This notice clarifies that a health plan that provides benefits for male sterilization or male contraceptives without a deductible, or with a deductible below the minimum deductible for a high deductible health plan (HDHP) under section 223(c)(2)(A) of the Internal Revenue Code, is not an HDHP under current guidance interpreting the requirements of section 223(c)(2). It also provides transition relief for periods before 2020.

This notice announces that the Department of the Treasury and the Internal Revenue Service intend to issue regulations providing guidance on the application of section 1061 of the Internal Revenue Code as enacted by “an Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” Public Law 115–97 on December 22, 2017. Those regulations will provide that the term “applicable partnership interest” for purposes of section 1061 includes a partnership interest directly or indirectly held by an S corporation.

Notice 2018–19 extends the relief under I.R.C. § 937 provided by Notice 2017–56 to individuals who would otherwise qualify as bona fide residents of Puerto Rico and the U.S. Virgin Islands, but for their need to leave (or inability to return to) these U.S territories as a result of Hurricanes Irma or Maria. Notice 2018–19 extends the 14-day period under Treas. Reg. § 1.937–1(c)(3)(C)(1) to a fixed period of 268 days beginning on September 6, 2017, and ending on May 31, 2018. An affected individual who is outside of an impacted U.S. territory on any day during this 268-day period will also be treated as leaving or being unable to return to the relevant U.S. territory as a result of Hurricane Irma and Hurricane Maria on such day.

This Notice announces that the IRS list of jurisdictions that do not issue taxpayer identification numbers to their residents described in section IV.B.3.ii of Notice 2017–46, 2017–41 I.R.B. 275, will be expanded to include jurisdictions that request to the U.S. competent authority to be included on such list. The Department of Treasury and the Internal Revenue Service intend to amend § 1.1441–1T(e)(2)(ii)(B) to incorporate the guidance described in this notice.

This notice clarifies that a health plan providing benefits for male sterilization or male contraceptives without a deductible, or with a deductible below the minimum deductible for a high deductible health plan (HDHP) under section 223(c)(2)(A) of the Internal Revenue Code (Code), is not an HDHP under current guidance interpreting the requirements of section 223(c)(2) of the Code. This notice further provides transition relief for periods before 2020 during which coverage has been provided for male sterilization or male contraceptives without a deductible, or with a deductible below the minimum deductible for an HDHP.

Section 223 of the Code permits eligible individuals to deduct contributions to Health Savings Accounts (HSAs).^[1] Among the requirements for an individual to qualify as an eligible individual under section 223(c)(1) is that the individual be covered under an HDHP and have no disqualifying health coverage. As defined in section 223(c)(2), an HDHP is a health plan that satisfies certain requirements, including requirements with respect to minimum deductibles and maximum out-of-pocket expenses.

Generally, under section 223(c)(2)(A), an HDHP may not provide benefits for any year until the minimum deductible for that year is satisfied. However, section 223(c)(2)(C) provides that “[a] plan shall not fail to be treated as a high deductible health plan by reason of failing to have a deductible for preventive care (within the meaning of section 1871 of the Social Security Act, except as otherwise provided by the Secretary).”^[2] Therefore, an HDHP may provide preventive care benefits as defined for purposes of section 223 without a deductible, or with a deductible below the minimum annual deductible otherwise required by section 223(c)(2)(A) of the Code. To be a preventive care benefit as defined for purposes of section 223, the benefit must either be described as preventive care for purposes of the SSA or be determined to be preventive care in guidance issued by the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS).

Notice 2004–23 (2004–15 I.R.B. 725) and Q&As 26 and 27 of Notice 2004–50 (2004–33 I.R.B. 196) provide guidance issued by the Treasury Department and the IRS regarding preventive care benefits that an HDHP may provide without satisfying the minimum deductible requirement of section 223(c)(2)(A). Notice 2004–23 clarifies that preventive care generally does not include any service or benefit intended to treat an existing illness, injury, or condition.

Notice 2004–23 also explains that state law requirements do not determine whether health care constitutes preventive care under section 223(c)(2)(C). State insurance laws often require health insurance policies and similar arrangements subject to state regulation to provide certain health care benefits without regard to a deductible or on terms no less favorable than other care provided by the health insurance policy or arrangement. However, the determination whether a health care benefit that is required by state law to be provided by an HDHP without regard to a deductible is “preventive” for purposes of the exception for preventive care under section 223(c)(2)(C) is based on the standards set forth in guidance issued by the Treasury Department and the IRS, rather than on how that care is characterized by state law.

Notice 2004–23 further indicates that the Treasury Department and the IRS are considering the appropriate standard for determining preventive care under section 223(c)(2)(C) and, in particular, whether any benefit or service should be added to the list of preventive care benefits and services set forth in Notice 2004–23 or other guidance.

Notice 2004–50, Q&A 27, provides that drugs or medications are preventive care when taken by a person who has developed risk factors for a disease that has not manifested itself or become clinically apparent, or to prevent the reoccurrence of a disease from which a person has recovered.

Section 1001 of the Patient Protection and Affordable Care Act, Pub. L. No. 111–148, 124 Stat. 119 (2010) (Affordable Care Act), added section 2713 to the Public Health Service Act (PHS Act) requiring non-grandfathered group health plans and health insurance issuers offering group and individual health insurance coverage to provide benefits for certain preventive health services without imposing cost-sharing requirements.^[3] The Affordable Care Act also added section 715(a)(1) to the Employee Retirement Income Security Act of 1974 (ERISA) and section 9815(a)(1) to the Code to incorporate the provisions of part A of title XXVII of the PHS Act, including section 2713 of the PHS Act, into ERISA and the Code. Guidance under section 2713 of the PHS Act is published jointly by the Treasury Department and the Departments of Labor and Health and Human Services.

Under section 2713(a)(1) of the PHS Act, evidence-based items or services constitute preventive health services if they have in effect a rating of A or B in the current recommendations of the United States Preventive Services Task Force (USPSTF) with respect to the individual involved. Also, preventive health services under section 2713(a)(4) of the PHS Act include, “with respect to women, such additional preventive care and screenings not described in paragraph (1) [concerning the USPSTF A or B rated recommendations] as provided for in comprehensive guidelines supported by the Health Resources and Services Administration” (HRSA). HRSA guidelines generally provide for coverage of all Food and Drug Administration approved contraceptive methods, sterilization procedures, and patient education and counseling for all women with reproductive capacity. The guidelines, however, do not provide for coverage of benefits or services relating to a man’s reproductive capacity, such as vasectomies and condoms. (78 FR 8456 (Feb. 6, 2013) at 8458 n. 3.)

Notice 2013–57 (2013–40 I.R.B. 293) provides that any item that is a preventive service under section 2713 of the PHS Act will also be treated as preventive care under section 223(c)(2)(C) of the Code.

The Treasury Department and the IRS are aware that several states have recently adopted laws that require certain health insurance policies and arrangements to provide benefits for male sterilization or male contraceptives without cost sharing.^[4] Some individuals in those states are participants or beneficiaries in insured health plans or other arrangements subject to the state’s insurance laws. Certain stakeholders have asked the Treasury Department and the IRS whether benefits for male sterilization or male contraceptives constitute preventive care for purposes of section 223(c)(2)(C).

Under section 223(c)(2)(C), “preventive care” means (1) preventive care within the meaning of section 1871 of the SSA, and (2) preventive care as otherwise provided for by the Treasury Department and the IRS. Benefits for male sterilization or male contraceptives are not preventive care under the SSA, and no applicable guidance issued by the Treasury Department and the IRS provides for the treatment of these benefits as preventive care within the meaning of section 223(c)(2)(C). Accordingly, under current guidance, a health plan that provides benefits for male sterilization or male contraceptives before satisfying the minimum deductible for an HDHP under section 223(c)(2)(A) does not constitute an HDHP, regardless of whether the coverage of such benefits is required by state law. An individual who is not covered by an HDHP with respect to a month is not an eligible individual under section 223(c)(1) and, consequently, may not deduct contributions to an HSA for that month. Similarly, HSA contributions made by an employer on behalf of the individual are not excludible from income and wages.

The Treasury Department and the IRS are aware that certain states require benefits for male sterilization or male contraceptives to be provided without a deductible, and that individuals have enrolled in health insurance policies and other arrangements that otherwise would qualify as HDHPs with the understanding that coverage for male sterilization or male contraceptives without a deductible did not disqualify the policies or arrangements from being HDHPs. The Treasury Department and IRS also understand that certain states may wish to change their laws that require benefits for male sterilization or male contraceptives to be provided without a deductible in response to this notice, but may be unable to do so in 2018 because of limitations on their legislative calendars or for other reasons. Until these states are able to change their laws, residents of these states may be unable to purchase health insurance coverage that qualifies as an HDHP and would be unable to deduct contributions to an HSA.

Accordingly, this notice provides transition relief for periods before 2020 (including periods before the issuance of this notice), to individuals who are, have been, or become participants in or beneficiaries of a health insurance policy or arrangement that provides benefits for male sterilization or male contraceptives without a deductible, or with a deductible below the minimum deductible for an HDHP. For these periods, an individual will not be treated as failing to qualify as an eligible individual under section 223(c)(1) merely because the individual is covered by a health insurance policy or arrangement that fails to qualify as an HDHP under section 223(c)(2) solely because it provides (or provided) coverage for male sterilization or male contraceptives without a deductible, or with a deductible below the minimum deductible for an HDHP.

The Treasury Department and the IRS continue to consider ways to expand the use and flexibility of HSAs and HDHPs consistent with the provisions of section 223. Accordingly, the Treasury Department and the IRS request comments on the appropriate standards for preventive care under section 223(c)(2)(C) (in particular, the appropriate standards for differentiating between benefits and services that would be considered preventive care and those that would not be considered preventive care) and other issues related to the provision of preventive care under an HDHP.

Comments should include a reference to Notice 2018–12. Send submissions to CC:PA:LPD:PR (Notice 2018–12), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (Notice 2018–12), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC 20224, or sent electronically, via the following e-mail address: Notice.comments@irscounsel.treas.gov. Please include “Notice 2018–12” in the subject line of any electronic communication. All material submitted will be available for public inspection and copying.

The principal authors of this notice are Karen Levin and Janet Laufer of the Office of Associate Chief Counsel (Tax Exempt and Governmental Entities), though other Treasury Department and IRS officials participated in its development. For further information on the provisions of this notice, contact Karen Levin or Janet Laufer at (202) 317-5500 (not a toll-free number).

This notice announces that the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) intend to issue regulations providing guidance on the application of section 1061 of the Internal Revenue Code as enacted by “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” Public Law 115–97 on December 22, 2017. This notice further announces that the Treasury Department and the IRS intend that those regulations will provide that the term “corporation” for purposes of section 1061(c)(4)(A) does not include an S corporation.

Section 1061(a) provides in general that if one or more applicable partnership interests are held by a taxpayer at any time during the taxable year, the excess (if any) of (1) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year, over (2) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year computed by applying paragraphs (3) and (4) of section 1222 by substituting “3 years” for “1 year,” shall be treated as short-term capital gain, notwithstanding section 83 or any election in effect under section 83(b).

Section 1061(c)(1) generally defines the term “applicable partnership interest” as meaning any interest in a partnership which, directly or indirectly, is transferred to (or is held by) the taxpayer in connection with the performance of substantial services by the taxpayer, or any other related person, in any applicable trade or business.

Section 1061(c)(4)(A) provides that the term “applicable partnership interest” shall not include any interest in a partnership directly or indirectly held by a corporation.

Section 1361(a)(1) provides in general that the term “S corporation” means, with respect to any taxable year, a small business corporation for which an election under § 1362(a) is in effect for such year.

Section 1361(a)(2) provides in general that the term “C corporation” means, with respect to any taxable year, a corporation which is not an S corporation for such year.

Section 1361(b)(1) defines a “small business corporation” as a domestic corporation which is not an ineligible corporation and which does not — (A) have more than 100 shareholders, (B) have as a shareholder a person (other than an estate, a trust described in section 1361(c)(2), or an organization described in section 1361(c)(6)) who is not an individual, (C) have a nonresident alien as a shareholder, and (D) have more than 1 class of stock.

The regulations will provide that the term “corporation” in section 1061(c)(4)(A) does not include an S corporation.

Section 1061 is effective for taxable years beginning after December 31, 2017. The Treasury Department and the IRS intend to provide that regulations implementing section 3 of this notice will be effective for taxable years beginning after December 31, 2017.

The principal authors of this notice are Faith P. Colson and Wendy L. Kribell of the Office of the Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this notice contact Faith P. Colson or Wendy L. Kribell on 202-317-6850 (not a toll-free number).

Notice 2017–56, 2017–43 I.R.B. 365, provides relief under section 937(a) of the Internal Revenue Code for individuals who may otherwise lose their status as a “bona fide resident” of the Commonwealth of Puerto Rico or the United States Virgin Islands (collectively, the “impacted U.S. territories”) under section 937(a) as a result of the unexpected and prolonged dislocation caused by Hurricane Irma and Hurricane Maria, absent an extension of the 14-day period contained in § 1.937–1(c)(3)(i)(C)(1). With respect to the impacted U.S. territories, Notice 2017–56 extends the 14-day period to 117 days, effective beginning September 6, 2017, and ending December 31, 2017. This Notice provides additional relief to individuals who may otherwise lose their status as a “bona fide resident” of an impacted U.S. territory because of the continued dislocation caused by Hurricane Irma and Hurricane Maria.

With respect to the impacted U.S. territories, the grant of relief in Notice 2017–56 is extended to 268 days, effective beginning September 6, 2017, and ending May 31, 2018.

Notice 2017–56, 2017–43 I.R.B. 365, is modified.

The principal author of this notice is Alan S. Williams of the Office of Associate Chief Counsel (International). For further information regarding this Notice, contact Mr. Williams at (202) 317-6941 (not a toll-free number).

This notice announces that the Internal Revenue Service (IRS) will expand the list of jurisdictions that do not issue taxpayer identification numbers to their residents, described in section IV.B.3.ii of Notice 2017–46, 2017–41 I.R.B. 275, to include jurisdictions that make a request to the U.S. competent authority to be included on such list. The Department of the Treasury (Treasury Department) and the IRS intend to amend § 1.1441–1T(e)(2)(ii)(B) to incorporate the guidance described in this notice.

On January 6, 2017, the Treasury Department and the IRS published temporary regulations under chapter 3 of the Internal Revenue Code (T.D. 9808, 82 F.R. 2046) (temporary regulations). Section 1.1441–1T(e)(2)(ii)(B) of the temporary regulations provides that, beginning January 1, 2017, a beneficial owner withholding certificate provided to document an account maintained at a U.S. branch or office of a withholding agent that is a financial institution is required to contain the taxpayer identification number issued by the account holder’s jurisdiction of tax residence (Foreign TIN) in order for the withholding agent to treat the withholding certificate as valid. Section 1.1441–1T(e)(2)(ii)(B) further provides that for withholding certificates associated with payments made on or after January 1, 2018, an account holder that does not provide a Foreign TIN must provide a reasonable explanation for its absence in order for the withholding certificate not to be considered invalid.

On September 25, 2017, the Treasury Department and the IRS released Notice 2017–46, which provides guidance modifying the requirements of § 1.1441–1T(e)(2)(ii)(B) for withholding agents to obtain and report Foreign TINs of their account holders. Among other things, Notice 2017–46 extends the date on which the requirement to obtain Foreign TINs takes effect to January 1, 2018; provides transitional rules for withholding agents obtaining a Foreign TIN for an account holder documented with an otherwise valid Form W-8 that was signed before January 1, 2018; and provides exceptions to obtaining Foreign TINs for certain categories of account holders. In particular, Notice 2017–46 provides that under regulations to be published at a later date, withholding agents will not be required to obtain a Foreign TIN (or a reasonable explanation for why an account holder has not been issued a Foreign TIN) for an account held by a resident of a jurisdiction that has been identified by the IRS on a list of jurisdictions that do not issue Foreign TINs to their residents (No TIN list). Notice 2017–46 identifies three such jurisdictions, and provides that a list of all such jurisdictions will be made available at www.irs.gov/FATCA and will be updated as necessary. In December 2017, the No TIN list was posted by the IRS and is available at https://www.irs.gov/businesses/corporations/list-of-jurisdictions-that-do-not-issue-foreign-tins.

Since the release of Notice 2017–46, some jurisdictions with laws that restrict the collection or disclosure of the Foreign TINs of their residents have requested that their residents not be required to provide Foreign TINs to withholding agents for purposes of § 1.1441–1T(e)(2)(ii)(B). In response to these requests, the Treasury Department and the IRS have decided to expand the No TIN list to include jurisdictions that request to be on the list, even if the jurisdictions issue Foreign TINs to individuals or entities resident in such jurisdictions. To request to be added to the No TIN list, a jurisdiction’s competent authority should contact the U.S. competent authority. As of the date of this notice, the following jurisdiction will be included on the No TIN list:

Australia

The Treasury Department and the IRS intend to amend § 1.1441–1T(e)(2)(ii)(B) to provide that withholding agents are not required to collect or report Foreign TINs of residents in the jurisdictions on the No TIN list, including the jurisdiction identified above.

Before the issuance of the amendment to the temporary regulations described in section III of this notice, taxpayers may rely on the provisions of this notice regarding the content of the amendment and the inclusion of Australia (and any jurisdictions subsequently included) on the No TIN list.

This notice supplements Notice 2017–46.

The principal author of this notice is Charles Rioux of the Office of Associate Chief Counsel (International). For further information regarding this notice, contact Charles Rioux at (202) 317-4992 (not a toll-free number).