Section 501(c)(29), added to the Code by section 1322(h)(1) of the Affordable Care Act, provides for the exemption of qualified nonprofit health insurance issuers (QNHIIs) that have received a loan or grant under the Centers for Medicare and Medicaid Services (CMS) CO-OP program for periods that they meet both the requirements of section 1322 of the Affordable Care Act and of any loan agreement with CMS. The CO-OP program provides loans and repayable grants to foster the creation of member governed QNHIIs that will operate with a strong consumer focus and offer qualified health insurance plans.
Notice 2011-23 discussed requirements for tax exemption for QNHIIs described in new Internal Revenue Code section 501(c)(29). The Notice provides guidance on the annual filing requirement for organizations that intend to apply for recognition of section 501(c)(29) status. Revenue Procedure 2015-17 and Treas. Reg. section 1.501(c)(29)-1 sets out the procedures for issuing determination letters and rulings on the exempt status of QNHIIs and provides guidance on the effective date of exempt status.
General Requirements for Exemption under 501(c)(29) and Annual Filing Requirement
In general, section 501(c) (29) applies to certain organizations receiving loans or repayable grants under the CO-OP program. An organization will qualify for exemption under section 501(c)(29) only if:
- The organization has received a loan or a repayable grant under the CO-OP program and is in compliance with all requirements of the CO-OP program and any agreement with CMS;
- The organization has applied for recognition of exemption;
- No part of the organization’s net earnings inures to the benefit of any private shareholder or individual, except that the organization is required by section 1322(c)(4) of the Affordable Care Act to use its profits to lower premiums, improve benefits or improve the quality of health care delivered to its members;
- No substantial part of the organization’s activities involves attempts to influence legislation; and
- The organization does not participate or intervene in political campaigns.
See Revenue Procedure 2015-17 for complete instructions for filing exemption applications.
Additional Guidance for Prospective 501(c)(29) Organizations
An organization claiming exempt status under section 501(c)(29) that intends to file an application for recognition of exemption should begin filing Form 990, Return of Organization Exempt from Income Tax, and indicate on its return that it has not yet received a determination letter. In addition to the general information required on Form 990, these organizations must report certain information regarding required reserves.