adjusted monthly pre-mium for the applicable benchmark plan(benchmark plan premium) in this circum-stance using the rules that apply to tax-payers who do not have family membersenrolled by another taxpayer.

The temporary regulations providerules to address how taxpayers determinetheir premium tax credit and reconcile ad-vance credit payments in cases in whichan individual is enrolled by one taxpayerbut another taxpayer claims a personalexemption deduction for the individual. Inparticular, the temporary regulations pro-vide that if a taxpayer (the enrolling tax-payer) enrolls an individual in a qualifiedhealth plan, but another taxpayer (theclaiming taxpayer) claims a personal ex-emption deduction for the enrollee (theshifting enrollee), then for purposes ofcomputing each taxpayer’s premium taxcredit and reconciling any advance creditpayments, the premiums and any advancecredit payments for the plan in which theshifting enrollee was enrolled are allo-cated between the enrolling taxpayer andthe claiming taxpayer using an allocationpercentage. In addition, the temporaryregulations provide an alternate calcula-tion that is used to determine each taxpay-er’s benchmark plan premium when ad-vance credit payments are allocated, usingthe same allocation percentage.

The enrolling taxpayer and claimingtaxpayer may generally agree on any al-location percentage between zero and onehundred percent. For instance, Adult 1and Adult 2 may determine that the pre-mium attributable to Child is 20 percent ofthe total premium for Adult 1’s familyplan, and agree on an allocation percent-age of 20 percent. If the claiming taxpayerand enrolling taxpayer do not agree on apercentage, the allocation percentage isequal to the number of shifting enrolleesdivided by the total number of individualsenrolled by the enrolling taxpayer in thesame qualified health plan as the shiftingenrollees. In the example above, if Adult 1and Adult 2 did not agree on an allocationpercentage, the allocation percentagewould be 25 percent (one, the number ofshifting enrollees, divided by four, the to-tal number of individuals enrolled byAdult 1 in the same plan as the shiftingenrollee).


In computing the premium tax credit,the claiming taxpayer is allocated a por-tion of the premiums for the plan in whichthe enrollee was enrolled equal to the pre-miums times the allocation percentage.The enrolling taxpayer is allocated theremainder of the premiums. Similarly, inreconciling advance credit payments, theclaiming taxpayer is allocated a portion ofthe advance credit payments for the planin which the shifting enrollee was enrolledequal to the advance credit paymentstimes the allocation percentage. The en-rolling taxpayer is allocated the remainderof these amounts. Advance credit pay-ments are allocated to the claiming tax-payer only if advance credit payments aremade for coverage of the shifting enrollee.

Finally, if advance credit payments areallocated under the rules above, the tax-payers, in computing their premium taxcredit, must use an alternative calculationto determine their benchmark plan pre-mium. The benchmark plan premium isgenerally the premium an issuer wouldcharge for the applicable benchmark planto cover all members of the taxpayer’scoverage family, adjusted only for the ageof each member of the coverage family.Under the alternative calculation, eachtaxpayer will first determine the allocableportion of the enrolling taxpayer’s bench-mark plan premium (allocable portion).The allocable portion is equal to the prod-uct of (1) the allocation percentage and (2)the benchmark plan premium for the en-rolling taxpayer’s coverage family had theenrolling taxpayer claimed a personal ex-emption deduction for the shifting en-rollee or enrollees for the taxable year. Ifthe enrolling taxpayer’s coverage familyis enrolled in more than one qualifiedhealth plan, the allocable portion is deter-mined as if the enrolling taxpayer’s cov-erage family includes only the familymembers who enrolled in the same plan asthe shifting enrollee or enrollees. Thebenchmark plan premium for the claimingtaxpayer is equal to this allocable portionplus the benchmark plan premium for theclaiming taxpayer’s coverage family ex-cluding the shifting enrollee or enrollees.The enrolling taxpayer’s benchmark planpremium is equal to the benchmark planpremium for the enrolling taxpayer’s cov-erage family had the enrolling taxpayerclaimed a personal exemption deduction

for the shifting enrollee or enrollees, mi-nus the allocable portion.

4. Reconciliation for Divorced andSeparated Taxpayers

The temporary regulations clarify howtaxpayers who legally separate or divorceallocate the benchmark plan premium, thepremium for the plan in which the taxpay-ers or their dependents enroll, and theadvance credit payments to compute theirrespective premium tax credit and excessadvance credit payments. The final section36B regulations provide that if just one ofthe taxpayers is enrolled in the qualifiedhealth plan for the married months, all ofthe items are allocated to that taxpayer,even if the taxpayer’s former spouse hadone or more dependents also enrolled inthe same plan. The temporary regulationsexpand the circumstances in which theitems are allocated between the formerspouses to include dependent situationsand limit the instances in which all of theitems are allocated to just one of thespouses.

Under the temporary regulations, tax-payers who are married (within the mean-ing of section 7703) to each other during ataxable year but are not married to eachother on the last day of the taxable year,and who are enrolled in the same qualifiedhealth plan, must allocate the benchmarkplan premium, the premium for the plan inwhich the taxpayers and their dependentsenroll, and the advance credit paymentsfor the period the taxpayers are marriedduring the taxable year. In addition, theseitems must be allocated for periods inwhich just one of the former spouses isenrolled if one or more dependents of theother former spouse is also enrolled in theplan. The taxpayers may allocate theseitems to each former spouse in any pro-portion but must allocate all items in thesame proportion. If the taxpayers do notagree on an allocation that is reported tothe IRS in accordance with the relevantforms and instructions, 50 percent of eachitem is allocated to each taxpayer. If aplan covers for a time period only one ofthe taxpayers and no dependents, only oneof the taxpayers and one or more depen-dents of that same taxpayer, or only one ormore dependents of just one of the tax-payers, then the benchmark plan pre-

mium, the premium for the plan in whichthe taxpayers or their dependents enroll,and the advance credit payments for thatperiod are allocated entirely to that tax-payer.

5. Reconciliation for Married TaxpayersWho File Separately

The temporary regulations also amendthe reconciliation rules for taxpayers whoare married and file separate returns. Thefinal regulations under section 36B pro-vide that a married taxpayer who receivesadvance credit payments and files an in-come tax return as married filing sepa-rately has received excess advance pay-ments. Under the temporary regulations, ataxpayer who uses a filing status of mar-ried filing separately may be allowed apremium tax credit if the taxpayer is avictim of spousal abuse or abandonment.Consequently, in these limited circum-stances, a married taxpayer who receivesadvance credit payments and uses a mar-ried filing separately filing status will nothave excess advance payments by reasonof his or her filing status. The temporaryregulations also clarify the manner inwhich taxpayers reconcile advance creditpayments in situations in which the tax-payers indicate that they are married whenapplying for advance credit payments, butone or both file their tax return using thehead of household filing status. Taxpayerswho qualify to use the head of householdfiling status may be eligible for a premiumtax credit. In particular, the temporaryregulations provide that, in such cases, 50percent of the advance credit payments fora period of coverage in a qualified healthplan are allocated to each taxpayer. How-ever, all of the advance credit paymentsare allocated to only one of the taxpayersfor a period in which a qualified healthplan covers only that taxpayer, only thattaxpayer and one or more dependents ofthat taxpayer, or only one or more depen-dents of that taxpayer. Premiums for theplan in which the taxpayers or their de-pendents are enrolled are allocated in thesame manner whether or not the taxpayersreceive advance credit payments. Theserules result in the advance credit paymentsand premiums being allocated in the sameproportion to the two taxpayers.


6. Deduction for Health Insurance Costsof Self-employed Individuals

Under section 162(l), a taxpayer who isan employee within the meaning of sec-tion 401(c)(1) (generally, a self-employedindividual) is allowed a deduction for allor a portion of the taxpayer’s premiumspaid during the taxable year for healthinsurance for the taxpayer, the taxpayer’sspouse, the taxpayer’s dependents, andany child of the taxpayer under the age of27. The section 162(l) deduction is al-lowed in computing adjusted gross in-come. The deduction allowed under sec-tion 162(l) may not exceed the taxpayer’searned income from the trade or businesswith respect to which the health insuranceplan is established. In addition, section280C(g) provides that no deduction is al-lowed under section 162(l) for the portionof premiums for a qualified health planequal to the amount of the premium taxcredit determined under section 36B(a)with respect to those premiums.

The temporary regulations providerules for the interaction between the sec-tion 162(l) deduction and both the pre-mium tax credit and the limitation on ad-ditional tax under section 36B(f)(2)(B).The temporary regulations provide that ataxpayer is allowed a deduction under sec-tion 162(l) for specified premiums not toexceed the lesser of (1) the specified pre-miums less the premium tax credit attrib-utable to the specified premiums; and (2)the sum of the specified premiums notpaid through advance credit payments andthe additional tax imposed (if any) undersection 36B(f)(2)(A) with respect to thespecified premiums after applying the lim-itation in section 36B(f)(2)(B). Specifiedpremiums means premiums for a specifiedqualified health plan or plans for whichthe taxpayer may otherwise claim a de-duction under section 162(l). A specifiedqualified health plan is a qualified healthplan, as defined in § 1.36B–1(c), coveringthe taxpayer, the taxpayer’s spouse, or adependent of the taxpayer (enrolled fam-ily member) for a month that is a coveragemonth within the meaning of § 1.36B–3(c) for the enrolled family member. If aspecified qualified health plan covers oneor more individuals other than enrolledfamily members, the specified premiumsinclude only the portion of the premiums

for the specified qualified health plan thatis allocable to the enrolled family mem-bers under rules similar to § 1.36B–3(h),which provides rules for determining theamount under § 1.36B–3(d)(1) when twofamilies are enrolled in the same qualifiedhealth plan.

Although a taxpayer’s section 162(l)deduction is limited under section280C(g) only to the extent of the taxpay-er’s premium tax credit, some taxpayerswith advance payments in excess of theirpremium tax credit will not have to repaythe entire excess because of the limitationon additional tax in section 36B(f)(2)(B).Because the taxpayer does not bear thecost of any portion of the premium that ispaid through advance credit payments andthat is not subject to repayment due to thelimitations, any such amount is treated asan amount of premium tax credit for pur-poses of section 280C(g).

As a computational matter, the pre-mium tax credit and the limitation on ad-ditional tax bear a circular relationship tothe section 162(l) deduction that may cre-ate challenges for taxpayers. Specifically,the amount of the section 162(l) deductionaffects a taxpayer’s adjusted gross in-come, which affects both the premium taxcredit and the limitation on additional tax.Conversely, both the premium tax creditand the limitation on additional tax affectthe amount a taxpayer spends on healthinsurance premiums, which in turn affectsthe taxpayer’s section 162(l) deduction.

A taxpayer may resolve the circularitybetween the section 162(l) deduction andthe premium tax credit by taking any po-sition that satisfies the requirements ofsection 36B, section 162(l) and other ap-plicable tax law and the regulations issuedunder those sections, including the tempo-rary regulations in this rulemaking.

To address the circularity between thesection 162(l) deduction and the limitationon additional tax under section 36B(f)(2)(B)(limitation amount), the temporary regu-lations provide rules for determiningwhich limitation amount, if any, a tax-payer may use. Taxpayers make this de-termination before calculating their sec-tion 162(l) deduction and premium taxcredit. To determine the limitationamount, a taxpayer tests his or her eligi-bility for each of the limitation amountsthat may apply, starting with the lowest,

until the taxpayer either determines thathe or she qualifies for one of the limitationamounts or exhausts them without quali-fying for one. For each limitation amount,the taxpayer qualifies to use that limitationamount if the taxpayer’s household in-come as a percentage of the Federal pov-erty line, determined by using a section162(l) deduction equal to the sum of (1)specified premiums, as defined above, notpaid through advance credit payments, (2)the limitation amount, and (3) premiumsother than specified premiums for whichthe taxpayer may claim a section 162(l)deduction, is equal to or less than themaximum household income as a percent-age of the Federal poverty line for whichthat limitation amount is available. Forexample, if a taxpayer’s 2014 householdincome, using a section 162(l) deductionequal to the sum of the specified premi-ums not paid through advance credit pay-ments and the $600 limitation amount, isless than 200 percent of the Federal pov-erty line, the taxpayer uses the $600 lim-itation amount in determining additionaltax under section 36B(f)(2)(B). If a tax-payer is unable to qualify for any limita-tion amount under this rule, the limitationon additional tax under section 36B(f)(2)(B)does not apply to the taxpayer.

A taxpayer who deducts specified pre-miums under section 162(l) must use thelimitation amount determined under thisrule notwithstanding that household in-come as a percentage of the Federal pov-erty line would, but for this rule, result ina different limitation amount. After a tax-payer determines his or her limitationamount, if any, under this rule, the tax-payer then determines the section 162(l)deduction and premium tax credit underthe other rules described above, exceptusing the limitation amount determinedunder these rules when necessary. Theserules apply only for purposes of determin-ing the limitation amount; they do notaffect eligibility for the premium taxcredit. Thus, it is possible that a taxpayerwith household income under 400 percentof the Federal poverty line for the taxpay-er’s family size may properly claim a pre-mium tax credit but not qualify for a lim-itation on additional tax.

The temporary regulations further pro-vide that Treasury and IRS may issue ad-ditional published guidance to address


potential complexities arising from the in-teraction of the section 36B premium taxcredit and the section 162(l) deduction.

To provide additional assistance to tax-payers with addressing the circularity be-tween the section 162(l) deduction and thepremium tax credit, Rev. Proc. 2014–41provides calculation methods that a tax-payer may use to determine amounts ofthe section 162(l) deduction and the pre-mium tax credit. The IRS and Treasuryrequest comments on other methods forsimplifying these calculations.

Effective/Applicability Date

For applicability dates, see §§ 1.36B–2T(d), 1.36B–3T(m), 1.36B–4T(c), and1.162(l)–1T(c). The applicability of theseregulations expires on or before July 24,2017.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866, as supplemented by Executive Or-der 13563. Therefore, a regulatory assess-ment is not required. It also has beendetermined that section 553(b) of the Ad-ministrative Procedure Act (5 U.S.C.chapter 5) does not apply to these regula-tions. For the applicability of the Regula-tory Flexibility Act (5 U.S.C. chapter 6)please refer to the cross-reference noticeof proposed rulemaking published else-where in this issue of the Bulletin. Pursu-ant to section 7805(f), these regulationshave been submitted to the Chief Counselfor Advocacy of the Small Business Ad-ministration for comment on their impacton small business.

Drafting Information

The principal authors of these regula-tions are Arvind Ravichandran, ShareenPflanz and Steve Toomey of the Office ofthe Associate Chief Counsel (Income Tax& Accounting). However, other personnelfrom the IRS and the Treasury Depart-ment participated in their development.

* * * * *

Amendments to the Regulations

Accordingly, 26 CFR part 1 isamended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 1.36B–2 is amended by:

1. Revising paragraphs (b)(2) and(c)(3)(v)(C).

2. Adding paragraph (d).

The revisions and additions read as fol-lows:

§ 1.36B–2 Eligibility for premium taxcredit.

* * * * *(b) * * *(2) [Reserved]. For further guidance,

see § 1.36B–2T(b)(2).* * * * *(c) * * *(3) * * *(v) * * *(C) [Reserved]. For further guidance,

see § 1.36B–2T(c)(3)(v)(C).* * * * *(d) [Reserved]. For further guidance,

see § 1.36B–2T(d).Par. 3. Section 1.36B–2T is added to

read as follows:

§ 1.36B–2T Eligibility for premium taxcredit (temporary).

(a) through (b)(1) [Reserved]. For fur-ther guidance, see § 1.36B–2(a) through(b)(1).

(2) Married taxpayers must file jointreturn—(i) In general. Except as providedin paragraph (b)(2)(ii) of this section, ataxpayer who is married (within the mean-ing of section 7703) at the close of thetaxable year is an applicable taxpayer onlyif the taxpayer and the taxpayer’s spousefile a joint return for the taxable year.

(ii) Victims of domestic abuse andabandonment. Except as provided in para-graph (b)(2)(v) of this section, a marriedtaxpayer satisfies the joint filing require-ment of paragraph (b)(2)(i) of this sectionif the taxpayer files a tax return using afiling status of married filing separatelyand the taxpayer—

(A) Is living apart from the taxpayer’sspouse at the time the taxpayer files thetax return;

(B) Is unable to file a joint return be-cause the taxpayer is a victim of domesticabuse, as described in paragraph (b)(2)(iii)of this section, or spousal abandonment,as described in paragraph (b)(2)(iv) of thissection; and

(C) Certifies on the return, in accor-dance with the relevant instructions, thatthe taxpayer meets the criteria of thisparagraph (b)(2)(ii).

(iii) Domestic abuse. For purposes ofparagraph (b)(2)(ii) of this section, do-mestic abuse includes physical, psycho-logical, sexual, or emotional abuse, in-cluding efforts to control, isolate,humiliate, and intimidate, or to underminethe victim’s ability to reason indepen-dently. All the facts and circumstances areconsidered in determining whether an in-dividual is abused, including the effects ofalcohol or drug abuse by the victim’sspouse. Depending on the facts and cir-cumstances, abuse of the victim’s child oranother family member living in thehousehold may constitute abuse of thevictim.

(iv) Abandonment. For purposes ofparagraph (b)(2)(ii) of this section, a tax-payer is a victim of spousal abandonmentfor a taxable year if, taking into accountall facts and circumstances, the taxpayer isunable to locate his or her spouse afterreasonable diligence.

(v) Three-year rule. Paragraph(b)(2)(ii) of this section does not apply ifthe taxpayer met the requirements of para-graph (b)(2)(ii) of this section for each ofthe three preceding taxable years.

(b)(3) through (c)(3)(v)(B) [Reserved].For further guidance, see § 1.36B–2(b)(3)through (c)(3)(v)(B).

(C) Required contribution percentage.The required contribution percentage is9.5 percent. For plan years beginning in acalendar year after 2014, the percentagewill be adjusted by the ratio of premiumgrowth to income growth for the preced-ing calendar year and may be further ad-justed to reflect changes to the data usedto compute the ratio of premium growth toincome growth for the 2014 calendar yearor the data sources used to compute theratio of premium growth to incomegrowth. Premium growth and incomegrowth will be determined under pub-lished guidance, see § 601.601(d)(2) ofthis chapter. In addition, the percentage


may be adjusted for plan years beginningin a calendar year after 2018 to reflectrates of premium growth relative togrowth in the consumer price index.

(c)(3)(v)(D) through (c)(4) [Reserved].For further guidance, see § 1.36B–2(c)(3)(v)(D) through (c)(4).

(d) Effective/applicability date. Para-graphs (b)(2) and (c)(3)(v)(C) of this sec-tion apply to taxable years beginning afterDecember 31, 2013.

(e) Expiration date. Paragraphs (b)(2)and (c)(3)(v)(C) of this section expire onJuly 24, 2017.

Par. 4. Section 1.36B–3 is amended by:

1. Revising paragraph (g)(1).2. Adding paragraph (m).


§ 1.36B–3 Computing the premium as-sistance credit amount.

* * * * *(g) * * *(1) [Reserved]. For further guidance,

see § 1.36B–3T(g)(1).* * * * *(m) [Reserved]. For further guidance,

see § 1.36B–3T(m).Par. 5. Section 1.36B–3T is added to

read as follows:

§ 1.36B–3T Computing the premiumassistance credit amount (temporary).

(a) through (f) [Reserved]. For furtherguidance, see § 1.36B–3(a) through (f).

(g) Applicable percentage—(1) In gen-eral. The applicable percentage multipliedby a taxpayer’s household income deter-mines the taxpayer’s annual requiredshare of premiums for the benchmarkplan. The required share is divided by 12and this monthly amount is subtractedfrom the adjusted monthly premium forthe applicable benchmark plan when com-puting the premium assistance amount.The applicable percentage is computed byfirst determining the percentage that thetaxpayer’s household income bears to theFederal poverty line for the taxpayer’sfamily size. The resulting Federal povertyline percentage is then compared to theincome categories described in the table inparagraph (g)(2) of this section (or suc-cessor tables). An applicable percentagewithin an income category increases on a

sliding scale in a linear manner and isrounded to the nearest one-hundredth ofone percent. For taxable years beginningafter December 31, 2014, the applicablepercentages in the table will be adjustedby the ratio of premium growth to incomegrowth for the preceding calendar yearand may be further adjusted to reflectchanges to the data used to compute theratio of premium growth to incomegrowth for the 2014 calendar year or thedata sources used to compute the ratio ofpremium growth to income growth. Pre-mium growth and income growth will bedetermined in accordance with publishedguidance, see § 601.601(d)(2) of thischapter. In addition, the applicable per-centages in the table may be adjusted fortaxable years beginning after December31, 2018, to reflect rates of premiumgrowth relative to growth in the consumerprice index.

(g)(2) through (l) [Reserved]. For fur-ther guidance, see § 1.36B–3(g)(2)through (l).

(m) Effective/applicability date. Para-graph (g)(1) of this section applies to tax-able years beginning after December 31,2013.

(n) Expiration date. Paragraph (g)(1)of this section expires on July 24, 2017.

Par. 6. Section 1.36B–4 is amendedby:

1. Revising paragraph (a)(1)(ii).2. Adding paragraph (a)(3)(iii).3. In paragraph (a)(4), revising Example

4 and adding Examples 10, 11, 12,13, and 14.

4. Revising paragraphs (b)(3) and(b)(4).

5. Removing paragraph (b)(5).6. Redesignating paragraph (b)(6) as

paragraph (b)(5), and revising Exam-ple 9, and adding Example 10 tonewly redesignated paragraph (b)(5).

7. Adding paragraph (c).


§ 1.36B–4 Reconciling the premium taxcredit with advance credit payments.

(a) * * * (1) * * *(ii) [Reserved]. For further guidance,

see § 1.36B–4T(a)(1)(ii).* * * * *

(3) * * *(iii) [Reserved]. For further guidance,

see § 1.36B–4T(a)(3)(iii).(4) * * *Example 4. [Reserved]. For further guidance, see

§ 1.36B–4T(a)(4), Example 4.

* * * * *Example 10. [Reserved]. For further guidance,

see § 1.36B–4T(a)(4), Example 10.Example 11. [Reserved]. For further guidance,




see § 1.36B–4T(a)(4), Example 14.

(b) * * *(3) [Reserved]. For further guidance,

see § 1.36B–4T(b)(3).(4) [Reserved]. For further guidance,

see § 1.36B–4T(b)(4).(5) * * *Example 9. [Reserved]. For further guidance, see

§ 1.36B–4T(b)(5), Example 9.Example 10. [Reserved]. For further guidance,

see § 1.36B–4T(b)(5), Example 10.

* * * * *(c) [Reserved]. For further guidance,

see § 1.36B–4T(c).Par. 7. Section 1.36B–4T is added to

read as follows:

§ 1.36B–4T Reconciling the premiumtax credit with advance credit payments(temporary).

(a)(1)(i) [Reserved]. For further guid-ance, see § 1.36B–4(a)(1)(i).

(ii) Allocation rules and responsibilityfor advance credit payments—(A) In gen-eral. A taxpayer must reconcile all ad-vance credit payments for coverage of anymember of the taxpayer’s family.

(B) Individuals enrolled by a taxpayerand claimed as a personal exemption de-duction by another taxpayer—(1) In gen-eral. If a taxpayer (the enrolling taxpayer)enrolls an individual in a qualified healthplan and another taxpayer (the claimingtaxpayer) claims a personal exemption de-duction for the individual (the shifting en-rollee), then for purposes of computingeach taxpayer’s premium tax credit andreconciling any advance credit payments,the premiums and advance credit pay-ments for the plan in which the shiftingenrollee was enrolled are allocated underthis paragraph (a)(1)(ii)(B) according tothe allocation percentage described in


paragraph (a)(1)(ii)(B)(2) of this section.If advance credit payments are allocatedunder paragraph (a)(1)(ii)(B)(4) of thissection, the claiming taxpayer and enroll-ing taxpayer must use this same allocationpercentage to calculate their § 1.36B–3(d)(2) adjusted monthly premiums forthe applicable benchmark plan (bench-mark plan premiums). This paragraph(a)(1)(ii)(B) does not apply to amountsallocated under § 1.36B–3(h) (qualifiedhealth plan covering more than one fam-ily) or if the shifting enrollee or enrolleesare the only individuals enrolled in thequalified health plan. For purposes of thisparagraph (a)(1)(ii)(B)(1), a taxpayer whois expected at enrollment in a qualifiedhealth plan to be the taxpayer filing anincome tax return for the year of coveragewith respect to an individual enrolling inthe plan has enrolled that individual.

(2) Allocation percentage. The enroll-ing taxpayer and claiming taxpayer mayagree on any allocation percentage be-tween zero and one hundred percent. If theenrolling taxpayer and claiming taxpayerdo not agree on an allocation percentage,the percentage is equal to the number ofshifting enrollees claimed as a personalexemption deduction by the claiming tax-payer divided by the number of individu-als enrolled by the enrolling taxpayer inthe same qualified health plan as the shift-ing enrollee.

(3) Allocating premiums. In computingthe premium tax credit, the claiming tax-payer is allocated a portion of the premi-ums for the plan in which the shiftingenrollee was enrolled equal to the premi-ums for the plan times the allocation per-centage. The enrolling taxpayer is allo-cated the remainder of the premiumsnot allocated to one or more claimingtaxpayers.

(4) Allocating advance credit pay-ments. In reconciling any advance creditpayments, the claiming taxpayer is allo-cated a portion of the advance credit pay-ments for the plan in which the shiftingenrollee was enrolled equal to the enroll-ing taxpayer’s advance credit paymentsfor the plan times the allocation percent-age. The enrolling taxpayer is allocatedthe remainder of the advance credit pay-ments not allocated to one or more claim-ing taxpayers. This paragraph(a)(1)(ii)(B)(4) only applies in situations

in which advance credit payments aremade for coverage of a shifting enrollee.

(5) Premiums for the applicable bench-mark plan. If paragraph (a)(1)(ii)(B)(4) ofthis section applies, the claiming taxpay-er’s benchmark plan premium is the sumof the benchmark plan premium for theclaiming taxpayer’s coverage family, ex-cluding the shifting enrollee or enrollees,and the allocable portion. The allocableportion for purposes of this paragraph(a)(1)(ii)(B)(5) is the product of thebenchmark plan premium for the enrollingtaxpayer’s coverage family if the shiftingenrollee was a member of the enrollingtaxpayer’s coverage family and the allo-cation percentage. If the enrolling taxpay-er’s coverage family is enrolled in morethan one qualified health plan, the alloca-ble portion is determined as if the enroll-ing taxpayer’s coverage family includesonly the coverage family members whoenrolled in the same plan as the shiftingenrollee or enrollees. The enrolling tax-payer’s benchmark plan premium is thebenchmark plan premium for the enrollingtaxpayer’s coverage family had the shift-ing enrollee or enrollees remained a partof the enrolling taxpayer’s coverage fam-ily, minus the allocable portion.

(C) Responsibility for advance creditpayments for an individual for whom nopersonal exemption deduction is claimed.If advance credit payments are made forcoverage of an individual for whom notaxpayer claims a personal exemption de-duction, the taxpayer who attested to theExchange to the intention to claim a per-sonal exemption deduction for the indi-vidual as part of the advance credit pay-ment eligibility determination forcoverage of the individual must reconcilethe advance credit payments.

(a)(1)(iii) through (a)(3)(ii) [Reserved].For further guidance, see § 1.36B–4(a)(1)(iii) through (a)(3)(ii).

(iii) Limitation on additional tax fortaxpayers who claim a section 162(l) de-duction for a qualified health plan—(A)In general. A taxpayer who receives ad-vance credit payments and deducts premi-ums for a qualified health plan under section162(l) must use paragraphs (a)(3)(iii)(B)and (C) of this section to determine thelimitation on additional tax in this para-graph (a)(3) (limitation amount). Taxpay-ers must make this determination before

calculating their section 162(l) deductionand premium tax credit. For additionalrules for taxpayers who may claim a de-duction under section 162(l) for a quali-fied health plan for which advance creditpayments are made, see § 1.162(l)–1T.

(B) Determining the limitation amount.A taxpayer described in paragraph(a)(3)(iii)(A) of this section must use thelimitation amount for which the taxpayerqualifies under the requirements of para-graph (a)(3)(iii)(C) of this section. Thelimitation amount determined under thisparagraph (a)(3)(iii) replaces the limita-tion amount that would otherwise be de-termined under the additional tax limita-tion table in paragraph (a)(3)(ii) of thissection. In applying paragraph(a)(3)(iii)(C) of this section, a taxpayermust first determine whether he or shequalifies for the limitation amount appli-cable to taxpayers with household incomeof less than 200 percent of the Federalpoverty line for the taxpayer’s family size.If the taxpayer is unable to meet the re-quirements of paragraph (a)(3)(iii)(C) ofthis section for that limitation amount, thetaxpayer must next determine whether heor she qualifies for the limitation applica-ble to taxpayers with household income ofless than 300 percent of the Federal pov-erty line for the taxpayer’s family size. Ifthe taxpayer is unable to meet the require-ments of paragraph (a)(3)(iii)(C) of thissection for taxpayers with household in-come of less than 300 percent of the Fed-eral poverty line for the taxpayer’s familysize, the taxpayer must next determinewhether he or she qualifies for the limita-tion applicable to taxpayers with house-hold income of less than 400 percent ofthe Federal poverty line for the taxpayer’sfamily size. If the taxpayer is unable tomeet the requirements of paragraph(a)(3)(iii)(C) of this section for any limi-tation amount, the limitation on additionaltax under section 36B(f)(2)(B) does notapply to the taxpayer.

(C) Requirements. A taxpayer meetsthe requirements of this paragraph(a)(3)(iii)(C) for a limitation amount if thetaxpayer’s household income as a percent-age of the Federal poverty line is less thanor equal to the maximum household in-come as a percentage of the Federal pov-erty line for which that limitation is avail-able. Household income for this purpose


is determined by using a section 162(l)deduction equal to the sum of the speci-fied premiums for the plan not paidthrough advance credit payments and thelimitation amount in addition to any de-duction allowable under section 162(l) forpremiums other than specified premiums.For purposes of this paragraph(a)(3)(iii)(C), specified premiums not paidthrough advance credit payments meansspecified premiums, as defined in§ 1.162(l)–1T(a)(2), minus advance creditpayments made with respect to the speci-fied premiums.

(D) Examples. For examples illustrat-ing the rules of this paragraph (a)(3)(iii),see Examples 13 and 14 of paragraph(a)(4) of this section.

(a)(4), Example 1, through Example 3[Reserved]. For further guidance, see§ 1.36B–4(a)(4), Example 1 through Ex-ample 3.

Example 4. Family size decreases. (i) TaxpayersB and C are married and have two children, K and L(ages 17 and 20), whom they claim as dependents in2013. The Exchange for their rating area projectstheir 2014 household income to be $63,388 (275percent of the Federal poverty line for a family offour, applicable percentage 8.78). B and C enroll ina qualified health plan for 2014 that covers the fourfamily members. The annual premium for the appli-cable benchmark plan is $14,100. B’s and C’s ad-vance credit payments for 2014 are $8,535, com-puted as follows: benchmark plan premium of$14,100 less contribution amount of $5,565 (pro-jected household income of $63,388 � .0878) �$8,535.

(ii) In 2014, B and C do not claim L as theirdependent (and no taxpayer claims a personal ex-emption deduction for L). Consequently, B’s and C’sfamily size for 2014 is three, their household incomeof $63,388 is 332 percent of the Federal poverty linefor a family of three (applicable percentage 9.5), andthe annual premium for their applicable benchmarkplan is $12,000. Their premium tax credit for 2014 is$5,978 ($12,000 benchmark plan premium less$6,022 contribution amount (household income of$63,388 � .095)). Because B’s and C’s advancecredit payments for 2014 are $8,535 and their 2014credit is $5,978, B and C have excess advance pay-ments of $2,557. B’s and C’s additional tax liabilityfor 2014 under paragraph (a)(1) of this section, how-ever, is limited to $2,500 under paragraph (a)(3) ofthis section.

Example 5 through Example 9 [Reserved]. Forfurther guidance, see 1.36B–4(a)(4), Example 5through Example 9.

Example 10. Allocation percentage, agreementon allocation. (i) Taxpayers G and H are divorcedand have two children, J and K. G enrolls herself andJ and K in a qualified health plan for 2014. Thepremium for the plan in which G enrolls is $13,000.The Exchange in G’s rating area approves advancecredit payments for G based on a family size of

three, an annual benchmark plan premium of$12,000 and projected 2014 household income of$58,590 (300 percent of the Federal poverty line fora family of three, applicable percentage 9.5). G’sadvance credit payments for 2014 are $6,434($12,000 benchmark plan premium less $5,566 con-tribution amount (household income of $58,590 �.095)). G’s actual household income for 2014 is$58,900.

(ii) K lives with H for more than half of 2014 andH claims K as a dependent for 2014. G and H agreeto an allocation percentage, as described in para-graph (a)(1)(ii)(B)(2) of this section, of 20 percent.Under the agreement, H is allocated 20 percent of theitems to be allocated and G is allocated the remain-der of those items.

(iii) If H is eligible for a premium tax credit, Htakes into account $2,600 of the premiums for theplan in which K was enrolled ($13,000 � .20) and$2,400 of G’s benchmark plan premium ($12,000 �.20). In addition, H is responsible for reconciling$1,287 ($6,434 � .20) of the advance credit pay-ments for K’s coverage.

(iv) G’s family size for 2014 includes only G andJ and G’s household income of $58,900 is 380 per-cent of the Federal poverty line for a family of two(applicable percentage 9.5). G’s benchmark planpremium for 2014 is $9,600 (the benchmark pre-mium for the plan covering G, J and K ($12,000),minus the amount allocated to H ($2,400). Conse-quently, G’s premium tax credit is $4,004 (G’sbenchmark plan premium of $9,600 minus G’s con-tribution amount of $5,596 ($58,900 � .095)). G hasan excess advance payment of $1,143 (the excess ofthe advance credit payments of $5,147 ($6,434 –$1,287 allocated to H) over the premium tax credit of$4,004).

Example 11. Allocation percentage, no agree-ment on allocation. (i) The facts are the same as inExample 10, except that G and H do not agree on anallocation percentage. Under paragraph(a)(1)(ii)(B)(2) of this section, the allocation percent-age is 33 percent, computed as follows: the numberof shifting enrollees, 1 (K), divided by the number ofindividuals enrolled by the enrolling taxpayer on thesame qualified health plan as the shifting enrollee, 3(G,J, and K). Thus, H is allocated 33 percent of theitems to be allocated and G is allocated the remain-der of those items.

(ii) If H is eligible for a premium tax credit, Htakes into account $4,290 of the premiums for theplan in which K was enrolled ($13,000 � .33). H, incomputing H’s benchmark plan premium must in-clude $3,960 of G’s benchmark plan premium($12,000 � .33). In addition, H is responsible forreconciling $2,123 ($6,434 � .33) of the advancecredit payments for K’s coverage.

(iii) G’s benchmark plan premium for 2014 is$8,040 (the benchmark premium for the plan cover-ing G, J, and K ($12,000), minus the amount allo-cated to H ($3,960). Consequently, G’s premium taxcredit is $2,444 (G’s benchmark plan premium of$8,040 minus G’s contribution amount of $5,596($58,900 � .095)). G has an excess advance creditpayment of $1,867 (the excess of the advance creditpayments of $4,311 ($6,434 � $2,123 allocated toH) over the premium tax credit of $2,444).

Example 12. Allocations for an emancipatedchild. Spouses L and M enroll in a qualified healthplan with their child, N. L and M attest that they willclaim N as a dependent and advance credit paymentsare made for the coverage of all three family mem-bers. However, N files his own return and claims apersonal exemption deduction for himself for thetaxable year. Under paragraph (a)(1)(ii)(B)(1) of thissection, L and M are enrolling taxpayers, N is aclaiming taxpayer and all are subject to the alloca-tion rules in paragraph (a)(1)(ii)(B) of this section.

Example 13. Taxpayer with advance credit pay-ments allowed a section 162(l) deduction but not alimitation on additional tax. (i) In 2014, B, B’sspouse, and their two dependents enroll in the appli-cable second lowest cost silver plan with an annualpremium of $14,000. B’s advance credit paymentsattributable to the premiums are $8,000. B is self-employed for all of 2014 and derives $75,000 ofearnings from B’s trade or business. B’s householdincome without including a deduction under section162(l) for specified premiums is $103,700. The Fed-eral poverty line for a family the size of B’s familyis $23,550.

(ii) Because B received advance credit paymentsand deducts premiums for a qualified health planunder section 162(l), B must determine whether B isallowed a limitation on additional tax under para-graph (a)(3)(iii) of this section. B begins by testingeligibility for the $600 limitation amount for tax-payers with household income at less than 200percent of the Federal poverty line for the taxpay-er’s family size. B determines household incomeas a percentage of the Federal poverty line bytaking a section 162(l) deduction equal to the sumof the amount of premiums not paid through advancecredit payments, $6,000 ($14,000 � $8,000), and thelimitation amount, $600. The result is $97,100($103,700 � $6,600) or 412 percent of the Federalpoverty line for B’s family size. Since 412 percent isnot less than 200 percent, B may not use a $600limitation amount.

(iii) B performs the same calculation for the$1,500 ($103,700 � $7,500 � $96,200 or 408 per-cent of the Federal poverty line) and $2,500 limita-tion amounts ($103,700 � $8,500 � $95,200 or 404percent of the Federal poverty line), the amounts fortaxpayers with household income of less than 300percent or 400 percent, respectively, of the Federalpoverty line for the taxpayer’s family size, and de-termines that B may not use either of those limitationamounts. Because B does not meet the requirementsof paragraph (a)(3)(iii) of this section for any of thelimitation amounts in section 36B(f)(2)(B), B is noteligible for the limitation on additional tax for excessadvance credit payments.

(iv) Although B may not claim a limitation onadditional tax for excess advance credit payments, Bmay still be eligible for a premium tax credit. Bwould determine eligibility for the premium taxcredit and the amounts of the premium tax credit andthe section 162(l) deduction using other rules, in-cluding the regulations under section 36B and sec-tion 162(l), applying no limitation on additional tax.

Example 14. Taxpayer with advance credit pay-ments allowed a section 162(l) deduction and alimitation on additional tax. (i) Same facts as Exam-ple 13, except that B’s household income without


including a deduction under section 162(l) for spec-ified premiums is $78,802.

(ii) Because B received advance credit paymentsand deducts premiums for a qualified health planunder section 162(l), B must determine whether B isallowed a limitation on additional tax under para-graph (a)(3)(iii) of this section. B first determinesthat B does not meet the requirements of paragraph(a)(3)(iii)(C) of this section for using the $600 or$1,500 limitation amounts, the amounts for taxpay-ers with household income of less than 200 percentor 300 percent, respectively, of the Federal povertyline for the taxpayer’s family size. That is becauseB’s household income as a percentage of the Federalpoverty line, determined by using a section 162(l)deduction for premiums for the qualified health planequal to the sum of the premiums for the plan notpaid through advance credit payments and the limi-tation amount, is more than the maximum householdincome as a percentage of the Federal poverty linefor which that limitation is available (using the $600limitation, B’s household income would be $72,202($78,802 – ($6,000 � $600)), which is 307 percentof the Federal poverty line for B’s family size; andusing the $1,500 limitation, B’s household incomewould be $71,302 ($78,802 – ($6,000 � $1,500)),which is 303 percent of the Federal poverty line forB’s family size).

(iii) However, B meets the requirements of para-graph (a)(3)(iii)(C) of this section using the $2,500limitation amount for taxpayers with household in-come of less than 400 percent of the Federal povertyline for the taxpayer’s family size. This is becauseB’s household income as a percentage of the Federalpoverty line by taking a section 162(l) deductionequal to the sum of the amount of premiums not paidthrough advance credit payments, $6,000, and thelimitation amount, $2,500, is $70,302 (299 percentof the Federal poverty line), which is below 400percent of the Federal poverty line for B’s familysize, and is less than the maximum amount for whichthat limitation is available. Thus, B uses a limitationamount of $2,500 in computing B’s additional tax onexcess advance credit payments.

(iv) B may then determine the amount of thepremium tax credit and section 162(l) deductionusing the rules under section 36B and section 162(l),applying the $2,500 limitation amount determinedabove.

(b)(1) through (b)(2) [Reserved]. Forfurther guidance, see § 1.36B–4(b)(1)through (b)(2).

(3) Taxpayers not married to eachother at the end of the taxable year. Tax-payers who are married (within the mean-ing of section 7703) to each other during ataxable year but legally separate under adecree of divorce or of separate mainte-nance during the taxable year, and whoare enrolled in the same qualified healthplan at any time during the taxable yearmust allocate the benchmark plan pre-mium, the premium for the plan in whichthe taxpayers enroll, and the advancecredit payments for the period the taxpay-

ers are married during the taxable year.Taxpayers must also allocate these itemsif one of the taxpayers has a dependentenrolled in the same plan as the taxpayer’sformer spouse or enrolled in the same planas a dependent of the taxpayer’s formerspouse. The taxpayers may allocate theseitems to each former spouse in any pro-portion but must allocate all items in thesame proportion. If the taxpayers do notagree on an allocation that is reported tothe IRS in accordance with the relevantforms and instructions, 50 percent of thepremium for the applicable benchmarkplan, the premium for the plan in whichthe taxpayers enroll, and the advancecredit payments for the married period areallocated to each taxpayer. If for a perioda plan covers only one of the taxpayersand no dependents, only one of the tax-payers and one or more dependents of thatsame taxpayer, or only one or more de-pendents of one of the taxpayers, thenthe benchmark plan premium, the pre-mium for the plan in which the taxpayersenroll, and the advance credit paymentsfor that period are allocated entirely tothat taxpayer.

(4) Taxpayers filing returns as marriedfiling separately or head of household—(i)Allocation of advance credit payments.Except as provided in § 1.36B–2(b)(2)(ii),the premium tax credit is allowed to mar-ried (within the meaning of section 7703)taxpayers only if they file joint returns.See § 1.36B–2(b)(2)(i). Taxpayers whoreceive advance credit payments as mar-ried taxpayers and do not file a joint returnmust allocate the advance credit paymentsfor coverage under a qualified health planequally to each taxpayer for any periodthe plan covers and advance credit pay-ments are made for both taxpayers, onlyone of the taxpayers and one or moredependents of the other taxpayer, or oneor more dependents of both taxpayers. Iffor a period a plan covers or advancecredit payments are made for only one ofthe taxpayers and no dependents, only oneof the taxpayers and one or more depen-dents of that same taxpayer, or only one ormore dependents of one of the taxpayers,the advance credit payments for that pe-riod are allocated entirely to that taxpayer.If one or both of the taxpayers is an ap-plicable taxpayer eligible for a premiumtax credit for the taxable year, the pre-

mium tax credit is computed by allocatingthe premiums for the plan in which thetaxpayers or their family members enrollunder paragraph (b)(4)(ii) of this section.The repayment limitation described inparagraph (a)(3) of this section applies toeach taxpayer based on the household in-come and family size reported on thattaxpayer’s return. This paragraph (b)(4)also applies to taxpayers who receive ad-vance credit payments as married taxpay-ers and file a tax return using the head ofhousehold filing status.

(ii) Allocation of premiums. If taxpay-ers who are married within the meaning ofsection 7703, without regard to section7703(b), do not file a joint return, 50 per-cent of the premiums for a period of cov-erage in a qualified health plan are allo-cated to each taxpayer. However, all ofthe premiums are allocated to only one ofthe taxpayers for a period in which a qual-ified health plan covers only that taxpayer,only that taxpayer and one or more depen-dents of that taxpayer, or only one or moredependents of that taxpayer.

(b)(5), Example 1 through Example 8[Reserved]. For further guidance, see§ 1.36B–4(b)(5), Example 1 through Ex-ample 8.

Example 9. (i) The facts are the same as inExample 8, except that X and Y live apart for over 6months of the year and X properly files an incometax return as head of household. Under section7703(b), X is treated as unmarried and therefore isnot required to file a joint return. If X otherwisequalifies as an applicable taxpayer, X may claim thepremium tax credit based on the household incomeand family size X reports on the return. Y is not anapplicable taxpayer and is not eligible to claim thepremium tax credit.

(ii) X must reconcile the amount of credit withadvance credit payments under paragraph (a) of thissection. The premium for the applicable benchmarkplan covering X and his two dependents is $9,800.X’s premium tax credit is computed as follows:$9,800 benchmark plan premium minus X’s contri-bution amount of $5,700 ($60,000 � .095) equals$4,100.

(iii) Under paragraph (b)(4) of this section, halfof the advance payments ($6,880/2 � $3,440) isallocated to X and half is allocated to Y. Thus, X isentitled to $660 additional premium tax credit($4,100 � $3,440). Y has $3,440 excess advancepayments, which is limited to $600 under paragraph(a)(3) of this section.

Example 10. (i) A is married to B at the close of2014 and they have no dependents. A and B areenrolled in a qualified health plan for 2014 with anannual premium of $10,000 and advance credit pay-ments of $6,500. A is not eligible for minimumessential coverage (other than coverage described in


section 5000A(f)(1)(C)) for any month in 2014. A isa victim of domestic abuse as described in § 1.36B–2(b)(2)(iii). At the time A files her tax return for2014, A is unable to file a joint return with B for2014 because of the domestic abuse. A certifies onher 2014 return, in accordance with relevant instruc-tions, that she is living apart from B and is unable tofile a joint return because of domestic abuse. Thus,under § 1.36B–2(b)(2)(ii), A satisfies the joint returnfiling requirement in section 36B(c)(1)(C) for 2014.

(ii) A’s family size for 2014 for purposes ofcomputing the premium tax credit is one and A is theonly member of her coverage family. Thus, A’sbenchmark plan for all months of 2014 is the secondlowest cost silver plan offered by the Exchange forA’s rating area that covers A. A’s household incomeincludes only A’s modified adjusted gross income.Under paragraph (b)(4)(ii) of this section, A takesinto account $5,000 ($10,000 � .50) of the premi-ums for the plan in which she was enrolled in deter-mining her premium tax credit. Further, A mustreconcile $3,250 ($6,500 � .50) of the advancecredit payments for her coverage under paragraph(b)(4)(i) of this section.

(c) Effective/applicability date. Para-graphs (a)(1)(ii), (a)(3)(iii), (a)(4), Examples4, 10, 11, 12, 13, and 14, (b)(3), (b)(4), and(b)(5), Examples 9 and 10 apply to taxableyears beginning after December 31, 2013.

(d) Expiration date. Paragraphs (a)(1)(ii),(a)(3)(iii), (a)(4), Examples 4, 10, 11, 12, 13,and 14, (b)(3), (b)(4), and (b)(5), Examples9 and 10 expire on July 24, 2017.

Par. 8. Section 1.162(l)–1T is added toread as follows:

§ 1.162(l)–1T Deduction for healthinsurance costs of self-employedindividuals (temporary).

(a) Coordination of section 162(l) de-duction for taxpayers subject to section36B—(1) In general. A taxpayer is al-lowed a deduction under section 162(l) forspecified premiums, as defined in para-graph (a)(2) of this section, not to exceedan amount equal to the lesser of—

(i) The specified premiums less thepremium tax credit attributable to thespecified premiums; and

(ii) The sum of the specified premiumsnot paid through advance credit payments,as described in paragraph (a)(3) of thissection, and the additional tax (if any)imposed under section 36B(f)(2)(A) and§ 1.36B–4(a)(1) with respect to the spec-ified premiums after application of thelimitation on additional tax in section36B(f)(2)(B) and § 1.36B–4(a)(3).

(2) Specified premiums. For purposesof paragraph (a)(1) of this section, speci-

fied premiums means premiums for aspecified qualified health plan or plans forwhich the taxpayer may otherwise claim adeduction under section 162(l). For pur-poses of this paragraph (a)(2), a specifiedqualified health plan is a qualified healthplan, as defined in § 1.36B–1(c), coveringthe taxpayer, the taxpayer’s spouse, or adependent of the taxpayer (enrolled fam-ily member) for a month that is a coveragemonth within the meaning of § 1.36B–3(c) for the enrolled family member. If aspecified qualified health plan covers in-dividuals other than enrolled family mem-bers, the specified premiums include onlythe portion of the premiums for the spec-ified qualified health plan that is allocableto the enrolled family members underrules similar to § 1.36B–3(h), which pro-vides rules for determining the amount un-der § 1.36B–3(d)(1) when two families areenrolled in the same qualified health plan.

(3) Specified premiums not paidthrough advance credit payments. Forpurposes of paragraph (a)(1)(ii) of thissection, specified premiums not paidthrough advance credit payments equalthe amount of the specified premiums mi-nus the advance credit payments attribut-able to the specified premiums.

(b) Additional guidance. The Secretarymay provide by publication in the FederalRegister or in the Internal Revenue Bul-letin (see § 601.601(d)(2) of this chapter)additional guidance on coordinating thededuction allowed under section 162(l)and the credit provided under section 36B.

(c) Effective/applicability date. Thissection applies for taxable years begin-ning after December 31, 2013.

(d) Expiration date. This section ex-pires on July 24, 2017.

John DalrympleDeputy Commissioner for

Services and Enforcement.

Approved July 22, 2014.

Mark J. MazurAssistant Secretary of the Treasury

(Tax Policy).

(Filed by the Office of the Federal Register on July 25, 2014,8:45 a.m., and published in the issue of the Federal Registerfor July 28, 2014, 79 F.R. 43622)

Section 708.—Continuationof Partnership26 CFR 1.708–1: Deductibility of start-up expendi-tures and organizational expenses for partnerships

TD 9681

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 1

Partnerships; Start-upExpenditures; Organizationand Syndication Fees

AGENCY: Internal Revenue Service (IRS),Treasury.

ACTION: Final Regulations.

SUMMARY: This document contains finalregulations concerning the deductibility ofstart-up expenditures and organizational ex-penses for partnerships. The final regula-tions provide guidance regarding the de-ductibility of start-up expenditures andorganizational expenses for partnerships fol-lowing a termination of a partnership undersection 708(b)(1)(B). These final regula-tions affect partnerships that undergo sec-tion 708(b)(1)(B) terminations and theirpartners.

DATE: Effective Date: These regulationsare effective on July 23, 2014.

FOR FURTHER INFORMATIONCONTACT: Rachel S. Smith, (202) 317-6852 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains final amend-ments to the Income Tax Regulations (26CFR part 1) under section 708(b) of theInternal Revenue Code (Code). On De-cember 9, 2013, proposed regulations(REG–126285–12, 78 FR 73753) werepublished in the Federal Register. Theproposed regulations were intended toeliminate uncertainty regarding whether apartnership is entitled to immediately de-duct any unamortized start-up and organi-zational expenses upon its technical ter-mination. Specifically, the proposedregulations provided that the new partner-


ship was required to continue to amortizethose expenditures using the same amor-tization period adopted by the terminatingpartnership. No written or electronic com-ments were received in response to thenotice of proposed rulemaking. No re-quests for a public hearing were received,and accordingly, no hearing was held.

Explanation of Provisions

The Treasury decision adopts the pro-posed regulations with one minor changefor clarity. Specifically, in § 1.708–1(b)(6)(i), “using the same amortizationperiod adopted by the terminating partner-ship” has been changed to “over the re-maining portion of the amortization pe-riod adopted by the terminatingpartnership” to make clear that the amor-tization period does not restart. No sub-stantive change is intended.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866, as supplemented by Executive Or-der 13563. Therefore, a regulatory assess-ment is not required. It has also beendetermined that section 553(b) of the Ad-ministrative Procedure Act (5 U.S.C.chapter 5) does not apply to these regula-tions, and because these regulations do notimpose a collection of information onsmall entities, the Regulatory FlexibilityAct (5 U.S.C. chapter 6) does not apply.Pursuant to section 7805(f) of the Code,the notice of proposed rulemaking preced-ing these regulations was submitted to theChief Counsel for Advocacy of the SmallBusiness Administration for comment onits impact on small businesses. No com-ments were received.

Drafting Information

The principal author of these regulationsis Rachel S. Smith, IRS Office of the Asso-ciate Chief Counsel (Passthroughs and Spe-cial Industries). However, other personnelfrom the IRS and the Treasury Departmentparticipated in their development.

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 is amendedas follows:

PART 1 — INCOME TAXES

Paragraph 1. The authority citation forpart 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 1.195–2 is added to read

as follows:

§ 1.195–2 Technical termination of apartnership.

(a) In general. If a partnership that haselected to amortize start-up expenditures un-der section 195(b) and § 1.195–1 terminatesin a transaction (or a series of transactions)described in section 708(b)(1)(B) or§ 1.708–1(b)(2), the termination shall not betreated as resulting in a disposition of thepartnership’s trade or business for purposesof section 195(b)(2). See § 1.708–1(b)(6)for rules concerning the treatment of thesestart-up expenditures by the new partner-ship.

(b) Effective/applicability date. This sec-tion applies to a technical termination of apartnership under section 708(b)(1)(B) thatoccurs on or after December 9, 2013.

Par. 3. Section 1.708–1 is amended byadding paragraph (b)(6) to read as fol-lows:

§ 1.708–1 Continuation of partnership.

* * * * *(b) * * *(6) Treatment of certain start-up or

organizational expenses following a tech-nical termination—(i) In general. If apartnership that has elected to amortizestart-up expenditures under section 195(b)or organizational expenses under section709(b)(1) terminates in a transaction (or aseries of transactions) described in section708(b)(1)(B) or paragraph (b)(2) of thissection, the new partnership must con-tinue to amortize those expenditures overthe remaining portion of the amortizationperiod adopted by the terminating partner-ship. See section 195 and § 1.195–1 forrules concerning the amortization ofstart-up expenditures and section 709 and

§ 1.709–1 for rules concerning the amor-tization of organizational expenses.

(ii) Effective/applicability date. Thisparagraph (b)(6) applies to a technical ter-mination of a partnership under section708(b)(1)(B) that occurs on or after De-cember 9, 2013.

Par. 4. Section 1.709–1 is amended by:

1. Redesignating paragraph (b)(3) as(b)(3)(i).

2. Adding a heading to newly desig-nated paragraph (b)(3)(i).

3. Adding paragraph (b)(3)(ii).4. Adding a sentence at the end of para-

graph (b)(5).

The additions read as follows:

§ 1.709–1 Treatment of organizationand syndication costs.

* * * * *(b) * * *(3) Liquidation of partnership—(i) In

general. * * *(ii) Technical termination of a partner-

ship. If a partnership that has elected toamortize organizational costs under sec-tion 709(b) terminates in a transaction (ora series of transactions) described in sec-tion 708(b)(1)(B) or § 1.708–1(b)(2), thetermination shall not be treated as result-ing in a liquidation of the partnership forpurposes of section 709(b)(2). See§ 1.708–1(b)(6) for rules concerning thetreatment of these organizational costs bythe new partnership.

(5) * * * Paragraph (b)(3)(ii) of thissection applies to a technical terminationof a partnership under section708(b)(1)(B) that occurs on or after De-cember 9, 2013.

John DalrympleDeputy Commissioner for

Services and Enforcement.

Approved May 29, 2014.

Mark J. MazurAssistant Secretary of the Treasury

(Tax Policy).

(Filed by the Office of t

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