The IRS and Treasury released final regulations authorizing the IRS to prescribe procedures under which a qualified nonprofit health insurance issuer (QNHII) can be recognized as exempt under Section 501(c)(29). Pursuant to the Patient Protection and Affordable Care Act (ACA), the Centers for Medicare and Medicaid Services (CMS) have established a program to foster the development of QNHIIs that will offer health insurance plans to individuals and small groups.  CMS will offer loans to organizations applying to be QNHIIs.

Section 501(c)(29)(A) provides that QNHIIs may be recognized as exempt from taxation under Section 501(a).  A QNHII may be tax-exempt only if it complies with the requirements of ACA and the terms of its loans under ACA.  Section 501(c)(29)(B) imposes four additional requirements: (1) a QNHII must apply for exemption; (2) no part of the earnings of a QNHII may inure to any private shareholder or individual; (3) no substantial part of the QNHII’s activities may be lobbying; and (4) QNHIIs are banned from intervening in political campaigns.

These final regulations adopt without substantive change proposed regulations issued on February 6, 2012.