IRS Issues Temporary Rule on CO-OP Tax-Exempt Status

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Effective yesterday, the Internal Revenue Service has published a temporary rule (pdf) on the tax-exempt status of organizations looking to apply and participate in CMS' Consumer Operated and Oriented Plan program.

The CO-OP program, part of the Patient Protection and Affordable Care Act, will allow consumer-governed entities, healthcare systems and other healthcare providers to create and develop health plans for individuals and small businesses to compete directly with traditional health insurers. The Department of Health and Human Services issued the final rule on the CO-OP program in December.


The IRS outlined regulations for "qualified non-profit health insurance issuers" that will participate in the CO-OP program, receive loans from CMS and seek exemption from the federal income tax. Main points from the temporary rule include the following:

•    A CO-OP that has received a loan or grant under the program may be considered a tax-exempt organization, but this only lasts while the organization is in compliance with all rules of the CO-OP program.

•    A CO-OP must give notice to the Secretary of the Treasury of the United States that it is applying as a tax-exempt organization.

•    No part of the CO-OP's net earnings may benefit private shareholders or individuals. However, profits may be used to lower premiums, improve benefits or enhance the organization as a whole.

•    A CO-OP may not lobby to influence legislation.

•    A CO-OP cannot participate or intervene in any political campaign.

•    A CO-OP must include a copy of both the Notice of Award issued by CMS as well as the Loan Agreement in their application for tax exemption.

•    The IRS will recognize CO-OPs that have received a loan or grant under the program as tax-exempt on either the date the CO-OP was formed or March 23, 2010 — whichever is later.

The IRS is accepting comments through April 9 (pdf).

Related Issues on CO-OPs:

HHS Issues Final Rule for CO-OP Program

Connecticut Physicians to Form Health Insurance CO-OP

AHA Comments on Co-Op Proposed Rule

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