On December 23, 2010, the Internal Revenue Service issued Notice 2011-2, providing long-awaited guidance on the application of Internal Revenue Code (Code) section 162(m)(6) as added by the Patient Protection and Affordable Care Act (PPACA). The guidance provides that:
-The section 162(m)(6) deduction limitation will apply to deferred amounts attributable to services performed prior to 2013 only if an employer is a covered health insurance provider in the year that the services were performed and the year that the compensation paid for the services is otherwise deductible by the employer;
-Under a new de minimis rule, an employer will not be treated as a covered health insurance provider subject to the section 162(m)(6) deferred deduction limitation in any year prior to 2013 if the premiums the employer receives for providing health insurance coverage are less than 2% of the employer’s gross revenues for that taxable year;
-An independent contractor will not be considered an applicable individual for purposes of section 162(m)(6) if a deferred compensation arrangement for that individual would not be subject to Code section 409A; and
-Premiums received under an indemnity reinsurance contract will not be considered in determining whether an employer is subject to the deduction limitation of section 162(m)(6).
The Treasury Department and the IRS have also requested comments on the application of section 162(m)(6). The deadline for comments is March 23, 2011.
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