Rp 2004-12

fined in section 106(c)(2)), or under HRAs
that are treated as employer-provided coverage under accident or health plans for
purposes of section 106. This amendment
is effective for payments made after December 31, 2002.
Pursuant to section 7805(b)(8), the
Form 1099 requirement described in Rev.
Rul. 2003–43 will be applied without
retroactive effect for payments made under FSAs and HRAs prior to January 1,
2003. This action is taken to assure employers and third party administrators that
FSA and HRA payments for medical care
will not be subject to information reporting
prior to the effective date of the amendment to section 6041 in the Medicare Act.
The principal author of this notice is
Nancy Rose of the Office of Associate
Chief Counsel (Procedure and Administration), Administrative Provisions and Judicial Practice Division. For further information regarding this notice, contact
Ms. Rose at (202) 622–4910 (not a tollfree call).

Section 35.—Health Insurance
Costs of Eligible Individuals
Rev. Proc. 2004–12
SECTION 1. PURPOSE
This revenue procedure provides guidance on how a state elects a health program to be qualified health insurance for
purposes of the health coverage tax credit
(HCTC) under section 35 of the Internal
Revenue Code.
SECTION 2. BACKGROUND
.01 On August 6, 2002, President Bush
signed into law the Trade Act of 2002 (“the
Act”), Pub. L. 107–210, 116 Stat. 933
(2002). Title II of the Act contains provisions that make assistance available to certain individuals participating in the Trade
Adjustment Assistance program (TAA) or
receiving payments from the Pension Benefit Guaranty Corporation (PBGC), to enable them to purchase health insurance.
The primary mechanism for such assistance is a federal tax credit that is equal to
65 percent of the amount paid by the eligi-

March 1, 2004

ble individual for coverage for the individual and qualifying family members under
qualified health insurance. The health coverage tax credit became available on December 1, 2002, and is claimed on the eligible individual’s income tax return. Beginning August 1, 2003, the HCTC is also
available on a monthly basis as the premium is paid. Under the advance HCTC
program, the government’s share — 65
percent of the premium amount paid by the
individual — is combined with the eligible
individual’s payment of the other 35 percent and paid on a monthly basis, in general to the qualified health plan in which
the individual has enrolled.
.02 There are two basic categories of
individuals who may be eligible for the
HCTC:
(1) TAA recipients (as described in section 2.03 of this revenue procedure), and
(2) PBGC pension recipients who have
attained age 55 but who do not have Medicare coverage (as described in section 2.04
of this revenue procedure).
.03 A TAA recipient is any individual who is receiving a trade readjustment
allowance under the Trade Act of 1974
for any day of a month, or any individual who would be eligible for such an
allowance except that the individual has
not exhausted the individual’s regular
unemployment insurance benefits.
In
addition, for purposes of this revenue procedure, any individual receiving benefits
under the alternative trade adjustment
assistance program, established under
§ 246 of the Trade Act of 1974, 19 U.S.C.
§§ 2271–2275 (2003), is also a TAA recipient. All TAA recipients remain eligible
for the HCTC (and thus are still considered TAA recipients) for one month after
the end of the month that their eligibility
for TAA ceases.
.04 A PBGC pension recipient is a person who is receiving a benefit payment
from the PBGC for a month and who has
attained age 55 (but who is not entitled to
Medicare) on the first day of the month.
.05 There are ten categories of health
insurance that may be qualified coverage
for purposes of the HCTC:
(1) COBRA coverage: Coverage under a COBRA continuation provision (under § 4980B of the Code; part 6 of subtitle B of title I of the Employee Retirement Income Security Act of 1974, 29
U.S.C. §§ 1161–1168 (2003); or title XXII

528

of the Public Health Service Act, 42 U.S.C.
§§ 300bb–1-300bb–8 (2003));
(2) State-based continuation coverage:
Coverage under a state law that requires
continuation coverage;
(3) High risk pool: Coverage offered
through a qualified state high risk pool
(as defined in section 2744(c)(2) of the
Public Health Service Act, 42 U.S.C.
§ 300gg–44(c)(2) (2003));
(4) State employees’ health plan: Coverage under a health insurance program offered for state employees;
(5) Comparable state employees’ health
plan: Coverage under a state-based health
insurance program that is comparable to
the health insurance program offered for
state employees;
(6) State arrangement: An arrangement
to offer coverage to HCTC eligible individuals entered into by a state with —
(a) an issuer of health insurance coverage;
(b) an administrator;
(c) an employer; or
(d) a group health plan (including a
multiemployer plan);
(7) Private purchasing pool: Coverage
offered through a state arrangement with
a private sector health care coverage purchasing pool;
(8) Other state plans: Coverage under
a state-operated health plan that does not
receive any federal financial assistance;
(9) Spousal coverage: Coverage under a group health plan that is available
through the employment of the HCTC eligible individual’s spouse (but only if the
spouse’s employer contributes less than 50
percent of the total cost of coverage for the
spouse, the eligible individual, and any dependents); and
(10) Individual health insurance: Coverage under individual health insurance
if the HCTC eligible individual was covered under the insurance during the entire
30-day period that ended on the date that
the individual became separated from the
employment that qualifies the individual
as a TAA or PBGC recipient.
.06 Coverage described in paragraphs
(1), (9), and (10) of section 2.05 of this
revenue procedure — COBRA coverage,
spousal coverage, and individual health in-

2004-9 I.R.B.

surance — satisfies the requirements for
“qualified health insurance” for all HCTC
eligible individuals without any action required by any state.
.07 Coverage described in paragraphs
(2) through (8) of section 2.05 of this revenue procedure (state-based continuation
coverage or other state-based plans) satisfies the requirements for qualified health
insurance only if the state elects to have
such coverage treated as qualified health
insurance and the coverage satisfies the
following requirements:
(1) Qualifying individuals (as defined
in section 2.08 of this revenue procedure)
must be guaranteed enrollment regardless
of their medical status and must be permitted to remain enrolled so long as they pay
the premium;
(2) No preexisting condition restriction
may be imposed on qualifying individuals;
(3) The premium charged for a qualifying individual may not be greater than the
premium for a similarly situated individual
who is not a qualifying individual; and
(4) Benefits for qualifying individuals
are the same as (or substantially similar to)
the benefits provided to similarly situated
individuals who are not qualifying individuals.
.08 “Qualifying individuals” are HCTC
eligible individuals who have at least 3
months of “creditable coverage” (within
the meaning of § 9801 of the Code) prior to
seeking enrollment in coverage described
in paragraphs (2) through (8) of section
2.05 of this revenue procedure.
SECTION 3. PROCEDURE FOR
ELECTING TREATMENT AS
QUALIFIED HEALTH INSURANCE
.01 This section sets forth the procedures that a state must follow in order
to elect to have coverage described in
paragraphs (2) through (8) of section 2.05
of this revenue procedure (state-based
continuation coverage or coverage under
other state-based plans) treated as qualified health insurance. As described in
section 2.07 of this revenue procedure,
such coverage is not qualified health insurance unless such an election is made.
.02 To make an election, a state must
provide a letter that contains the following
information:
(1) Identifies and is signed by the governor or other state official responsible for

2004-9 I.R.B.

implementing this decision, including address and telephone number;
(2) Specifies the category or categories
of health coverage chosen by the state
(from among the categories described in
paragraphs (2) through (8) of section 2.05
of this revenue procedure (state-based
continuation coverage or other state-based
plans));
(3) Provides the name and policy form
number or other unique identifier for each
qualifying plan in each category, and provides a name and contact number for the
plan administrator or insurance carrier official who can provide additional information, if necessary. This information is required only for coverage described in paragraphs (3) through (8) of section 2.05 of
this revenue procedure; it need not be provided for state-based continuation coverage described in paragraph (2) of section
2.05 of this revenue procedure; and
(4) Certifies that the four requirements
described in section 2.07 of this revenue
procedure are met for each plan being
elected under each category.
.03 The letter must be sent to:

The collection of information in this
revenue procedure is in section 3. This information will be used to determine if a
state health plan is qualified health insurance for purposes of the HCTC. This information collection is voluntary. If a state
makes an election, eligible residents of the
state may be able to more easily find qualified health insurance for which they can
claim the HCTC.
The likely respondents are states. The
estimated total annual reporting burden is
26 hours. The estimated annual burden per
respondent varies from 1/4 hour to 1 hour,
depending on individual circumstances,
with an estimated average of 1/2 hour. The
estimated total number of respondents is
51. The estimated frequency of responses
is one-time.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
DRAFTING INFORMATION

Director, Health Coverage Tax Credit
Internal Revenue Service
1111 Constitution Ave., N.W.
W:HCTC/CNN 750
Washington, D.C. 20224
SECTION 4. EFFECTIVE DATE
This revenue procedure is effective
March 1, 2004. Elections made before the
effective date of this revenue procedure
continue to be effective, including those
sent to a different address; they do not
need to be renewed.
SECTION 5. PAPERWORK
REDUCTION ACT

The principal author of this revenue
procedure is Shoshanna Tanner of the Office of Division Counsel/Associate Chief
Counsel (Tax Exempt and Government
Entities). For further information regarding this revenue procedure, contact
Mr. Stephen Finan at (202) 622–1446
or Ms. Tanner at (202) 622–6080 (not
toll-free numbers).
26 CFR 601.201: Rulings and determination letters.
(Also, Part I, §§ 25, 103, 143.)

Rev. Proc. 2004–18
SECTION 1. PURPOSE

The collection of information contained in this revenue procedure has been
reviewed and approved by the Office
of Management and Budget in accordance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1875.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.

529

This revenue procedure provides issuers of qualified mortgage bonds, as
defined in section 143(a) of the Internal
Revenue Code, and issuers of mortgage
credit certificates, as defined in section
25(c), with (1) the nationwide average
purchase price for residences located in
the United States, and (2) average area
purchase price safe harbors for residences
located in statistical areas in each state,
the District of Columbia, Puerto Rico,

March 1, 2004