Resources
Share →

Thomson Reuters Tax & Accounting News

Featuring content from Checkpoint

Back to Thomson Reuters Tax & Accounting News

Subscribe below to the Checkpoint Daily Newsstand Email Newsletter

IRS Clarifies Meaning of “Covered Entity” and “Controlled Group” for Health Insurance Fee

IRS has provided guidance on the scope of the exclusions from the general definition of a “covered entity” subject to the excise tax on health insurance providers under the Affordable Care Act (ACA) for the 2014 fee year. The guidance—which only applies to the 2014 fee year—also clarifies that a “controlled group” does not have to report for a controlled group member who would not qualify as a covered entity in the 2014 fee year if it were a single-person covered entity. ( Notice 2014-47, 2014-36 IRB )

Excise tax on health insurance providers.

For calendar years beginning after December 31, 2013, an annual fee applies to health insurance providers. The aggregate annual flat fee for the industry (e.g., $8 billion for 2014; $11.3 billion for 2015 and 2016; $13.9 billion for 2017; and $14.3 billion for 2018) will be allocated based on a health provider’s market share of net premiums written for a U.S. health risk for calendar years beginning after December 31, 2012. The fee will not apply to companies whose net premiums written are $25 million or less. For purposes of the fee, health insurance does not include: coverage only for a specified disease or illness; hospital indemnity or other fixed indemnity insurance; insurance for long-term care; or any Medicare supplemental health insurance. (Patient Protection and Affordable Care Act (PPACA), P.L. 111-148) Sec. 9010, as amended by PPACA Sec. 10905, and as further amended by the Health Care and Education Reconciliation Act of 2010 (HCERA), P.L. 111-152) Sec. 1406—collectively, these two Acts are referred to as the ACA)

A “covered entity” is defined as any entity that provides health insurance for any U.S. health risk during the calendar year in which the fee is due (the fee year). (Sec. 9010(c)(1)) Generally excluded from the definition of covered entity are: (1) self-insured employers; (2) governmental entities; (3) certain nonprofit corporations; and (4) non-employer established Code Sec. 509(c)(9) entities. (Sec. 9010(c)(2)) For this purpose, all persons treated as a single employer under Code Sec. 52(a) or Code Sec. 52(b), or Code Sec. 414(m) or Code Sec. 414(o), will be treated as a single covered entity (or employer for purposes of Sec. 9010(c)(2)). (Sec. 9010(c)(3))

A “controlled group” is defined as a group of two or more persons, including at least one person that is a covered entity, that is treated as a single employer under Code Sec. 52(a) or Code Sec. 52(b), or Code Sec. 414(m) or Code Sec. 414(o). (Reg. § 57.2(c)(1)) A controlled group is treated as a single covered entity for purposes of the health insurance providers fee. (Reg. § 57.2(c)(2)) The term “data year” is defined as the calendar year immediately before the fee year. (Reg. § 57.2(d)) The term “fee year” is defined as the calendar year in which the fee must be paid to the government. (Reg. § 57.2(g))

Guidance on covered entity exclusions.

Notice 2014-47 provides that for the 2014 fee year, IRS will not treat any entity as a covered entity if it is excluded from the definition of a covered entity because it qualifies for one of the exclusions under Sec. 9010(c)(2) for the entire 2013 data year or qualifies for one of the exclusions under Sec. 9010(c)(2) for the entire 2014 fee year, which began on January 1, 2014. Since IRS will not treat such an entity as a covered entity, it should not report its net premiums written for the 2013 data year.

Guidance on controlled groups.

Notice 2014-47 provides that for the 2014 fee year, a controlled group must report net premiums written only for those persons who are controlled group members at the end of the day on December 31 of the 2013 data year and who would qualify as a covered entity in the fee year if it were a single-person covered entity. A controlled group should not report net premiums written for any controlled group member who would not qualify as a covered entity in the 2014 fee year if it were a single-person covered entity. Such entity will be treated as a member of the controlled group for other purposes, however, such as joint and several liability for the fee amount allocated to the controlled group. Additional guidance will be issued in the future regarding the scope of the exclusions in Sec. 9010(c)(2) from the general definition of the term “covered entity” for fee years after the 2014 fee year.

Corrective actions.

Notice 2014-47 also provides that any entity that needs to correct a previously submitted Form 8963, Report of Health Insurance Provider Information, due to the clarification provided in the notice, must do so by faxing the corrected Form 8963 to 877-797-0235 no later than August 18, 2014. IRS cannot process a Form 8963 received after this date.

IRS recognizes that entities will not know whether they qualify for one of the exclusions under Sec. 9010(c)(2) for the entire 2014 fee year until the end of 2014. Entities that reasonably project that they will qualify for an exclusion under Sec. 9010(c)(2) for the entire 2014 fee year may submit a corrected Form 8963 on or before August 18, 2014, even though the 2014 fee year is not yet over.

Tagged with →